A shareholder’s derivative action is a claim brought by a shareholder on behalf of a company to enforce the company’s rights, usually against directors or others alleged to have committed wrongs such as breach of duty, negligence or breach of trust. Any remedy (for example damages or an account of profits) belongs to the company, not the shareholder personally.In England and Wales and Northern Ireland, derivative claims are primarily governed by the Companies Act 2006 (ss.260–264), which sets out a statutory procedure and requires the court’s permission at a two‑stage test, including a prima facie assessment on the papers. Common law derivative actions survive only in very limited circumstances.In Scotland, derivative proceedings are also available under the Companies Act 2006, with Scottish procedural rules applying to permission and case management.In Ireland, shareholder derivative actions remain largely governed by common law principles, supplemented by the Companies Act 2014 (for example, oppression remedies may offer alternative routes).Derivative actions are exceptional remedies, tightly controlled by the courts, and typically used where wrongdoers are in control of the company and prevent it from suing in its own name.

Dispute Resolution analysis: The High Court held that the exclusion of a shareholder-director from the management of a small quasi-partnership company, coupled with the cessation of dividends and a switch to remuneration through directors’ salaries, constituted unfair prejudice under Section 994 of the Companies Act 2006. Although the petitioner had himself engaged in serious misconduct by covertly installing CCTV in the company’s offices, the court found that the majority shareholders had been seeking to remove him from the business well before that misconduct came to light and had used their powers to place economic pressure on him to sell his shares cheaply. The appropriate remedy was a compulsory purchase of the petitioners’ shares, with valuation to be conducted on a non-discounted basis and at the date of purchase rather than the date of exclusion.

Private Client analysis: The question of who is a ‘transferor’ or ‘quasi-transferor’ is key to the operation of the transfer of assets abroad regime (‘TOAA’). In this decision, the Supreme Court sheds light on the concept of ‘transferor’, concluding that the shareholders of a UK company which itself transferred assets to an offshore company are not transferors, or quasi-transferors, and cannot be caught by the charging provision in section 739 of the Income and Corporation Taxes Act 1988 (ICTA 1988) (since re-enacted, in substantially the same form, in section 720 of the Income Tax Act 2007). The judgment results in a narrower interpretation of the scope of the TOAA regime, compared with the HMRC interpretation. It was held that shareholders, even the majority ones, are not transferors in relation to a transfer made by the company. This is even the case if they are also directors. This gives welcome legal certainty and protection to companies’ shareholders when bona fide commercial transactions are effected through the company, although it must be noted that this judgement is fact specific. Written by James Quarmby, partner at Stephenson Harwood.

A shareholders' agreement creates personal obligations between individuals and do not bind the company or its members to provisions of the agreement.

Commercial analysis: In Kulkarni v Gwent Holdings Ltd, the court considered whether repudiatory breaches of a shareholders’ agreement by one shareholder were sufficient to trigger a clause in the shareholders’ agreement providing for deemed service of a transfer notice and, in turn, the acquisition by the innocent shareholder of the breaching shareholder’s shares. The court ultimately concluded that the breaches of the shareholders’ agreement were capable of being remedied for the purposes of the clause dealing with the transfer notice and that the persistent nature of the breaches did not mean they ceased to be remediable and were, in fact, remedied. Written by Katherine Harper, Knowledge & Innovation lawyer, and Alasdair McAlpine, associate at Goodwin Procter (UK) LLP

This Agreement is made on [insert date] Parties 1 [Insert name of company in which the shares are held] incorporated in England and Wales under number [insert company number] whose registered office is at [insert address], brief particulars of which are set out in Schedule 1 (Company), and 2 The several persons whose names and addresses are set out in Schedule 2 (each an Original Shareholder and, together, the Original Shareholders). [each of the Company and the Shareholders (including the Original Shareholders) being a Party and together the Company and the Shareholders are the Parties.] background The Shareholders are the sole shareholders of the Company and have agreed with the Company and each other to exercise their rights in relation to the Company in accordance with this Agreement. The parties agree: 1 Definitions and interpretation 1.1 In this Agreement, unless the context otherwise requires the following expressions have the following meanings: Annual Budget • means the annual operating budget adopted under clause 6.2.1; Articles • means the articles of association of the Company (as amended from time to time); Board • means the board of Directors from time to time; Business Day • means a day, other than a Saturday, Sunday or public holiday, on which

This Agreement is made on [date] parties 1 [insert name of company in which the shares are held] incorporated in England and Wales under number [insert company number] whose registered office is at [insert address], brief particulars of which are set out in Schedule 1 (Company), and 2 The several persons whose names and addresses are set out in Schedule 2 (each an Original Shareholder and together, the Original Shareholders). [each of the Company and the Shareholders being a Party and together the Company and the Shareholders (including the Original Shareholders) are the Parties.] background The Shareholders are the sole shareholders of the Company and have agreed with the Company and each other to exercise their rights in relation to the Company in accordance with this Agreement. The parties agree: 1 Definitions and interpretation 1.1 In this Agreement, unless the context otherwise requires the following expressions have the following meanings: Annual Budget • means the annual operating budget adopted under clause 6.2.1; Articles • means the articles of association of the Company (as amended from time to time); Board • means the board of Directors from time to time; Business Day • means a day, other than a Saturday, Sunday

A phrase referring to a number of rights held by shareholders in relation to general meetings under CA 2006, Pt 13. These include: (1) the right to require the directors to call a general meeting; (2) the right to require a resolution be put before a general meeting so convened; and (3) the right to require a resolution be put before an AGM.

This Practice Note aims to: • provide practical guidance to shareholders of a distressed/insolvent company • explain the position of shareholders in most types of corporate insolvency/restructuring situations • provide advice on what a shareholder can do to maximise their position if a company becomes distressed This Practice Note provides guidance to put shareholders in the best position possible when the company is in financial difficulties. While a company is operating normally, the interests of its creditors and shareholders are generally aligned. However, when a company is in financial difficulties there may be a divergence. When a company is financially distressed and formal insolvency proceedings become more likely, the directors’ duty to promote the company’s success pursuant to (ie to act in the interests of the members as a whole) is modified by the common law rule that the company’s interests are taken to include the interests of the company’s creditors as a whole. The period in which the directors’ duties shift from being primarily owed to shareholders

The CA 2006 merely provides that a share is a share in the company's share capital. A company's share capital comprises the number of shares issued by it to investors either on or after incorporation. Those investors then become the shareholders in the company. A shareholder’s shares are their personal property. By contrast, the assets of a company are owned by the company itself. Owning shares does not entitle a shareholder to any property rights in the company's assets.

References in the Code to shares, including when used in other expressions such as shareholders (but excluding equity share capital), include securities, and vice versa. In paragraph 3(a)(iii) and in the second paragraph of Section 3(b) of the Introduction to the Code, the securities referred to are only transferable securities carrying voting rights. In paragraphs 3(a)(i) and (ii) and in the first paragraph of Section 3(b) of the Introduction, the shares/securities referred to are only those shares/securities comprised in the company’s equity share capital (whether voting or non-voting) and other transferable securities carrying voting rights.

The Shares and Assets Valuations (SAV) team are a specialist area of HM Revenue and Customs (HMRC) who value the following for tax purposes, amongst other things: unquoted shares, intangible assets, foreign shares, foreign residential property, bloodstock and chattels (such as antiques, art and jewellery).