Derivative action - statutory provisions, Business Law and Ethics

Derivative action:

In Nurcombe v Nurcombe Lawton L J stated that a derivative action is a procedural device for enabling the court to do justice to a company controlled by miscreant directors or shareholders.  It is called "derivative" because the right to sue derives from that of the company.  In such a case the minority shareholders sue on behalf of themselves and all other shareholders except those who are defendants and may join the company as a defendant.The directors are usually the defendants.  Where the action is successful, the damages awarded belong to the company.

A derivative action is usually appropriate where the wrongdoers have voting control and therefore prevent the company from suing, as in Cork v Deeks or Alexander v Automatic Telephone Co (103).

Although the rule in Foss V Harbottle indicates the right of the majority of the company's members to pass resolutions on the company's behalf, it hedges that right with rules or exceptions which are also intended to protect the interests of minority members in appropriate situations.  But it should be noted that, in the process of protecting their perceived interests, the minority are also in fact, protecting the interests of the company itself since the company cannot protect itself in such situations.

Posted Date: 1/15/2013 3:03:55 AM | Location : United States







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