Derivative Claims

If you are a shareholder in a company and you feel like the company has the benefit of a claim that the directors will not pursue because the claim is directed at one or more of the directors and/or third party within which such a director has an interest, it may be possible for you to bring the claim on behalf of the company, i.e. ‘derivatively’.

Derivative claims are not common - shareholders generally will not choose to launch court proceedings for the benefit of a company, as opposed to them personally, and procedurally they aren’t straightforward claims to bring - but these claims can be brought in respect of, actual or anticipated acts or omissions involving negligence, default, breach of duty, or breach of trust on the part of a director.

The court must approve any claim brought by a shareholder on behalf of a company in advance of it progressing, in particular, to assure itself that the claim is being brought properly and not in the pursuit of personal interests. Often the potential of a derivative action arises when the directors are in dispute generally. However, once permission is obtained, the claim will proceed as any other claim brought by the company would.

If you are a shareholder of a company and feel that you might wish to commence a derivative claim, JMW’s experienced solicitors can help you. To discuss a potential derivative claim, simply call us on 0345 872 6666, or complete our online enquiry form to request a call back at a convenient time.

How JMW Can Help

The partner-led team at JMW has a successful track record of helping shareholders bring derivative claims on behalf of a company. We pride ourselves on providing cost-effective and efficient services, ensuring that a difficult situation is resolved without unnecessary delays.

What is a Derivative Claim?

A derivative claim is a claim brought by a shareholder on behalf of a company in relation to actual or anticipated acts or omissions involving negligence, default, breach of duty, or breach of trust on the part of a director. The claim is brought for the benefit of the company as a director owes duties to the company.

When Can a Derivative Claim Be Brought?

A derivative claim can be presented by the shareholders of a company on the company’s behalf if a loss has been suffered, or would otherwise be suffered, as a result of a director’s negligence, default, breach of duty, or breach of trust. The claim may be against the director or another person (or both).

However, there are tough barriers to navigate in bringing a derivative claim. In order to bring a derivative claim, the court must be convinced to allow the claim to proceed. Courts will consider a number of factors when deciding whether to grant permission to commence a derivative claim but, in essence, the court is to decide whether the claim is in the company’s best interest.

The court can refuse a claim, for example, if either of the following is satisfied:

1. A person acting in accordance with the general duty to promote the success of the company would not seek to continue the claim; or
2. The act or omission giving rise to the derivative claim has been authorised or ratified by the company

Our solicitors will advise you on whether a derivative claim is a viable option to pursue.

What are the Remedies of a Derivative Claim?

There are a wide range of remedies available under a derivative claim, which are similar to that of an ordinary civil claim. These include:

• An injunction preventing prospective or further breaches
• Setting aside a particular transaction
• An order for restitution or requiring the director to account for any profits they have made
• Restoration of company property held by the director
• Damages for any losses the company has sustained

If a director has breached their duty, this may lead to them being disqualified as a director under the Company Directors Disqualification Act 1986, and can also result in imprisonment.