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Derivative Claims Solicitors
If you are a shareholder in a company and you believe the company has the benefit of a claim that the directors will not pursue, it may be possible for you to bring the claim on behalf of the company ‘derivatively’.
Authority to bring court proceedings on behalf of a company will generally lie in the hands of the directors. For obvious reasons, however, a malfeasant director is not likely to sanction court proceedings being brought against themselves in respect of their wrongdoing. The law has stepped in to enable shareholders to bring a claim on behalf of a company in such circumstances to ensure that directors remain accountable. This is known as a ‘derivative claim’.
Derivative claims can be high-risk options for directors or minority shareholders acting on behalf of a company, and it is vital to approach the legal process carefully. At JMW, our commercial disputes team offers practical advice and legal representation throughout the process of bringing a derivative claim so as to maximise your chances of success.
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 on 0345 872 6666, or complete our online enquiry form to request a call back at a convenient time.
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How JMW Can Help
At JMW, our commercial disputes solicitors have a wealth of experience in representing both individuals and organisations in legal action. Our guidance through the process of derivative action can maximise your chances of success by helping you to establish that your claim is in the best interests of the company.
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.
As experts in alternative dispute resolution, we can also help you to bring disputes involving shareholders or directors to a satisfactory close, whether alongside the process of bringing a derivative claim or as an alternative. Our team offers commercial and pragmatic advice that is designed to achieve your desired outcomes in the most straightforward manner possible.
Meet Our Team
JMW’s team provides expert guidance and support for businesses and shareholders pursuing derivative claims. We can help you to protect your company’s interests and achieve a fair resolution.
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 based upon the duties that a director owes the company.
How Do I Bring a Derivative Claim?
A derivative claim can be brought by a shareholder on behalf of the company against directors (and sometimes third parties) for wrongs done to the company by a director. The underlying principle is that the company itself is the proper claimant when it has suffered a loss as a consequence of a breach of duties owed to it, but if the directors who would normally decide whether to litigate are the ones alleged to be at fault, a shareholder may need to step in and apply to the court to pursue the claim in the company’s name.
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. Not all conduct giving rise to financial harm or losses for a company will give rise to a derivative claim but, where a director’s conduct amounts (or would amount) to negligence, default, breach of duty or breach of trust, a derivative claim can be a useful tool to hold the director to account.
Derivative claims are not common. Shareholders are generally more interested in the impact of any unlawful conduct on their shareholding (as opposed to the company itself) and will typically choose to pursue a claim on their own behalf instead (referred to as an unfair prejudice petition). However, commencing derivative proceedings can be a strong approach to dispute resolution and, in certain circumstances, may be the best approach for both a shareholder and the underlying business in the long run.
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 barriers to navigate in bringing a derivative claim. Unusually, the court will effectively vet the claim at the outset, as the court must approve a derivative claim in advance of it progressing. Through a two-stage process, the court will satisfy itself that the claim is being brought properly, or if not, refuse permission for the claim to continue.
The court will consider a number of factors when deciding whether to grant permission to proceed with a derivative claim, but in essence the court will decide whether the claim is in the company’s best interests. This involves a provisional assessment of the merits and whether the shareholder is acting in good faith.
The court can refuse a claim, for example, if either of the following criteria is satisfied:
- A person acting in accordance with the general duty to promote the success of the company would not seek to continue the claim; or
- The act or omission giving rise to the derivative claim has been authorised or ratified by the company
If permission is obtained, the claim will proceed as any other claim brought by the company would.
Our solicitors will advise you on whether a derivative claim is a viable option to pursue and, if so, help you navigate you through the court procedure. A shareholder bringing a derivative claim risks personal liability for the business's legal costs if the court’s permission is not obtained, so it is vital to understand all of the requirements and other factors involved before taking this step.
What Are the Remedies of a Derivative Claim?
There are a wide range of remedies available under a derivative claim, which are similar to those available for ordinary civil claims. 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 of a third party
- 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.
Talk to Us
If you are looking to pursue a derivative claim, it is important to seek advice from an experienced solicitor. Contact JMW Solicitors today by calling 0345 872 6666, or fill in our online enquiry form to request a call back.