Introduction
Company is a voluntary association of persons formed in order to do business that
have a distinct name and limited liability. A company is a juristic person having a
separate legal entity separate from its members, qualified of rights and responsibilities
of its own and endowed with the possible of perpetual succession. Whereas minority
shareholders can be defined as equity holder of a firm who does not have the voting
rights of the firm, that he or she owns below fifty percent ownership of the firm’s
equity capital.1
There is an arguable area in the Companies Act 20062, which is known as the
derivative claim. A derivative claim can be explain where an individual shareholders
looking for assistance on behalf of the company against the company’s directors. The
derivative claim requirement should meet the right balance in terms of making sure
the applicable remedies to minority shareholders that will not allow cumbersome
shareholders obstructing to carry on the business of the company.3
Under Part 114, Section ll provides a summary on the range and procedural skeleton
of the new statutory derivative claim. For shareholders who seek for litigation can rely
on the exception to the rule in Foss v Harbottle5, where he or she may bring a
statutory derivative claim under the procedures in Part 11 of the Company Act 2006.
Under this Part, a derivative claim is only available for actual or proposed act that
1
http://www.businessdictionary.com/definition/minority-shareholder.html accessed
on 10th December 2013
2
Company Act 2006, CA 2006
3
http://www.lawteacher.net/finance-law/essays/the-new-derivative-claim.php
accessed on 10th December 2013
4
CA 2006
5
(1843) 2 Hare 461
, involves negligence, breach of duty or breach of trust by a director. 6 This is a situation
where the claimant need to prove there is a breach amounted to “fraud on minority’.7
The rule in Foss v Harbottle stated that shareholders are separated from a company
where a company is a legal entity; and a company cannot function properly unless the
votes of the majority win. Here, there might be a risk to minority shareholders
because for minority shareholders in an unlisted company, there is no readily
available market. Even though there is a buyer to buy the shares, the price will be
depressed and there may be restriction not allowing them to transfer shares.8
In Section lll, it evaluate the new legislation by examining the fact where it is
intended for the management and failed to give encouragement for minority
shareholders who seek for aid under derivative claim. Whereas Section lV brings
conclusions.9
Moreover, when shareholders want to seek for litigation, there are many ways. Firstly,
an exception to the rule laid down in Foss v Harbottle, where a shareholder can now
bring a statutory derivative claim under the procedures in Part 11 of the CA 2006.
This does not replace the rule in Foss v Harbottle, but merely offers a statutory
procedure for a derivative claim.10
6
s260(3) CA 2006
7
Andrew Hicks, S.H.Goo, Cases and Materials on Company Law, (6th edn, OUP
2008)
8
Hicks (n 7)
9
http://www.lawteacher.net/finance-law/essays/the-new-derivative-claim.php
accessed on 10th December 2013
10
Hicks (n 7)
2
Company is a voluntary association of persons formed in order to do business that
have a distinct name and limited liability. A company is a juristic person having a
separate legal entity separate from its members, qualified of rights and responsibilities
of its own and endowed with the possible of perpetual succession. Whereas minority
shareholders can be defined as equity holder of a firm who does not have the voting
rights of the firm, that he or she owns below fifty percent ownership of the firm’s
equity capital.1
There is an arguable area in the Companies Act 20062, which is known as the
derivative claim. A derivative claim can be explain where an individual shareholders
looking for assistance on behalf of the company against the company’s directors. The
derivative claim requirement should meet the right balance in terms of making sure
the applicable remedies to minority shareholders that will not allow cumbersome
shareholders obstructing to carry on the business of the company.3
Under Part 114, Section ll provides a summary on the range and procedural skeleton
of the new statutory derivative claim. For shareholders who seek for litigation can rely
on the exception to the rule in Foss v Harbottle5, where he or she may bring a
statutory derivative claim under the procedures in Part 11 of the Company Act 2006.
Under this Part, a derivative claim is only available for actual or proposed act that
1
http://www.businessdictionary.com/definition/minority-shareholder.html accessed
on 10th December 2013
2
Company Act 2006, CA 2006
3
http://www.lawteacher.net/finance-law/essays/the-new-derivative-claim.php
accessed on 10th December 2013
4
CA 2006
5
(1843) 2 Hare 461
, involves negligence, breach of duty or breach of trust by a director. 6 This is a situation
where the claimant need to prove there is a breach amounted to “fraud on minority’.7
The rule in Foss v Harbottle stated that shareholders are separated from a company
where a company is a legal entity; and a company cannot function properly unless the
votes of the majority win. Here, there might be a risk to minority shareholders
because for minority shareholders in an unlisted company, there is no readily
available market. Even though there is a buyer to buy the shares, the price will be
depressed and there may be restriction not allowing them to transfer shares.8
In Section lll, it evaluate the new legislation by examining the fact where it is
intended for the management and failed to give encouragement for minority
shareholders who seek for aid under derivative claim. Whereas Section lV brings
conclusions.9
Moreover, when shareholders want to seek for litigation, there are many ways. Firstly,
an exception to the rule laid down in Foss v Harbottle, where a shareholder can now
bring a statutory derivative claim under the procedures in Part 11 of the CA 2006.
This does not replace the rule in Foss v Harbottle, but merely offers a statutory
procedure for a derivative claim.10
6
s260(3) CA 2006
7
Andrew Hicks, S.H.Goo, Cases and Materials on Company Law, (6th edn, OUP
2008)
8
Hicks (n 7)
9
http://www.lawteacher.net/finance-law/essays/the-new-derivative-claim.php
accessed on 10th December 2013
10
Hicks (n 7)
2
