STATUTORY DERIVATIVE

Statutory Derivative Claim



Statutory Derivative Claim

Introduction

The study is related to the statutory derivative claim in context of United Kingdom. The given statement that is “statutory derivative claim has replaced the derivative action at common law and it is more easily accessible to share holders. There are concerns that there would be an increase of share holder litigation against directors because the two stage procedure cannot effectively deter share holders' frivolous claims against directors” is correct. The reason is that the statutory derivative claim is an action brought by a share holder based on a cause of action that the company has, rather than a cause of action belonging to the share holder. The common law allows a share holder to bring this action on behalf of the company in situations where the company does not take action because the wrongdoer controls the company and is able to prevent the company from taking any action. In addition to this, the new statutory derivative claim allows a share holder to sidestep the restrictions of the common law derivative action.

Discussion

The statutory derivative action provision in UK is significantly and substantially reformed within the last thirty years. Similarly the director's duties, the modes of enforcing corporate rights, and the share holders remedies were exhaustively overhauled. These reforms were heavily and predominantly influenced by the corporate law principles in UK, more particularly in the area of the minority share holder's derivative rights. The statutory derivative action permits a share holder to come to court and enforce a right vested in the corporation or to obtain a remedy against the company's directors, officers and controlling share holders for a breach of their fiduciary and legal duties owed both to the corporation and the minority share holders. It developed mainly from the underlying common law principle that the directors owe their duties to the corporation alone and not to any share holder. This in turn was derived from the partnership law.

Over the years, it has been recognized that the proper person to sue for a wrong is the victim, ipso facto, the proper plaintiff to ask for a relief based on a corporate wrong should be the corporation itself This larger than life rule known as “the proper plaintiff principle,” simply requires that where a wrong has been done to a corporation; only the corporation and not the individual share holders can take action to remedy the wrong. Another principle known as the internal management rule states that the will of the majority of the members of the corporation should generally prevail in the running of its business, and in effect if the majority does not want to take action on the alleged corporate wrong or breach of duty, then the issue is foreclosed, and where the wrong is rectifiable or capable of being regularized by the majority in accordance with the corporate constitution, the minority is precluded from suing on it.

The success of the corporation and the different players within it depends, to a large extent, ...