Friday, 5 November 2010

UK: England and Wales: majority shareholder can bring derivative action in exceptional circumstances

Last month the High Court delivered its judgment in Cinematic Finance Ltd v Ryder and Others (Ch.D., 21 October 2010), in proceedings for permission to continue a derivative action under Part 11 of the Companies Act (2006). The judgment has not yet been published on BAILII but a summary has been provided on Lawtel (for those with a subscription). On the website a shorter summary for non-subscribers has been published - see here - from where the following extract is taken:

Whilst proceedings for derivative claims are now covered by the Companies Act 2006, the Act had not sought to establish a radical reversal of the long-standing principle that an action should be pursued by the company and not its shareholders. Although s261(4) gave the court power to allow a derivative claim, the discretion to do so would be exercised in accordance with the established principles. Although it could not be said that it would never be appropriate for a derivative claim to be brought by a majority shareholder in control of a company, permission to do so would be given only in very exceptional circumstances, and it was difficult to envisage what such exceptional circumstances might be! The claimant had contended at the outset that it was having difficulty in achieving access to the company books and records but had not disclosed, that it was in fact the company’s majority shareholder and so had complete control over them. The application was dismissed with costs on the indemnity basis".

The decision looks particularly interesting, not least because it provides a further example of the cautious approach so far taken by the courts with regard to the new regime.

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