Thursday, 8 September 2011

UK: England and Wales: permission refused to continue derivative claim

The High Court gave judgment yesterday in Kleanthous v Paphitis [2011] EWHC 2287 (Ch) and refused permission to continue a derivative claim under Part 11 of the Companies Act (2006) in respect of alleged breaches of directors' duties. The decision provides a useful reminder that even where there may be an arguable case of breach of duty, it does not follow that permission will be granted because of the factors to which the court must have regard in determining whether to grant permission.

There is much else of interest in this decision, including, for example, discussion of whether the court must be satisfied that the claimant has a strong case in order for permission to continue to be granted. The trial judge thought not, referring to Stainer v Lee [2010] EWHC 1539 (Ch) and Wishart v Castlecroft Securities Ltd. [2009] CSIH 65, to support his view that there was no threshold test. Indeed, the factors which led him to decline permission - [a] opposition to the claim by a directors' committee formed to consider the claim in the light of professional advice, [b] the availability of relief under Section 994 and [c] the fact that much of the money that would be recovered from the directors would probably be returned to them as a distribution - were such that he would have declined permission even if he had been persuaded that the claim against the directors was a strong one.

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