Derivative Action
The shareholder must demonstrate standing to bring a derivative action on behalf of the company, asserting that the case falls within exceptions to the rule in Foss v Harbottle. Typically, this requires showing a “fraud on the minority” or a refusal by the controlling shareholders to address wrongs against the company. The action is brought in the company’s name, and any recovery benefits the company, though costs may be indemnified if the court grants prior consent for the proceedings.
Shareholders are usually required to convene a general meeting to request that the company address the wrongdoing. However, this may be waived if such efforts would be futile, as in cases where the alleged wrongdoers control the majority vote. “Control” is assessed flexibly, considering the influence and apathy within the company structure.
To proceed, the shareholder must obtain court leave by showing a prima facie case, supported by evidence, legal opinion, and efforts to seek internal remedies. The court may set terms, require interim relief, or approve costs indemnification. The derivative action may also involve preliminary hearings to verify claims or member opinions.
Costs are generally borne by the company, given that the shareholder acts on its behalf, with successful claims recovering costs from the wrongdoer. Courts aim to balance justice with the principle of minimal interference in company management.
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