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Company Law Reform Bill [HL] (121-127)


Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland

121

 

259     

Transactions under foreign law

   

For the purposes of this Part it is immaterial whether the law that (apart from

this Act) governs an arrangement or transaction is the law of the United

Kingdom, or a part of it, or not.

Part 11

5

Derivative claims and proceedings by members

Chapter 1

Derivative claims in England and Wales or Northern Ireland

260     

Derivative claims

(1)   

This Chapter applies to proceedings in England and Wales or Northern Ireland

10

by a member of a company—

(a)   

in respect of a cause of action vested in the company, and

(b)   

seeking relief on behalf of the company.

   

This is referred to in this Chapter as a “derivative claim”.

(2)   

A derivative claim may only be brought—

15

(a)   

under this Chapter, or

(b)   

in pursuance of an order of the court in proceedings under section 459

of the Companies Act 1985 (c. 6) (proceedings for protection of

members against unfair prejudice).

(3)   

A derivative claim under this Chapter may be brought only in respect of a

20

cause of action arising from an actual or proposed act or omission involving

negligence, default, breach of duty or breach of trust by a director of the

company.

   

The cause of action may be against the director or another person (or both).

(4)   

It is immaterial whether the cause of action arose before or after the person

25

seeking to bring or continue the derivative claim became a member of the

company.

(5)   

For the purposes of this Chapter—

(a)   

“director” includes a former director;

(b)   

a shadow director is treated as a director; and

30

(c)   

references to a member of a company include a person who is not a

member but to whom shares in the company have been transferred or

transmitted by operation of law.

261     

Application  for permission to continue derivative claim

(1)   

A member of a company who brings a derivative claim under this Chapter

35

must apply to the court for permission (in Northern Ireland, leave) to continue

it.

(2)   

If it appears to the court that the application and the evidence filed by the

applicant in support of it do not disclose a prima facie case for giving

permission (or leave), the court—

40

(a)   

must dismiss the application, and

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland

122

 

(b)   

may make any consequential order it considers appropriate.

(3)   

If the application is not dismissed under subsection (2), the court—

(a)   

may give directions as to the evidence to be provided by the company,

and

(b)   

may adjourn the proceedings to enable the evidence to be obtained.

5

(4)   

On hearing the application, the court may—

(a)   

give permission (or leave) to continue the claim on such terms as it

thinks fit,

(b)   

refuse permission (or leave) and dismiss the claim, or

(c)   

adjourn the proceedings on the application and give such directions as

10

it thinks fit.

262     

Application for permission to continue claim as a derivative claim

(1)   

This section applies where—

(a)   

a company has brought a claim, and

(b)   

the cause of action on which the claim is based could be pursued as a

15

derivative claim under this Chapter.

(2)   

A member of the company may apply to the court for permission (in Northern

Ireland, leave) to continue the claim as a derivative claim on the ground that—

(a)   

the manner in which the company commenced or continued the claim

amounts to an abuse of the process of the court,

20

(b)   

the company has failed to prosecute the claim diligently, and

(c)   

it is appropriate for the member to continue the claim as a derivative

claim.

(3)   

If it appears to the court that the application and the evidence filed by the

applicant in support of it do not disclose a prima facie case for giving

25

permission (or leave), the court—

(a)   

must dismiss the application, and

(b)   

may make any consequential order it considers appropriate.

(4)   

If the application is not dismissed under subsection (3), the court—

(a)   

may give directions as to the evidence to be provided by the company,

30

and

(b)   

may adjourn the proceedings to enable the evidence to be obtained.

(5)   

On hearing the application, the court may—

(a)   

give permission (or leave) to continue the claim as a derivative claim on

such terms as it thinks fit,

35

(b)   

refuse permission (or leave) and dismiss the application, or

(c)   

adjourn the proceedings on the application and give such directions as

it thinks fit.

263     

Whether permission to be given

(1)   

The following provisions have effect where a member of a company applies for

40

permission (in Northern Ireland, leave) under section 261 or 262.

(2)   

Permission (or leave) must be refused if the court is satisfied—

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland

123

 

(a)   

that a person acting in accordance with section 173 (duty to promote the

success of the company) would not seek to continue the claim, or

(b)   

where the cause of action arises from an act or omission that is yet to

occur, that the act or omission has been authorised by the company, or

(c)   

where the cause of action arises from an act or omission that has

5

already occurred, that the act or omission—

(i)   

was authorised by the company before it occurred, or

(ii)   

has been ratified by the company since it occurred.

(3)   

In considering whether to give permission (or leave) the court must take into

account, in particular—

10

(a)   

whether the member is acting in good faith in seeking to continue the

claim;

(b)   

the importance that a person acting in accordance with section 173

(duty to promote the success of the company) would attach to

continuing it;

15

(c)   

where the cause of action results from an act or omission that is yet to

occur, whether the act or omission could be, and in the circumstances

would be likely to be—

(i)   

authorised by the company before it occurs, or

(ii)   

ratified by the company after it occurs;

20

(d)   

where the cause of action arises from an act or omission that has

already occurred, whether the act or omission could be, and in the

circumstances would be likely to be, ratified by the company;

(e)   

whether the company has decided not to pursue the claim;

(f)   

whether the act or omission in respect of which the claim is brought

25

gives rise to a cause of action that the member could pursue in his own

right rather than on behalf of the company.

(4)   

In considering whether to give permission (or leave) the court shall have

particular regard to any evidence before it as to the views of members of the

company who have no personal interest, direct or indirect, in the matter.

30

(5)   

The Secretary of State may by regulations—

(a)   

amend subsection (2) so as to alter or add to the circumstances in which

permission (or leave) is to be refused;

(b)   

amend subsection (3) so as to alter or add to the matters that the court

is required to take into account in considering whether to give

35

permission (or leave).

(6)   

Before making any such regulations the Secretary of State shall consult such

persons as he considers appropriate.

(7)   

Regulations under this section are subject to affirmative resolution procedure.

264     

Application for permission to continue derivative claim brought by another

40

member

(1)   

This section applies where a member of a company (“the claimant”)—

(a)   

has brought a derivative claim,

(b)   

has continued as a derivative claim a claim brought by the company, or

(c)   

has continued a derivative claim under this section.

45

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland

124

 

(2)   

Another member of the company (“the applicant”) may apply to the court for

permission (in Northern Ireland, leave) to continue the claim on the ground

that—

(a)   

the manner in which the proceedings have been commenced or

continued by the claimant amounts to an abuse of the process of the

5

court,

(b)   

the claimant has failed to prosecute the claim diligently, and

(c)   

it is appropriate for the applicant to continue the claim as a derivative

claim.

(3)   

If it appears to the court that the application and the evidence filed by the

10

applicant in support of it do not disclose a prima facie case for giving

permission (or leave), the court—

(a)   

must dismiss the application, and

(b)   

may make any consequential order it considers appropriate.

(4)   

If the application is not dismissed under subsection (3), the court—

15

(a)   

may give directions as to the evidence to be provided by the company,

and

(b)   

may adjourn the proceedings to enable the evidence to be obtained.

(5)   

On hearing the application, the court may—

(a)   

give permission (or leave) to continue the claim on such terms as it

20

thinks fit,

(b)   

refuse permission (or leave) and dismiss the application, or

(c)   

adjourn the proceedings on the application and give such directions as

it thinks fit.

Chapter 2

25

Derivative proceedings in Scotland

265     

Derivative proceedings

(1)   

In Scotland, a member of a company may raise proceedings in respect of an act

or omission specified in subsection (3) in order to protect the interests of the

company and obtain a remedy on its behalf.

30

(2)   

A member of a company may raise such proceedings only under subsection

(1).

(3)   

The act or omission referred to in subsection (1) is any actual or proposed act

or omission involving negligence, default, breach of duty or breach of trust by

a director of the company.

35

(4)   

Proceedings may be raised under subsection (1) against (either or both)—

(a)   

the director referred to in subsection (3), or

(b)   

another person.

(5)   

It is immaterial whether the act or omission in respect of which the proceedings

are to be raised or, in the case of continuing proceedings under section 267 or

40

269, are raised, arose before or after the person seeking to raise or continue

them became a member of the company.

(6)   

This section does not affect—

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland

125

 

(a)   

any right of a member of a company to raise proceedings in respect of

an act or omission specified in subsection (3) in order to protect his own

interests and obtain a remedy on his own behalf, or

(b)   

the court’s power to make an order under section 461(2)(c) of the

Companies Act 1985 (c. 6) or anything done under such an order.

5

(7)   

In this Chapter—

(a)   

proceedings raised under subsection (1) are referred to as “derivative

proceedings”,

(b)   

the act or omission in respect of which they are raised is referred to as

the “cause of action”,

10

(c)   

“director” includes a former director,

(d)   

references to a director include a shadow director, and

(e)   

references to a member of a company include a person who is not a

member but to whom shares in the company have been transferred or

transmitted by operation of law.

15

266     

Requirement for leave and notice

(1)   

Derivative proceedings may be raised by a member of a company only with the

leave of the court.

(2)   

An application for leave must—

(a)   

specify the cause of action, and

20

(b)   

summarise the facts on which the derivative proceedings are to be

based.

(3)   

If it appears to the court that the application and the evidence produced by the

applicant in support of it do not disclose a prima facie case for granting it, the

court—

25

(a)   

must refuse the application, and

(b)   

may make any consequential order it considers appropriate.

(4)   

If the application is not refused under subsection (3)—

(a)   

the applicant must serve the application on the company,

(b)   

the court—

30

(i)   

may make an order requiring evidence to be produced by the

company, and

(ii)   

may adjourn the proceedings on the application to enable the

evidence to be obtained, and

(c)   

the company is entitled to take part in the further proceedings on the

35

application.

(5)   

On hearing the application, the court may—

(a)   

grant the application on such terms as it thinks fit,

(b)   

refuse the application, or

(c)   

adjourn the proceedings on the application and make such order as to

40

further procedure as it thinks fit.

267     

Application to continue proceedings as derivative proceedings

(1)   

This section applies where—

(a)   

a company has raised proceedings, and

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland

126

 

(b)   

the proceedings are in respect of an act or omission which could be the

basis for derivative proceedings.

(2)   

A member of the company may apply to the court to be substituted for the

company in the proceedings, and for the proceedings to continue in

consequence as derivative proceedings, on the ground that—

5

(a)   

the manner in which the company commenced or continued the

proceedings amounts to an abuse of the process of the court,

(b)   

the company has failed to prosecute the proceedings diligently, and

(c)   

it is appropriate for the member to be substituted for the company in

the proceedings.

10

(3)   

If it appears to the court that the application and the evidence produced by the

applicant in support of it do not disclose a prima facie case for granting it, the

court—

(a)   

must refuse the application, and

(b)   

may make any consequential order it considers appropriate.

15

(4)   

If the application is not refused under subsection (3)—

(a)   

the applicant must serve the application on the company,

(b)   

the court—

(i)   

may make an order requiring evidence to be produced by the

company, and

20

(ii)   

may adjourn the proceedings on the application to enable the

evidence to be obtained, and

(c)   

the company is entitled to take part in the further proceedings on the

application.

(5)   

On hearing the application, the court may—

25

(a)   

grant the application on such terms as it thinks fit,

(b)   

refuse the application, or

(c)   

adjourn the proceedings on the application and make such order as to

further procedure as it thinks fit.

268     

Granting of leave

30

(1)   

The court must refuse leave to raise derivative proceedings or an application

under section 267 if satisfied—

(a)   

that a person acting in accordance with section 173 (duty to promote the

success of the company) would not seek to raise or continue the

proceedings (as the case may be), or

35

(b)   

where the cause of action is an act or omission that is yet to occur, that

the act or omission has been authorised by the company, or

(c)   

where the cause of action is an act or omission that has already

occurred, that the act or omission—

(i)   

was authorised by the company before it occurred, or

40

(ii)   

has been ratified by the company since it occurred.

(2)   

In considering whether to grant leave to raise derivative proceedings or an

application under section 267, the court must take into account, in particular—

(a)   

whether the member is acting in good faith in seeking to raise or

continue the proceedings (as the case may be),

45

 
 

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland

127

 

(b)   

the importance that a person acting in accordance with section 173

(duty to promote the success of the company) would attach to raising

or continuing them (as the case may be),

(c)   

where the cause of action is an act or omission that is yet to occur,

whether the act or omission could be, and in the circumstances would

5

be likely to be—

(i)   

authorised by the company before it occurs, or

(ii)   

ratified by the company after it occurs,

(d)   

where the cause of action is an act or omission that has already

occurred, whether the act or omission could be, and in the

10

circumstances would be likely to be, ratified by the company,

(e)   

whether the company has decided not to raise proceedings in respect of

the same cause of action or to persist in the proceedings (as the case

may be),

(f)   

whether the cause of action is one which the member could pursue in

15

his own right rather than on behalf of the company.

(3)   

In considering whether to grant leave to raise derivative proceedings or an

application under section 267, the court shall have particular regard to any

evidence before it as to the views of members of the company who have no

personal interest, direct or indirect, in the matter.

20

(4)   

The Secretary of State may by regulations—

(a)   

amend subsection (1) so as to alter or add to the circumstances in which

leave or an application is to be refused,

(b)   

amend subsection (2) so as to alter or add to the matters that the court

is required to take into account in considering whether to grant leave or

25

an application.

(5)   

Before making any such regulations the Secretary of State shall consult such

persons as he considers appropriate.

(6)   

Regulations under this section are subject to affirmative resolution procedure.

269     

Application by member to be substituted for member pursuing derivative

30

proceedings

(1)   

This section applies where a member of a company (“the claimant”)—

(a)   

has raised derivative proceedings,

(b)   

has continued as derivative proceedings raised by the company, or

(c)   

has continued derivative proceedings under this section.

35

(2)   

Another member of the company (“the applicant”) may apply to the court to be

substituted for the claimant in the action on the ground that—

(a)   

the manner in which the proceedings have been commenced or

continued by the claimant amounts to an abuse of the process of the

court,

40

(b)   

the claimant has failed to prosecute the proceedings diligently, and

(c)   

it is appropriate for the applicant to be substituted for the claimant in

the proceedings.

(3)   

If it appears to the court that the application and the evidence produced by the

applicant in support of it do not disclose a prima facie case for granting it, the

45

court—

 
 

 
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