Company Law Reform Bill [HL]

House of Lords

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 9 — Supplementary provisions
108

connected with him by virtue of subsection (2)(c) or (d) of that section
(connection as trustee or partner); and
(b)
a trustee of a trust the beneficiaries of which include (or may include) a
body corporate with which a director is connected is not treated for the
purposes of this section as connected with a director by reason only of
5
that fact.
236
Associated bodies corporate
(1)
For the purposes of this Part bodies corporate are associated if one is a
subsidiary of the other or both are subsidiaries of the same body corporate.
(2)
References to an “associated company” have a corresponding meaning.
10
237
References to company’s constitution
(1)
References in this Part to a company’s constitution include—
(a)
any resolution or other decision come to in accordance with the
constitution, and
(b)
any decision by the members of the company, or a class of members,
15
that is treated by virtue of any enactment or rule of law as equivalent to
a decision by the company.
(2)
This is in addition to the matters mentioned in section 17 (general provision as
to matters contained in company’s constitution).
General
20
238
Power to increase financial limits
(1)
The Secretary of State may by order substitute for any sum of money specified
in this Part a larger sum specified in the order.
(2)
An order under this section is subject to negative resolution procedure.
(3)
An order does not have effect in relation to anything done or not done before
25
it comes into force.

Accordingly, proceedings in respect of any liability incurred before that time
may be continued or instituted as if the order had not been made.
239
Transactions under foreign law

For the purposes of this Part it is immaterial whether the law that (apart from
30
this Act) governs an arrangement or transaction is the law of the United
Kingdom, or a part of it, or not.

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland
109

Part 11
Derivative claims and proceedings by members
Chapter 1
Derivative claims in England and Wales or Northern Ireland
240
Derivative claims
5
(1)
This Chapter applies to proceedings in England and Wales or Northern Ireland
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”.
10
(2)
A derivative claim may only be brought—
(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).
15
(3)
A derivative claim under this Chapter may be brought only in respect of a
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).
20
(4)
It is immaterial whether the cause of action arose before or after the person
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;
25
(b)
a shadow director is treated as a director; and
(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.
241
Application for permission to continue derivative claim
30
(1)
A member of a company who brings a derivative claim under this Chapter
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
35
permission (or leave), the court—
(a)
must dismiss the application, and
(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,
40
and
(b)
may adjourn the proceedings to enable the evidence to be obtained.

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland
110

(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
5
it thinks fit.
242
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
10
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,
15
(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
20
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,
25
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,
30
(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.
243
Whether permission to be given
(1)
The following provisions have effect where a member of a company applies for
35
permission (in Northern Ireland, leave) under section 241 or 242.
(2)
Permission (or leave) must be refused if the court is satisfied—
(a)
that a person acting in accordance with section 155 (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
40
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
already occurred, that the act or omission—
(i)
was authorised by the company before it occurred, or

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland
111

(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—
(a)
whether the member is acting in good faith in seeking to continue the
claim;
5
(b)
the importance that a person acting in accordance with section 155
(duty to promote the success of the company) would attach to
continuing it;
(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
10
would 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 arises from an act or omission that has
already occurred, whether the act or omission could be, and in the
15
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
gives rise to a cause of action that the member could pursue in his own
right rather than on behalf of the company.
20
(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.
(5)
The Secretary of State may by regulations—
(a)
amend subsection (2) so as to alter or add to the circumstances in which
25
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
permission (or leave).
(6)
Before making any such regulations the Secretary of State shall consult such
30
persons as he considers appropriate.
(7)
Regulations under this section are subject to affirmative resolution procedure.
244
Application for permission to continue derivative claim brought by another
member
(1)
This section applies where a member of a company (“the claimant”)—
35
(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.
(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
40
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,
(b)
the claimant has failed to prosecute the claim diligently, and
45

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland
112

(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
applicant in support of it do not disclose a prima facie case for giving
permission (or leave), the court—
5
(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,
and
10
(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
thinks fit,
(b)
refuse permission (or leave) and dismiss the application, or
15
(c)
adjourn the proceedings on the application and give such directions as
it thinks fit.
Chapter 2
Derivative proceedings in Scotland
245
Derivative proceedings
20
(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.
(2)
A member of a company may raise such proceedings only under subsection
(1).
25
(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.
(4)
Proceedings may be raised under subsection (1) against (either or both)—
(a)
the director referred to in subsection (3), or
30
(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 247 or
249, are raised, arose before or after the person seeking to raise or continue
them became a member of the company.
35
(6)
This section does not affect—
(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
40
Companies Act 1985 (c. 6) or anything done under such an order.
(7)
In this Chapter—

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland
113

(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”,
(c)
“director” includes a former director,
5
(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.
246
Requirement for leave and notice
10
(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
(b)
summarise the facts on which the derivative proceedings are to be
15
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—
(a)
must refuse the application, and
20
(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—
(i)
may make an order requiring evidence to be produced by the
25
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
application.
30
(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
further procedure as it thinks fit.
35
247
Application to continue proceedings as derivative proceedings
(1)
This section applies where—
(a)
a company has raised proceedings, and
(b)
the proceedings are in respect of an act or omission which could be the
basis for derivative proceedings.
40
(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—

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 2 — Derivative proceedings in Scotland
114

(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.
5
(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.
10
(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
15
(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—
20
(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.
248
Granting of leave
25
(1)
The court must refuse leave to raise derivative proceedings or an application
under section 247 if satisfied—
(a)
that a person acting in accordance with section 155 (duty to promote the
success of the company) would not seek to raise or continue the
proceedings (as the case may be), or
30
(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
35
(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 247, 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),
40
(b)
the importance that a person acting in accordance with section 155
(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
45
be likely to be—
(i)
authorised by the company before it occurs, or