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Report on Critically Discussing - Companies Act 2006

   

Added on  2020-06-04

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TABLE OF CONTENTSCritically discussing the above statement....................................................................................3Overview of common law derivative claim ................................................................................3Statutory derivative claim or action ............................................................................................5Criticism ......................................................................................................................................9REFERENCES .............................................................................................................................13

Topic: ‘The statutory derivative claim provides a much more practical remedy compared to thecommon law derivative action and in general it constitutes an improvement in the protectionafforded to minority shareholders’. Critically discussing the above statementCompanies Act (2006), contains several rules and regulations that assists in managingbusiness affairs more effectually. Derivative actions imply for the claims that are made byindividual shareholders who are dealing on the behalf of the company. Hence, it implies thatshareholders can claim for the fraud on the minority associated with the director’s action.Current statutory derivative claim may only be brought where complaint regarding wrongdoingcannot be ratified or sanctioned through the means of ordinary resolution. As per the legalaspects, derivative actions will also be applied on alleged breaches of new duties related todirector such as reasonable care, skill and diligence. Statutory derivative action may be served asa reform over common aspects. Common law entails that shareholders cannot make sue orcomplaint pertaining to the internal irregularities. Hence, the present report will shed light on theextent to which aspects related to statutory derivative are highly practical over common lawpractices. Further, it also provides deeper insight about the manner in which statutory derivativeclaim improves protection level of minority shareholders. Overview of common law derivative claim Common law derivative entails that an individual shareholder cannot make sue orcompliant regarding company’s wrongdoing and internal irregularities. Such principle ofcommon law is recognized as the rule derived through the case of Foss V Harbottle. Under suchcase, two shareholders have taken legal action in against to the promoters and directors ofbusiness unit. In this, concerned shareholders has made allegation on the directors that they hadused company’s assets and mortgaged property in inappropriate manner. In this, appeal of suchtwo stakeholders was rejected on the ground that for the company’s undesirable activities oractions it alone could sue1. Hence, in other words, as per such case it can be mentioned that1

plaintiff was the company not such two shareholders. Aspects in relation to common derivativeclaim clearly entail that concerned rule derived through the two general principles associatedwith the law. First principle of law states that, company is recognized as a legal entity which in turnseparated from its shareholders. Moreover, such principle believes that any loss which is cause tothe company must be recovered by business unit rather than its shareholders. In the situationloss, concerned entities or shareholder’s lose anticipated dividend. Along with this, secondprinciple of law presents that court will not interfere in the internal operations and managementof the companies who are acting or performing within their powers. Under this, majority ruleprinciple entails that when alleged wrongdoing is confirmed by the majority of members ingeneral meeting then court will not do any kind of interference. This in turn places negativeimpact on the right of minority shareholders. However, there are mainly four exceptions whichare associated with the rule of Foss v Harbottle. It includes ultra vices or illegal acts, transactionthat requires special majorities, personal rights and fraud on the minority. Exception related tofraud on the minority presents that such shareholder can take action when wrongdoers are in acontrol of the company. In other words, it can be depicted that minority shareholders can takelegal actions when situation will not allow the company to make sue. Common law describedfraud as a breach of duty which in turn offers benefit to both director and the third party. This shareholder derivative action is legal in some of the countries like that of UK andUS like in the recent case of Universal project management service limited v Fort Gilkickerlimited in the year 2013. In this case the subsidiary company has suffered loss because of the suitcase filed by one shareholder under the exception of Foss v Harbottle.2 Under section 260 ofCompanies act 2006 this is not allowing in operating in removal of all common law multipleShareholders' rights - part i - common law derivative action. 2017. [Online]. Availablethrough: <http://www.hwg-law.com/articles/shareholders-rights-part-i-common-law-derivative-action>. 2The rule in Foss v. Harbottle. n.d. [pdf]. Available through: <http://assets.cambridge.org/97805217/91069/excerpt/9780521791069_excerpt.pdf>.

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