The Distinction Between an Unfair Prejudice Petition and a Statutory Derivative Action

The Distinction Between an Unfair Prejudice Petition and a Statutory Derivative Action

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The unfair prejudice petition has always been regarded as the easier and more flexible option for minority shareholders’ protection compared to the statutory derivative action. The restrictive leave requirements under the statutory derivative claim where the concept of prima facie, good faith and ratification have been interpreted within the confines of the origins in the case of Foss v Harbottle do not add any appeal the statutory derivative claim. Further, the approach in relation to granting indemnity costs orders which is rather limited does not in any way encourage any potential claimant to pursue a derivative action. Recent cases which allows corporate relief to be obtained via unfair prejudice petition and even the possibility if recovering costs under and unfair prejudice petition has further relegated the significance of the derivative action.
This essay will examine the main cause of the demise of the derivative claim which is the possibility of pursuing a corporate relief and even costs via an unfair prejudice petition, a relief and order that was initially only available via derivative action. Further this essay will discuss as to how the boundaries between the statutory derivative action and the unfair prejudice should be drawn and what restrictions should be added to the unfair prejudice remedy under section 994 of the Companies Act 2006 so that the significance of the statutory derivative action can be reinstated.
The distinction between an unfair prejudice petition and a statutory derivative action has always been in the nature of remedy sought by the claimant. This is arguably the point where a distinction is drawn as to whether a statutory derivative action or an unfair prejudice petition should be pursued. A d...

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... It is disappointing that Lord Scott did not take this opportunity to endorse the criteria laid down in Re Chime Corp Ltd and neither did he provide further guidance as to when the courts power under section 994 should be exercised.

It was argued by Cheung the reference by Lord Scott in Gamlestaden is still a summary of principles derived from Re Chime Corp. It is submitted that the reading of the case of Gamlestaden as it is does not state any criteria to allow corporate relief in unfair prejudice petition but rather the decision just endorsed that the court “may make such order as it thinks fit for giving relief in respect of the matters complained of” under an unfair prejudice petition. This could be a cautious approach not to restrict the ability of the court to may make such order as it thinks fit which would not be available if a test is introduced.

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