The courts' approach to approving statutory derivative actions has evolved over time, as evident in cases like Kiani v Cooper [2010] EWHC 577¹ and Stainer v Lee [2010] EWHC 1539.² Initially, many applications seeking permission for derivative actions were denied, but these two cases show a more receptive stance from the courts. While they have become more open to granting permission, it is noteworthy that such approval often comes with conditions, like in Kiani v Cooper³ and Stainer v Lee⁴, where permission was only extended to the conclusion of disclosure, requiring further permission to continue the action.

An alternative remedy worth considering is illustrated in the case of Phillips v Fryer [2013] B.C.C. 176.⁵ The court granted permission to proceed with a derivative claim as the alternative remedy of a buy-out of the claimant/petitioner in an unfair prejudice application was not being sought. This approach shows the courts' willingness to explore options and provide opportunities for minority shareholders seeking relief.

Section 994 of the Companies Act serves as an alternative to the statutory derivative action.⁶ Before the enactment of the Companies Act 2006, it played a vital role in providing minority shareholders with more accessible and straightforward means of redress compared to the restrictive rule established in Foss v Harbottle.⁷ Originally introduced as s 210 of the Companies Act 1948⁸, and later as s 45⁹ of the Companies Act 19859, it aimed to offer more flexible remedies. However, the wording in s 210 CA 1948 posed challenges, leading to only two successful cases.¹⁰ As a result, it was deemed unsuccessful, and the Jenkins Committee recommended replacing it with a remedy based on the notion of 'unfairly prejudicial conduct.' This led to the introduction of s 459 in the Companies Act 1985, which has since been replaced by s 994 in the Companies Act 2006.¹¹

Overall, the development of the courts' approach to granting permission for statutory derivative actions, the consideration of alternative remedies, and the introduction of Section 994 illustrate the ongoing efforts to provide minority shareholders with effective avenues for protection and relief in cases of corporate misconduct or oppression.

References

1. Kiani v Cooper [2010] EWHC 577
2. Stainer v Lee [2010] EWHC 1539
3. Kiani v Cooper [2010] EWHC 577
4. Stainer v Lee [2010] EWHC 1539
5. Phillips v Fryer [2013] B.C.C. 176
6. Companies Act 2006, s 994
7. Foss v Harbottle (1843) 2 Hare 461, 67 ER 189
8. Companies Act 1948, s 210
9. Companies Act 1985, s 459
10. Companies Act 1948, s 210
11. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.487