Theoretical Reflections on Derivative Actions in English Law: The Representative Problem

Abstract

Minority shareholders face particular difficulties where they seek redress against wrongdoing directors. This state of affairs seems to reflect an implicit acceptance both by the judiciary, the English Law Commission and the Company Law Reform Bill that it is somehow undesirable that companies should be exposed to civil litigation by minority shareholders (ie derivative actions). This type of thinking is rarely (if ever) made explicit; nonetheless, it is likely to continue being the primary policy impediment to enhancing the potential utility of derivative actions. The purpose of this article is primarily to inquire into these restrictive standing rules and subsequently to examine two policy responses to the problem that the company lacks an authentic decision-making body to determine whether or not a derivative action is in the best interests of the company as a whole.