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Who can bring an action for a breach of the general duties - Coggle Diagram
Who can bring an action for a breach of the general duties
Only the company can bring an action against a director
In practice boards of directors do not often relish the idea of suing themselves for potential breach of duty although they may be more inclined to do so with regard to a former director
Most actions arise after a new board has been appointed or when a company is in liquidation
If a company is in liquidation, the decision whether to bring any legal action against existing or former directors will set with the insolvency practitioner appointed to wind up the affairs of the company. The directors will have no say in the matter at this stage.
Insolvency practitioners do not pursue every possible case as the costs can be prohibitive. They tend only to pursue those where there is ore than a reasonable prospect of success and the potential compensation outweighs the risk of losing
Derivative actions
CA2006 provides a procedure that allows shareholders to bring a derivative action in the name of the company against the directors
If the shareholders win such an action any compensation that is awarded is paid to the company
If the company is in financial difficut, it is likely that other stakeholders such as charge holders, creditors, preference shareholders, employees and pension schemes will be the main beneficiaries of any compensation awarded
Even if there is anything left for the shareholders, those who brought the claim have to share the spoils with other shareholders who did not participate in bringing the claim
Can br brought in relation to an actual or proposed act or omission involving negligence, default, breach of duty or breach to trust by a director
There is no need to show that the company has suffered a financial loss
Minority shareholders are able to bring actions against directors who have acted in a way that is preferential to a majority shareholder and has breached their duty to promote the interest of sharehodlers a whole
The procedures for making an application include safeguards designed to prevent sharehodlers from bringing unreasonable claims
One of the tests that the cost must apply in deciding whether to allow a derivative action is whether a hypothetical director would consider it worth pursuing it in view of their duty to promote the chess of the company
Where the act or omission has already occurred, the court must refuse permission if it was authorised by the company before it occurred or ratified after it occured
The courts must also take into account any available evidence regarding the views of other members on whether the action should be pursued. Those other members must have no personal interest in the subject of the claim
In practice, it is both expensive and time consuming to pursue a derivative action
If the shareholders lose they will be liable to pay the other party's legal costs
Shareholders may sometimes threaten to inttiatte one in the hope that the directors or their insurers t