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Guidance on Minority Protection (Shareholder Remedies)

Mark Thomas

This guidance document should hopefully assist you in your understanding of minority protection and assist you in answering a problem question on such
an area. PLEASE NOTE: If you intend to answer a question on minority protection, you must not drop directors’ duties as a topic. The two are interlinked.
This applies vice versa.

Please do not take the following as a definitive guide on answering a question. There are discussions here that have not been expressed as fully as they
should be and it is your job to fill in those details.

Difference between “the company” and “on behalf of the company”:

This distinction is essential to understand

Suing as the Company Suing on behalf or in the name of the Company

The proper Plaintiff Rule in Foss v Harbottle lays down that any wrong
done to the company is actionable by the company.
It is for the Directors’ to decide whether to initiate legal proceedings
as the company.
Where the company decides not to commence proceedings, another
individual (a member) may commence legal proceedings against an
individual “on behalf of the company”,
i.e. not the company itself, but in the name of the company/ for the
Vs. company.

If they do so, they will be bringing proceedings “as the company”. I.e. Likewise, if the company begins proceedings but does not continue with
the Company will be bringing the proceedings. them, an individual may continue the claim on behalf of the company.

Effect: Regular litigation claim Effect: Derivative Claim

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Types of Claim:

There are 5 types of claim that you may need to consider in a problem question.

(i) A Company Claim: This is where the company has brought legal proceedings against an individual (e.g. against a Director in breach of his duty
under s.174). It is for the Directors to begin legal proceedings as the Company by issuing the standard Claim Form under Part 7 Civil Procedure
Rules 1998. This is in accordance with the “Proper Plaintiff Rule” that any wrong done to the company, is actionable by the company (Foss v
Harbottle). What if the Directors’ who make the decision to begin litigation are the Directors’ in breach of their duty? They are not going to
bring proceedings against themselves, thus there may be a need for Derivative Claim. Before proceeding into any argument on derivative claim
you must first consider whether the company will bring the claim itself.

(ii) A Personal Claim: This is where the individual member sues the company in relation to a wrong done to one of his individual member rights.
This is essential a question of enforcement under s.33 CA 2006. The Proper Claimant in this respect is the member. DO NOT FORGET
PERSONAL CLAIMS. If a wrong is done to a member in relation to his membership rights (i.e. the right to vote – Pender v Lushington, the claim
will be by way of s.33 CA 2006, not derivative claim or unfair prejudice (though the latter is possible).

(iii) A Derivative Claim: This is where the company decides to not issues proceedings against an individual, or where the company has issued
proceedings but has done so with the intention to preventing another from bringing the claim. In such a case, a member may bring a derivative
claim whereby they sue the individual “on behalf of the company”. Any remedy is the company’s, not the member’s. (ss.260-263).
IMPORTANTLY, the phrase “Derivative Action” is no longer appropriate following the CA 2006. The correct terminology is now “Derivative
Claim”.

(iv) Unfair Prejudice: Where an individual has suffered unfair prejudice as a result of the conduct of a Director in the manner by which he is running
the company, they may bring an unfair prejudice claim. This claim is personal to the member and they are not suing as the company. Any
remedy is their own. (ss.994-996)

(v) Winding Up: A last resort used where the individual believes that the company should be wound up on the just and equitable ground (s.112(1)
(g) Insolvency Act 1986).
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Unfair Prejudice:

I recommend following this checklist when answering a problem question involving unfair prejudice.

Test Points to Consider Have I

Considered?
1. Is the Member:
individual a - Members have been defined widely in s.994(2) as:
‘member’ and …a person who is not a member of a company but to whom shares in the company have been transferred or
does he ‘have transmitted by operation of law as they apply to a member of a company.
standing? Essentially, are they a shareholder?

Standing:
- A person who cannot show prima facie evidence of standing will not be allowed to petition: the question of
standing must be settled first (Re Quickdome Ltd.)
- In Re Garage Door Associates Ltd, a person who was the registered holder of one share in the company was
permitted to bring s.994 proceedings to challenge the allotment of 799 of the company’s other 800 shares: the
one share registered in his name gave him standing.
Do they have standing as a result of their shares?
2. Is the dispute - The courts do ‘not adopt a technical or legalistic approach to what constitutes the affairs of the company but will
must in relation look to the business realities’ (Re Coroin Ltd. [2013])
to the conduct of - It is frequently stressed that the requirement for the conduct to be of the ‘affairs of the company’ should be
the company’s liberally construed for the purposes of the section (Hawkes v Cuddy)
affairs? - Private Shareholder disputes are not part of the conduct of the company’s affairs and thus will not fall within
s.994 (Re Unisoft Group), unless those activities translate into acts or omissions of the company or the conduct of
its affairs’ (per David Richards J. in Re Coroin Ltd (No 2))

O’Neill v Phillips  [1999]:

Lord Hoffmann concluded that a member will not ordinarily be entitled to complain of unfairness unless there has
been:
(i) Some breach of the terms on which the member agreed that the affairs of the company should be conducted; or
(ii) Some use of the rules in a manner which equity would regard as contrary to good faith — i.e. cases in which
equitable considerations apply.
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Breach of the Terms:

- Arden LJ in Re Tobian Properties Ltd, Maidment v Attwood [2013], noted the importance of viewing companies
as a commercial relationship governed by rules and commented that an important part of the context of a
relationship is the terms on which the parties agreed to do business together which will include:
(i) the obligations in the company’s articles (mainly s.170-177);
(ii) the obligations in the relevant statutes; and
(iii) The obligations in any shareholder agreement.

- Breaches of the CA 2006 will be central to many petitions, usually involving allegations of breaches of directors’
duties.
- The fact that shareholders have ratified a breach of duty does not prevent a claim for unfair prejudice being made.
- However ratification will preclude a derivative claim.

Equitable Consideration:
- This ground will be relevant where the company is a quasi-partnership, for then the company is something more
than the usual commercial association and there is a common understanding on all sides that the articles of
association do not represent a complete and exhaustive statement of the parties’ relationships (Fisher v Cadman
[2006])
- In addition to the articles, there are understandings and promises (though not contractually binding) between the
parties, typically about matters such as participation in the management of the company, financial returns and,
more broadly, the nature of the venture on which the parties have embarked
- In particular, in certain companies, the members may agree that the company should be run in a certain manner,
but such agreements may never be formalized or inserted into the constitution.
- In O’Neill v Phillips [1999], Lord Hoffmann stated that:
A member of a company will not ordinarily be entitled to complain of unfairness unless there has been some
breach of the terms on which he agreed that the affairs of the company should be conducted. But ... there will be
cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely
upon their strict legal powers….
In a quasi-partnership company, [these promises] will usually be found in the understandings between the
members at the time they entered into association. But there may be later promises, by words or conduct, which
it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently
enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one
reason or another (for example, because in favour of a third party) it would not be enforceable in law.
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Is the Company a Quasi-Partnership?

- In Ebrahimi v Westbourne Galleries, Lord Wilberforce stated that the superimposition of equitable
considerations requires one, or probably more, of the following elements:
(i) an association formed or continued on the basis of a personal relationship involving mutual confidence;
(ii) an agreement, or understanding, that all or some (for there may be ‘sleeping’ members) of the shareholders
shall participate in the conduct of the business; and
(iii) restrictions on the transfers of shares so that a member cannot take his stake and go elsewhere (locked in)

- A crucial initial question for a petitioner and her advisers is whether the company is a quasi-partnership (a
company with the above characteristics), such that equitable considerations come into play enabling a petition to
be brought under both the grounds identified by Lord Hoffmann.
- Normally, one would also consider whether the Directors’ are also Shareholders’ and vice versa in a small
company with an agreement as to how they are to be managed.

- The nature of the relationship is judged at the time of the unfairly prejudicial conduct.
- It is not whether the company was from the outset a commercial association or a quasi-partnership (Croly v Good
[2010]).
- The reason for this is that the parties’ relationship may change over time. (It may start as a quasi-partnership and
become a commercial relationship or vice versa)

3. Is the conduct - As Neill LJ stated in Re Saul D Harrison and Sons plc [1994], the conduct complained of must be BOTH unfair and
both unfair and prejudicial. The conduct may be unfair but not prejudicial, or vice versa
prejudicial? - In Re A Company (No. 004377 of 1986), the petition failed as the articles of the company laid down that when the
company would come to an end, the majority shareholders would buy the shares of the minority. The conduct
might have been prejudicial but in this case could not said to be unfair – he agreed to it.
- In Grace v Biagioli [2005], the petitioner was a member and director of a company. He was removed from office
because he was attempting to set up a rival company. The court held that the conduct complained of (i.e.
removing him) was prejudicial but, given the obvious conflict of interest that his actions had created, it was not
unfair.
- Likewise, a removing a director from the board will be prejudicial but where there is a valid reason to remove him,
it will not be unfair (Grace v Biagiolo [2006])
- Further, a breach of directors duty will most certainly be unfair, but it is unlikely to be prejudicial if that breach
has no consequences or loss to the company (Re Coroin (no.2) Ltd. [2013])
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- The prejudicial must be real, rather than merely technical or trivial (Re Saul D Harrison)
- The prejudice must be ‘harm in a commercial sense, not in a merely emotional sense’ (per Harman J in Re Unisoft
Group Ltd (No 3))

- The courts have repeatedly stated that the words ‘unfairly prejudicial’ are general words and are not to be given a
narrow technical meaning.
- The courts have not sought to establish a general standard or test to determine whether or not conduct is unfairly
prejudicial.
- As Lord Hoffmann stated in O’Neill v Phillips [1999], the rationale behind this is to:
‘free the court from technical considerations of legal right and to confer a wide power to do what appeared just
and equitable’. But this does not mean that the court can do whatever the individual judge happens to think fair.
The concept of fairness must be applied judicially and the content which it is given by the courts must be based
upon rational principles…. Although fairness is a notion which can be applied to all kinds of activities, its content
will depend upon the context in which it is being used.

- In Re Guidezone Ltd, Jonathan Parker J said, that it has been established by O’Neill v Phillips that:
… ‘unfairness’ for the purposes of [s 994] is not to be judged by reference to subjective notions of fairness, but
rather by testing whether, applying established equitable principles, the majority has acted, or is proposing to act,
in a manner which equity would regard as contrary to good faith.
WOULD AN INDEPENDENT BYSTANDER VIEW A PARTICULAR ACTION AS UNFAIRLY PREJUDICIAL TO
MINORITIES?

Examples:
(i) Breach of any General Duty (ss.171-177)
(ii) Non-payment of dividends (Re a Company (No 00370 of 1987) [1988])
(iii) Payment of low dividends (Re Sam Weller & Sons Ltd [1990])
(iv) The payment excessive bonuses and excessive contribution to pension funds to the directors. (Re Cumana
Ltd [1986])
(v) The improper transfer of assets (Re London School of Electronics Ltd [1986]).
(vi) The company’s affairs are being conducted in contravention of criminal law (Bermuda Cablevision Ltd v
Colica Trust Co Ltd).
(vii) Exclusion from the management of a quasi-partnership company (Re Ghyll Beck Driving Range Ltd [1993])
(viii) Serious mismanagement (Re Macro (Ipswich) Ltd [1994]).
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4. Is the conduct - s.994 focuses on the members’ interests as opposed to their rights.

unfairly - The members’ rights are found in the company’s constitution, but the courts have repeatedly stated that their
prejudicial to the interests can be wider than their rights (Re a Company (No 00477 of 1986))
interest of the - In O’Neill v Phillips, the court held that “the requirement that prejudice must be suffered as a member should not
member or be too narrowly or technically construed”.
members - Members may have different interests even if their rights as members are the same (Re Sam Weller and Sons
generally? Ltd [1990]). E.g. The most common basis for a s.994 claim is where a director (who is also a member) has been
removed from office without cause.
5. Has a fair offer - A petition will usually be struck out if, having excluded the petitioner, the respondents made a fair offer for his
been made? shares. (O’Neill v Phillips)
or - Generally, the court will strike out a petition if an offer has been made to the petitioner (whether as required by
Has an unfair the articles or otherwise) that gives the petitioner all the relief that he could realistically expect to obtain on the
offer been petition and it would therefore be an abuse to continue with the litigation.
rejected? - This would be of the same result as if proceedings were brought under s.994 without the need to endure court
delays and charges.

- In a quasi-partnership, to be a fair offer, the offer typically has to be an offer to purchase the minority shares on a
pro-rata basis, on a valuation made by an independent valuer (Re a Company (No. 00836 of 1995))
- The offer must give the petitioner all that he could reasonably achieve at trial (Harborne v Karvask [2012])
- Look at the guidance of Lord Hoffman in O’Neill v Phillips
6. Is there any s.996:
relief possible? (1) If the court is satisfied that a petition under this Part is well founded, it may make such order AS IT THINKS FIT
for giving relief in respect of the matters complained of.
(2) Without prejudice to the generality of subsection (1), the court's order may (Non-exhaustive)—
(a) regulate the conduct of the company's affairs in the require the company (Injunction) —
(i) to refrain from doing or continuing an act complained of, or
(ii) to do an act that the petitioner has complained it has omitted to do;
(c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons
and on such terms as the court may direct (Derivative Claim);
(d) require the company not to make any, or any specified, alterations in its articles without the leave of the court;
(e) provide for the purchase of the shares of any members of the company by other members or by the company
itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly
(A Share Purchase Order)
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- The CA in Grace v Biagioli, stated that the focus of the courts remedy should be on the need to cure the problem
for the future.

- The remedy most commonly sought is a purchase order requiring the respondents to purchase the shares of the
petitioner at a fair value (s.996(2)(e) CA 2006)
- Look at Re Bird Precision Bellows Ltd, for the key considerations for valuation

- The majority of petitions do relate to quasi-partnerships and therefore the general approach is to require a pro-
rata valuation. 
- Where the company is not a quasi-partnership, different considerations apply and the price fixed will normally be
discounted to reflect the fact that it is a minority holding held essentially as an investment.

- The starting point is that the shares should be valued at the date of the court’s order for purchase, as that is the
time when the unfairly prejudicial conduct is brought to an end, and an interest in a going concern should be
valued at the date when it is ordered to be sold (Profinance Trust v Gladstone [2002])
- HOWEVER, the Courts have held that the shares should be valued as at whatever date is fair to the petitioner
(Perhaps an earlier date – Re Scitec v Patel [2011])
- Normally, this means that shares are valued at the date when the prejudice to the petitioner began (This is
especially so where the value of the company declines from that point – Croly v Good)
- Re London School of Electronics Ltd, the court ordered City Tutorial College to buy the petitioner’s shares, which
should be valued as if the students had not been transferred.
- Given that many companies are in administration at this stage, it makes sense to not value the shares at the
purchase order stage.
7. Is there any Should a claim be brought?
practical advice
to give to the What are the advantages/ drawbacks?
client? Consider:
- The effect of a share purchase order (clean break from the company);
- Remedies obtained by the client, not the company;
- The cost of proceedings;
- How evidence is going to be obtained and used;
- Time the claim will take.
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Derivative Claim

I recommend following this checklist when answering a problem question involving Derivative Claim:

Test Points to Consider Have I

Considered?
1. Is there a The first question to ask whether or not there is a cause of action that can give rise to a claim.
cause of action? s.260(3) states that:
A derivative claim under this Chapter may be brought only in respect of a cause of action arising from an actual or
proposed act or omission involving negligence, default, breach of duty or breach of trust BY A DIRECTOR of the
company.
The cause of action may be against the director or another person (or both).

Therefore, there are four causes of action:

(i) Negligence: (s.174 CA 2006)
(ii) Default: ‘Default’ is a general term that refers to a failure to perform a legally obligated act (e.g. to appear in
court when required).
(iii) Breach of duty: A derivative claim can accordingly be founded on the basis of a breach of the general or other
duties (s.170 onwards)
(iv) Breach of trust.

- Only acts of the Directors can be founded in Derivative Claims;

- If the wrongdoer is a member (majority shareholder) the better claim to make is under s.994 as members have
been removed from s.260.
- However, the actual Claim itself (the law suit) can be brought against a Director or a Member or Both – who was
involved in the directors actions.
- The intention behind permitting derivative claims against ‘another person’ is to allow a claim to be made against,
for example, a person who has assisted a director in a breach of duty or who is a recipient of corporate assets in
circumstances where he knows the director is acting in breach of his duties.
2. Will the - After it is established that there is a cause of action, the question becomes whether the company will commence
Company bring a legal proceedings against the Director.
claim? - This follows the proper plaintiff rule that the company is the proper plaintiff where a wrong is done to the
company.
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- The decision as to commencing proceedings is made by the Directors’.

- If the Company will not bring a claim, that will then lead us on to derivative claims.
- A Company may not bring a claim for many reasons, including but not limited to: (i) it’s expensive; (ii) it may
damage the reputation of the company and (iii) the Directors’ in question do not wish to sue themselves.

- If those with authority to conduct a company’s litigation fear a derivative claim, they may try to block it by causing
the company to bring a claim but with no intention of genuinely pursuing it.
- s.262 CA 2006, therefore permits a member of a company to apply to the court for permission to take over a claim
brought by the company and continue it as a derivative claim .
- The grounds for continuing a claim are set out in s.262(2) as follows:
A member of the company may apply to the court for permission (in Northern Ireland, leave) to continue the
claim as a derivative claim on the ground that–
(a) the manner in which the company commenced or continued the claim amounts to an abuse of the process of
the court;
(b) the company has failed to prosecute the claim diligently, AND
(c) it is appropriate for the member to continue the claim as a derivative claim.
ALL THREE MUST BE PROVEN.

So a Claimant may bring a claim under s.261 (where the company has not brought its own claim) or s.262 (where the
company brought its own claim and the Claimant wishes to continue that claim as a derivative claim).
3. The Claimant - Before we can even consider the procedure in relation to derivative claims, we must first consider how a claim is
must issue brought by an individual.
proceedings - This is because s.261(1) is very clear that the Claimant must apply for permission to continue a claim, as opposed
to start it.
- In order to start a claim, Rule 19.9(2) Civil Procedure Rules (CPR) 1998 provides that: “A derivative claim must be
started by a claim form”. i.e. the standard Part 7 procedure must be used to begin proceedings.
- Once the claim form is issued, the “claimant must not take any further step in the proceedings without permission
of the court” (Rule 19.9(4) CPR 1998) – This is where the derivative claim begins.
- Rule 19.9A provides further details regarding issuing derivative claims.
4. STAGE 1: s.261(1):
Prima Facie Case A member of a company who brings a derivative claim under this Chapter must apply to the court for permission (in
(A ‘Screening Northern Ireland, leave) to continue it
Process’)
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- The purpose of this procedure is to screen out unmeritorious or weak claims before the defendant becomes
involved.
- It is clear that establishing a prima facie case is not an overly difficult hurdle to overcome.
- The court will only consider evidence of the Claimant in the first stage on the papers alone (i.e. no oral hearing).
- In many cases, the defendant concedes that, or decides not to contest that, a prima facie case existed.
- It appears to be relatively easy to establish a prima facie case and a derivative claimant would be unlikely to
commence a claim if it did not have such a case.

- Lord Reed noted in Wishart v Castlecroft Securities Ltd [2010] ‘… no onus is placed on the applicant to satisfy the
court that there is a prima facie case: rather, the court is to refuse the application if it is satisfied that there is not a
prima facie case’.

- Arguably, where the court has granted a remedy to pursue civil litigation under s.996(2)(c) on an unfair prejudice
claim, no permission need be sought. (Rule 19.9(1)(b) CPR 1998) – This is debatable as to whether that is what the
provision intends.

No Prima Face Case:

(2) If it appears to the court that the application and the evidence filed by the applicant in support of it do not
disclose a prima facie case for giving permission (or leave), the court–
(a) must dismiss the application, and
(b) may make any consequential order it considers appropriate – e.g. costs.

Prima Facie Case:

(3) If the application is not dismissed under subsection (2), the court–
(a) may give directions as to the evidence to be provided by the company, and
(b) may adjourn the proceedings to enable the evidence to be obtained.

Actions that can be taken:

(4) On hearing the application, the court may–
(a) give permission (or leave) to continue the claim on such terms as it thinks fit,
(b) refuse permission (or leave) and dismiss the claim, or
(c) adjourn the proceedings on the application and give such directions as it thinks fit.
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IMPORTANTLY, THE FACT THAT THE CLAIMANT HAS PASSED THE FIRST STAGE (PRIMA FACIE) DOES NOT MEAN THE
COURT HAS GIVEN HIM PERMISSION TO PROCEED TO THE CLAIM; RATHER, IT MEANS THAT THE DEFENDANT IS THEN
ADDED TO THE CASE AND PERMISSION IN THE SECOND STAGE IS CONTESTED.

5. STAGE 2A: s.263 CA 2006:

Mandatory (2) Permission (or leave) MUST BE REFUSED if the court is satisfied (of any three)–
Conditions (a) that a person (Hypothetical) acting in accordance with s.172 (duty to promote the success of the company)
(Absolute would not seek to continue the claim
Grounds) - In Iesini v Westrip Holdings Ltd [2009], the court held that permission would only be refused on this ground if
no director acting in accordance with s.172 would seek to continue the claim
- Question to ask: Would it promote the success of the company to continue the claim?
- Hannigan argues that given there must be a prima facie case at the first stage, it is unlikely that a Director, in
following their duties under s.172 would not continue the case.
OR
(b) where the cause of action arises from an act or omission that is yet to occur, that the act or omission has
been authorised by the company,
OR
(c) where the cause of action arises from an act or omission that has already occurred, that the act or
omission –
(i) was authorised by the company before it occurred, OR
(ii) has been ratified by the company since it occurred (under s.239)
- Ratification is done under s.239 CA 2006.
- Do not forget who can and cannot ratify a breach – see s.239(4).
- Do not forget that ratification requires an ordinary resolution (s.239(2) – in accordance with s.281(3))

- In Singh v Singh [2014], the court held that sums paid to a director had been approved by the company and
thus no claim could be brought.
- Franbar Holdings Ltd v Patel [2008]: The court must ask whether the ratification has the effect that the
claimant is being improperly prevented from bringing the claim on behalf of the company (Cannot ratify an
act that is not bona fide).
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6. STAGE 2B: s.263 CA 2006:

Discretionary (3) In considering whether to give permission (or leave) the court must take into account, in particular
Conditions: (a) whether the member is acting in good faith in seeking to continue the claim (Barrett v Duckett – Sought
claim as form of retribution against son-in-law)
(b) the importance that a person acting in accordance with s.172 (duty to promote the success of the
company) would attach to continuing it (Would it promote the success of the company?);
- The court must assess the commercial considerations (time and costs involved, the distraction of
management, damage to reputation, likelihood of success and recovery, size of the loss) which the
director would regard as relevant in assessing the importance of continuing the claim (Franbar v
Patel)
(c) where the cause of action results from an act or omission that is yet to occur, whether the act or omission
could be, and in the circumstances would be likely to be–
(i) authorised by the company before it occurs, or
(ii) ratified by the company after it occurs;
(d) where the cause of action arises from an act or omission that has already occurred, whether the act or
omission could be, and in the circumstances would be likely to be, ratified by the company;
(e) whether the company has decided not to pursue the claim (Should the court override that decision?).
- If the company has not actually considered the matter, the court may use its powers to adjourn
proceedings to allow for that consideration. 
- In Kleanthous v Paphitis [2012], refusing permission to continue, the court was influenced by the fact
that the company had set up a committee made up of the two directors who were not defendants to
the claim and they had concluded that it would not be in the company’s commercial interests (in terms
of management disruption, damage to the company’s performance as a result of the loss of
experienced and high profile directors, damage to reputation and to the brand) to continue the claim
against the company’s major shareholders and directors
(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the
member could pursue in his own right rather than on behalf of the company – i.e. s.994 CA 2006; s.33 CA
2006; s.112(1)(g) IA 1986.

This is a Non-Exhaustive list (Stimpson v Southern Private Landlords Association [2009]). Account may be taken of:
(i) Employees;
(ii) Costs (Isini v Westrip Holdings Ltd  [2011]);
(iii) Solvency.
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(4) In considering whether to give permission (or leave) the court shall have particular regard to any evidence
before it as to the views of members of the company who have no personal interest, direct or indirect, in the
matter. (Do they think the claim should continue – They may consider costs; waste of time etc.)

- In Stainer v Lee [2010], Roth J. stated:

I consider that s.263(3) and (4) do not prescribe a particular standard of proof that has to be satisfied but rather
require consideration of a range of factors to reach an overall view.

- s.263 does not require a derivative claim to satisfy any particular merits test before permission to continue it will
be given.
- Obviously, an applicant under s.261 must establish a prima facie case that the company has a good cause of action
which arises out of the defendant’s breach of duty… but it does not mean that any particular threshold must be
crossed in all cases (Hughes v Weiss [2012])

7. Is there any Should a claim be brought?

practical advice
to give to the What are the advantages/ drawbacks?
client? Consider:
- The Claimant is locked into the company;
- Remedies obtained by the company, not the client;
- The cost of proceedings;
- How evidence is going to be obtained and used;
- Time the claim will take.