Derivative Claims: Where are we Part IV

A short update to the information earlier posted on derivative claims after the decision in Cullen Investments Ltd v Brown [2015] EWHC 473 earlier this year. A full judgment is not yet available. When it is the tables can be updated accordingly.

One interesting aspect to note from Cullen Investments is the consideration of the mandatory bars. The judge adopted a flexible approach to the statutory procedure, which has been seen previously by ignoring the ex parte application. Here the judge was faced with claims by the defendant that the claim should be barred as no director, acting in accordance with s.172 would continue the claim, and that the conduct had been authorised.

The judge did not consider exactly whether the conduct had been authorised but seemingly combined the two bars to find that the claim should not be barred since a hypothetical director would consider that  there were 'good prospects of establishing that [the defendant] had not made full and frank disclosure necessary to release him from his duties' and that there was 'good evidence that [the defendant] had deliberately concealed his personal participation in the opportunity, and that such concealment was inconsistent with his defence that his participation was authorised'.

The flexibility may mean that the procedure is not weighed down by technicalities such as wrongdoer control and what legally amounts to authorisation on a preliminary hearing. However, the statute does not permit derogation from it. The judge is meant to consider whether the conduct had or had not been authorised and if so bar it. It is not a balance of probabilities on whether a hypothetical director would consider there to be enough evidence consider the authorisation invalid.

Case	Type of company	Costs indemnity sought	Financial State of the company	Shareholding % (respondent/claimant)	Amount Claimed for*	Concerned a conflict of interest?	Length of proceedings
Bamford	Ltd	Yes	Solvent	50/50	£3,500,000	No	1 day
Cinematic Finance	Ltd	No	Doubtful solvency	0/100	N/A	Yes	N/A
Cullen Investments	Ltd	No	N/A	N/A	“Scant evidence”	Yes	N/A
Fanmailuk	Ltd	N/A	Solvent	Majority/minority	£70,000,000	Yes	N/A
Franbar	Ltd	No	Solvent	75/25	N/A	Yes	2 days
Hughes	Ltd	Yes	To be dissolved	50/50	£100,000+	Yes	1 day
Iesini	Ltd	Yes	Doubtful solvency	Majority/minority	N/A	Yes	4 days
Kleanthous	Ltd	Yes	Solvent	84.5/15.5	£120,000,000	Yes	4 days
Kiani	Ltd	Yes	Solvent	50/50	£296,000	Yes	1 day
Mission Capital	Plc	Yes	Solvent	N/A	N/A	Yes	N/A
Parry	Ltd	N/A	No assets	50/50	£248,577.24	Yes	1 day
Phillips	Ltd	No	Solvent	50/50	£454,000	Yes	N/A
Seven Holdings	Ltd	No	Effectively no assets	50/50	£1,693,212.32	No	1 day
Singh	Ltd	Yes	Solvent/not trading	50/50	£873,000	Yes	1 day
Stainer	Ltd	Yes	Solvent	87/0.08	£7,000,000	Yes	1 day
Stimpson	Ltd by guarantee	No	No assets	Majority/minority	£5,300,000	Yes	4 days

* table updated 1st May 2015 and 9th June 2015

Case Name	Dismissed For/Allowed	Significant Circumstances Considered
Bamford	Dismissed at court’s discretion	Wrongdoer control
Cinematic Finance	Dismissed at court’s discretion	Majority bringing derivative claim; wrongdoer control; side-stepping insolvency rules
Cullen Investments	Permission granted	Hypothetical director would question if full and frank disclosure was given for authorisation; and case was simple on this premise; significant sum could be recovered based on lack of evidence to contrary; no basis for lacking good faith; hypothetical director would attach considerable importance; claim being funded by C so no financial risk to company and possible benefit; claimant’s action may give rise to action in own right but this was not a decisive consideration since the defence necessitated it and as a precaution since the company was entitled to some or all of the relief
FanmailUK	Case adjourned	Case adjourned
Franbar	Dismissed at court’s discretion	Strength of legal claims; ratification; alternative remedy
Hughes	Permission granted	Strength of legal claims; ratification; alternative remedy
Iesini	Mandatory Bar	Weak legal claims
Kleanthous	Dismissed at court’s discretion	Independent review of whether litigation was beneficial; strength of legal claims; alternative remedy; and benefit would be small
Kiani	Permission granted	Failure of defendant to produce any evidence to the contrary; alternative remedy
Mission Capital	Dismissed at court’s discretion	Alternative remedy; little weight to a claim for wrongful dismissal of a director
Parry	Permission granted	Strength of legal claims; ratification; good faith; alternative remedy
Phillips	Permission granted	Alternative remedy; matter of urgency case was brought to recover sums taken from the company without good reason
Seven Holdings	Mandatory Bar	Claims did not relate to a breach of duty, care, negligence or default
Singh	Mandatory Bar	No director would continue the claim if acting in accordance with s.172; fides of the claimant in question; s.994 more appropriate
Stainer	Permission granted	Strong grounds that there had been a breach of duty; strength of legal claims; disinterested shareholders deceived in to approving the loan
Stimpson	Mandatory Bar	The impact an action would have on the interests of the employees; claim of little value compared to cost of claim; legal claims were not realistically arguable