3.6 Derivative actions.

Derivative action

It is an action brought by an individual on behalf of the company to remedy a wrong done to company even though no wrong has been done to him personally and even though majority of the company’s members do not wish to bring the action.

Characteristics of a derivative action

  • A wrong must have been done to the company but the majority shareholders have failed or refused to act.
  • The company is under the control of the majority shareholders/directors.
  • An individual shareholder or minority decides to sue the wrongdoers for or on behalf of company.
  • Any damages awarded will go to the company but not to plaintiff shareholder.
  • Any costs and expenses incurred by the plaintiff will be recovered from company which will in turn recover the same from the directors who failed to act in the first instance.