It is an established and basic rule of company law that if a wrong has been committed against a company, the proper claimant ought to be the company itself (known as the Foss v Harbottle rule); the company is a separate legal person distinct from its shareholders, and is thus the proper claimant in proceedings. Derivative actions are a means by which the company’s shareholders can seek redress against the company’s directors and officers (or third parties implicated in any breach of duty) for wrongs committed against the company. The claim is called “derivative” because the cause of action lies with the company, though its shareholders are able to bring the claim in their own name on behalf of the company in exception to the rule in Foss v Harbottle. Actions under this exception require the necessary ingredients of both “fraud” and “wrongdoer control” to proceed.
Under Cyprus law, the derivative action is not simply another form of litigation but a unique procedural and equitable mechanism governed by well-established common law principles and provides minority shareholders with the opportunity to enforce the company’s rights in cases where a wrong has been committed against the company which amounts to fraud on the minority and the wrongdoers themselves control the company’s affairs.
Admittedly, the pursuance of a derivative action, either ordinary or multiple, encompasses both substantive and procedural peculiarities and therefore entails the involvement of an expert. Our team has a vast experience on corporate litigation and the protection of minority shareholders. For any further information and/or assistance, contact us at info@pirilides.com.