WHITHER THE STATUTORY DERIVATIVE ACTION?
AbstractA derivative action is brought by an individual shareholder or other person on behalf of a corporation. It serves a dual purpose. First, it ensures that a shareholder has a right to recover property or enforce rights for the corporation if the directors refuse to do so. Second, it helps to guarantee some degree of accountability and to ensure that control exists over the board of directors and senior officials either directly, by allowing shareholders the right to bring an action against directors or officers if they have breached their duty, or indirectly, by the threat of such an action if duties might be breached. This article examines the utility of the derivative action with particular reference to the second of these purposes. Recent case law is examined critically to determine how the courts are interpreting the statutory preconditions to bringing such an action. It is suggested that bad drafting and overly-cautious judges are placing an increasing and unnecessary burden on applicants. The main focus is on the judicial trend towards narrowing the scope and hence the effectiveness of the derivative action by limiting potential applicants and requiring more information to satisfy the demand requirement. Particular consideration is also given to the possibility of the acceptance of special litigation committees in Canada.
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