(2) Shareholder claims for breach of duties
From 1 October 2007, shareholders will, under the Act, be able to bring derivative actions in the name of the company against directors, or others, for a proposed act or omission involving negligence, default, breach of duty or breach of trust by any director of the company.

There was previously some concern surrounding the introduction of this new statutory right and the common cautionary example cited was the hypothetical activist who purchases shares in a public company just so he can then disrupt the internal management decisions of that company through continuous legal proceedings.

However the Act provides that, once a claim has been issued by a shareholder, on behalf of the company, the claimant (i.e. a shareholder on behalf of the company) must:

• notify the company "as soon as is reasonably practicable after the claim form is issued"; and
• before any further substantive steps can be taken in the proceedings, apply to the Court (with written evidence in support) for permission to continue the claim.

As the claim is effectively stayed until the Court decides it is a prima facie case and give the necessary permission, vexatious claimants with unfounded claims should, in theory, be unable to prevent a company from acting on its decisions pending the conclusion of potentially protracted legal proceedings. In addition when considering whether to give permission for claims to continue, the Court will consider guidelines set out in the Act (s.263) and these include whether the shareholder is acting in good faith and whether the claim is consistent with promoting the success of the company.

Accordingly, it seems that rather than allowing vexatious claims (and related interdict measures) to interfere with a company's activities - the new statutory rights will tend to preserve the Court's general non-interventionist stance in company affairs.

However, if the Court gives permission for reasonable claims to continue, directors will be best advised to ensure they take adequate steps, earlier in the life of the company, to protect themselves. This may include some of the factors considered above but also extends to more basic considerations such as ensuring each of the directors has adequate directors' and officers' insurance in place. Continued...