''Smith v Croft (No 2)''
988Ch 114 is a
UK company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal ...
case concerning derivative claims. Its principle that in allowing a
derivative claim A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits a ...
to continue the court will have regard to the majority of the minority's views has been codified in
Companies Act 2006
The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law.
The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...
, section 263(4).
Facts
Minority shareholders claimed to recover money paid away contrary to the
financial assistance prohibition (now found at section 678 of the Companies Act 2006) and being ''
ultra vires
('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
''. They had 14% of the company's shares, the defendants held 63%, and another shareholder, who did not want litigation, held 21%.
Judgment
Knox J held that if the claimants were a minority even after the wrongdoers were taken out of the equation, then there is no right to sue, even with a ''
Foss v Harbottle
''Foss v Harbottle'' (1843) 2 Hare 46167 ER 189is a leading English precedent in corporate law. In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. This is known as "the proper pl ...
'' exception. Independence is a question of fact. He followed ''
Burland v Earle'' in Lord Davey’s ''
dicta
In general usage, a dictum ( in Latin; plural dicta) is an authoritative or dogmatic statement. In some contexts, such as legal writing and church cantata librettos, ''dictum'' can have a specific meaning.
Legal writing
In United States legal term ...
'' that shareholders cannot have a bigger right to sue than the company with its procedural and substantive limitations.
Significance
The case was cited in the Law Commission Shareholder Remedies Report
in regards to the amount of court time involved:
See also
*
UK company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal ...
Notes
{{reflist, 2
References
*
United Kingdom company case law
1988 in United Kingdom case law