A wrong done to a company is the company’s claim — and the company is controlled by the very directors who may have committed it. Section 143 of the Companies Act 1997 solves that.
Section 143(1) — what leave permits
(a) bring proceedings in the name and on behalf of the company or any related company; or
(b) intervene in proceedings to which the company or any related company is a party, for the purpose of continuing, defending, or discontinuing them on behalf of the company.
Directors as well as shareholders may apply — a minority director outvoted on the board can use section 143.
“Or any related company” lets a shareholder of a parent sue in the name of a subsidiary, which matters in group structures where the wrong was done at a lower level.
Paragraph (b) covers defence and discontinuance, not just suing. Where directors are allowing a claim against the company to go undefended, or are settling it too cheaply, a shareholder may seek leave to take over the conduct of the defence.
Section 143(3) — the threshold
(a) the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings; or
(b) it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.
Paragraph (a) is the ordinary case: the company will not sue. Note the word “diligently” — a company that has issued a writ and then let it sit is within paragraph (a) just as much as one that has done nothing.
Paragraph (b) is the answer to a company that says it will act. Where the wrongdoers control the board, or control the votes, leaving the claim to them is not in the company’s interests — and the reference to the shareholders as a whole makes clear that a majority vote not to sue does not defeat the application.
Section 143(2) — what the Court weighs
(a) the likelihood of the proceedings succeeding; and
(b) the costs of the proceedings in relation to the relief likely to be obtained; and
(c) any action already taken by the company or related company to obtain relief; and
(d) the interests of the company or related company in the proceedings being commenced, continued, defended or discontinued.
Every factor is directed at whether the litigation is good for the company. A shareholder with a strong sense of grievance but a weak case, or a case worth less than it costs to run, will not get leave. Paragraph (b) is a real filter in small companies.
An applicant should therefore come with a pleaded case, an estimate of costs, an assessment of the defendant’s ability to pay, and evidence of what the company has and has not done.
Sections 143(4) and (5) — the company’s role
(4) Notice of the application shall be served on the company or related company.
(5) The company (a) may appear and be heard; and (b) shall inform the Court whether or not it intends to bring, continue, defend, or discontinue the proceedings.
Paragraph (b) is an obligation, not an option. The company must state its position — which forces the board to commit itself, and gives the Court the material it needs for the section 143(3)(a) gateway.
Section 143(6) — the remedy is exclusive
Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.
The general law exceptions to the rule that only the company may sue for a wrong to itself are displaced. A shareholder who issues proceedings in the company’s name without leave has no standing, and the proceedings are liable to be struck out.
Note that section 143(6) restrains proceedings in the name of or on behalf of the company. It does not affect a shareholder’s own claims — a personal action under section 147, an action against the company under section 149, a section 152 application, or a section 142 injunction.
Derivative or personal?
| The complaint | The remedy |
|---|---|
| A director has caused loss to the company — breach of s 112, s 115 or s 123 | Derivative action under s 143 — s 147(3) makes these duties owed to the company |
| A director has breached a duty owed to you as a shareholder — ss 70, 118, 126 | Personal action under s 147 |
| A proposed contravention of the Act or the constitution | Injunction under s 142 — but only before it is completed |
| The affairs are conducted oppressively or unfairly towards you | Section 152 |
| The company or a director will not do something required of them | Sections 148 and 150 orders |
| Many shareholders share the same complaint | Representative action under s 151 |
Section 147(2) prevents a shareholder recovering a reduction in the value of shares, or a failure of the shares to increase in value, by reason only of a loss suffered or a gain forgone by the company. So where the real loss is the company’s, the derivative action under section 143 is the only route to recovery — which is why the leave application matters so much.
Under section 145(d), however, the Court may direct that an amount ordered to be paid be paid to former and present shareholders instead of to the company.
Sources
- Companies Act 1997 — ss 70, 112, 115, 118, 123, 126, 141–152
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.