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09 March 2007 / Ailbhe O'neill
Issue: 7263 / Categories: Features , Company
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Reforming the derivative suit

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Protecting minority shareholders is vital for effective corporate governance, says Ailbhe O’Neill

The protection of the minority shareholder is today seen as a key feature of an effective corporate governance regime. The common law, with its tradition of protecting property rights, is generally considered to offer strong protection to the minority shareholder. Civilian jurisdictions in continental Europe and south east Asian legal systems have traditionally not provided much protection for private property and have left the minority shareholder in a relatively weak position.

The derivative suit

One of the key protections the common law developed to protect minority shareholders is the derivative suit. Often referred to as the ‘one true exception’ to the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189, the derivative suit has been seen as an important aspect of corporate governance reform outside of the common law world.

At a time when other jurisdictions are looking to replicate the derivative suit as part of their legal protection for minority shareholders, the UK has decided to codify

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