A dragon in lingerie

Directors must act in the best interests of their company and must not allow their personal interests to come into conflict.  There are common law fiduciary duties as well as rules under the Companies Act 2006 to this effect.  A recent case involving the Dragon’s Den star Theo Paphitis is a good illustration of the risks directors take when it is perceived that their own interests are being served by a transaction rather than those of the company.

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Derivative Actions - the Court loosens its apron strings

A derivative action is one where a shareholder takes legal action on behalf of the company.  This goes against the general rule that the affairs of the company are managed by the directors.  The reason for this remedy to is to provide a mechanism for redress where, for example, directors refuse to act (particularly where they are the wrongdoers).

The Companies Act 2006 introduced a new procedure for derivative actions which includes a two stage process for permission.  So far the courts appear to have been cautious about allowing shareholders to exercise the remedy but the recent case of Stainer -v- Lee and others may indicate a slightly more relaxed approach.

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