What is a Statutory Derivative Action?

November 20, 2018 / by RCR / Litigation / 0 Comments

What do we call it when members/officers request legal proceedings under statute to be commenced in the Company’s name? A Statutory Derivative Action.

Section 236 of the Corporations Act 2001 (Cth) (the Act) suggests that a person may (amongst other things) bring proceedings on behalf of a company if:

  • the person is:
    • a member, former member or person entitled to be registered as a member of the company; or
    • an officer of former officer of the company; and
  • the person is acting with leave granted under section 237 of the Act.

In applying for leave under section 237 of the Act, the Court must grant such application if it is satisfied that:

  • it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for steps in them; and
  • the applicant is acting in good faith; and
  • it is in the best interests of the company that the applicant be granted leave; and
  • if there is a serious question to be tried; and
  • at least 14 days’ notice was provided.

There is also a rebuttable presumption that is built in at section 237(3) as to whether granting leave is not in the best interests of the company.

It is apparent that a snapshot of these two provisions of the Act suggest there is more than meets the eye in preparing for such an action, and in drafting the relevant documents to follow suit.

If you find yourself in circumstances where a director (or directors) is not acting in the best interests of the company, or its members, come speak to the team at RCR Litigation as to the options you may have available.