This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Learn how to bring a derivative claim against a company director under the Companies Act 2006 in England and Wales. This guide explains legal criteria, court procedures, requirements for permission, possible remedies, risks, and practical considerations for shareholders.
A derivative claim is a special form of legal action available under company law in England and Wales. It enables a shareholder (also called a “member” of a company) to bring a claim on behalf of the company against a director who has allegedly acted wrongly to the company's detriment. Unlike a personal claim, the benefit of any successful action goes to the company itself, not directly to the shareholder bringing it. This guide explains how derivative claims work, the legal requirements, the court process, practical steps, and what shareholders should consider before proceeding.
What is a Derivative Claim?
A derivative claim arises from Part 11 of the Companies Act 2006. It allows a shareholder to enforce a cause of action that the company itself could have pursued, but has not done so, usually because the directors responsible for the wrongdoing are also those who would decide whether to take legal action.
The claim must be based on a cause of action that belongs to the company and arises from a director's:
- Negligence;
- Default;
- Breach of duty; or
- Breach of trust.
These concepts are firmly rooted in both statutory law and historic company law principles designed to protect the company itself from harm caused by those in control.
Who Can Bring a Derivative Claim?
Only a member (shareholder) of a company can bring a derivative claim under the Companies Act 2006. Members include current shareholders and, in some situations, persons who have acquired shares by operation of law (for example, through inheritance).
A shareholder does not need to have been a member at the time the wrongful act occurred, because the right being enforced is the company's right, not the member's personal right.
What Wrongs Can Give Rise to a Derivative Claim?
A derivative claim can be used when:
- A director has breached fiduciary duties (duties to act honestly and in the company's best interests).
- A director has failed to exercise reasonable care, skill and diligence.
- A director has acted in a way that unlawfully benefits themselves at the expense of the company.
- A director has engaged in wrongdoing such as fraud or misuse of company property.
Importantly, the claim focuses on harm to the company, not harm solely to a particular shareholder.
Steps to Bring a Derivative Claim
1. Identify the Cause of Action
Before commencing proceedings, you should be clear that a valid cause of action exists under sections 260–264 of the Companies Act 2006. This involves analysing whether the conduct complained of involves negligence, default, breach of duty or breach of trust by one or more directors.
2. Issue a Claim Form
Proceedings begin with issuing a Claim Form in the appropriate court (usually the High Court or a designated company law venue). The form must be headed clearly as a “Derivative Claim”.
The company should be listed as one of the defendants alongside any directors or other parties against whom relief is sought.
3. Apply for Permission to Continue the Claim
After issuing the claim, the shareholder must apply to the court for permission to continue the derivative claim. The court will consider whether:
- There is a prima facie case that a cause of action exists.
- The claimant is acting in good faith.
- Someone acting to promote the success of the company would continue the claim.
- The act or omission in question has been or could be authorised or ratified by the company.
This two‑stage process is a key feature of a derivative claim and is aimed at preventing unmeritorious claims reaching full trial. If the court finds there is no serious issue to be tried, permission will be refused at an early stage.
Factors the Court Considers
The court's decision on permission involves balancing complex considerations. Among the factors it may weigh are:
- The strength of the evidence supporting the claim.
- Whether the claimant is acting in the company's best interests.
- The views of disinterested shareholders who are not connected to the alleged wrongdoers.
- Whether the act complained of has already been ratified by the company's members.
If permission is granted, the claim proceeds to a full hearing where evidence and legal arguments are tested more thoroughly.
Possible Remedies and Outcomes
If a derivative claim succeeds at hearing, various remedies are available, similar to those in ordinary civil actions. These may include:
- Injunctions to stop ongoing or prevent further wrongful acts.
- Damages payable to the company for loss suffered.
- Orders requiring directors to account for profits made from wrongdoing.
- Setting aside unlawful transactions undertaken by directors.
Directors may also face disqualification proceedings under the Company Directors Disqualification Act 1986 if their conduct is sufficiently serious, though this is separate from the derivative claim itself.
Risks and Practical Considerations
Cost and Complexity
Derivative claims can be legally and procedurally complex. Court proceedings, expert evidence, and extensive legal submissions all contribute to potentially significant costs. Shareholders should seek informed legal advice to assess whether the claim is proportionate to the harm alleged.
Personal Liability
Failing to obtain the court's permission before continuing the claim can expose the claimant to personal liability for the company's costs. This makes adherence to procedure critical.
Alternative Remedies
In some situations, a shareholder may have alternative remedies, such as pursuing an unfair prejudice petition under section 994 of the Companies Act 2006, which may result in a buy‑out or other relief without a derivative action.
Common Questions from our Readers
Do you need to be a member when the wrong occurred?
No. You can bring a derivative claim even if you acquired your shares after the act or omission occurred, as the right belongs to the company itself.
Is there a time limit to bring a derivative claim?
There is no specific statutory time limit, but delay may affect the court's approach, and limitation periods for the underlying cause of action may still apply. Court rules and case law will guide these issues on a case‑by‑case basis.
Can directors influence the company to block a derivative claim?
The court's permission process is designed to prevent directors from using majority control to block claims. However, if the company has validly authorised or ratified the act complained of, the court may refuse permission.
Key Takeaways
A derivative claim is a statutory process that allows a shareholder to take action on behalf of a company against a director whose conduct has harmed the company. The cause of action must involve negligence, default, breach of duty, or breach of trust by a director. Shareholders must issue the claim and obtain the court's permission before proceeding. The court will assess the strength of the case and whether continuing the claim is in the company's best interests. Remedies can include injunctions, damages, and restitution for the company, but the process is complex and should be carefully considered with professional advice.
