Company Law and Companies Act - Case Study Example

Alistair Darling, the Secretary of State of the department of trade and industry in the UK had stated that the act would be implemented before the year 2009. However by the end of 2007, most of the provisions had have been put into effect. Therefore, the Company Act 2006 is being implemented step by step. One of the important provisions that are being implemented in the Company Act 2006 is Derivative Claims. Derivative claims allow the shareholders to act against the board of directors on behalf of the company.

This has been a bold step by the Parliament of the United Kingdom since it was not possible for the shareholders to have this level of control the company. The objective of the Parliament is therefore to make the legislation pertaining to the company law which is more flexible and more modern1. Thus the shareholder can bring forward a legal claim against the director of the company, if the shareholder has a valid reason to do so. Generally, the reason behind shareholders action against director is a wrong committed by the director against the company.

The sections of the Companies Act 2006 are sections 260 to sections 264. . These sections make it necessary for the shareholders to ask permission from the court for continuing their action against the directors. The shareholders require basing their action against the director on grounds such as proposed or actual action or action by a director which includes breach of trust or a breach of duty against the company, or default and negligence towards the expected duties of a director. The proceedings are usually brought not in the name of the shareholder but in the name of the company.

Furthermore, the claim can be brought not only against the director, but also against the shadow director or a former director of the company. Geoffrey Morse(2007, p.5) states 'Part11 identifies a procedure whereby a member of the company may seek to institute a derivative claim ( in England and Wales or northern Ireland) or derivative proceedings(In Scotland), and actions seeking relief on behalf of the company in respect to a wrong done to it. Henceforward, derivative actions may be brought only under this part or as a result of a court order under the unfair prejudice provisions of the Act.

However, not all wrongs done to the company may be the subject of a derivative action under Part 11. Only acts or omissions by directors may give rise to derivative actions and where those acts or omissions involve negligence, default, breach of duty or breach of trust.'Derivative ClaimsDerivative claims is a process which can be divided into two broad stages. First of all, the shareholders need to show they are acting on behalf of the company and don't have vested interests. Additionally, courts need to ensure that are conforming to the guidelines or the provisions laid down by the Companies Act