According to Lord Sainsbury, the Act has four key objectives:
It cannot be gainsaid that minority shareholders occupy a vulnerable and precarious position in the hierarchy of the corporate structure. The dilemma that of how one is to go about preserving their rights and granting them protections is akin to the dilemma that faces a democratic polity: while the will of the majority is a foremost consideration and indeed is the most equitable way to resolve disputes and frame policies, there is an equally compelling and equally valid need to have regard for the interests of those in the minority - marginalized sectors who face constant threat of being disenfranchised in a system founded on justice and fairness.
The part of the Act that is most relevant to shareholder engagement is Part 11, which provides shareholders with, as stated in paragraph 480 of the Explanatory Notes, "a new procedure for bringing such an action which set down criteria for the court distilled from the Foss v Harbottle jurisprudence". 2
The Act essentially expands the existing derivative action, and allows shareholders to sue the directors for a wider range of breaches, namely in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust. Another significant change is that a shareholder who has brought proceedings must apply to court for permission to continue the claim. The following criteria must be followed by the court in considering whether or not refuse permission are as follows:
whether the applicant is acting in good faith;
the importance a director promoting the success of the company would attach to continuing the claim;
whether the conduct would be likely to be authorised or ratified by the company;
whether the company has decided not to pursue the claim; and
whether the applicant should pursue a remedy in his own right (ie under section 459 CA) instead of on the company's behalf.
The Act also contains restrictive provisions on the issue of ratification by the majority. Members who are personally interested in the ratification or who stand to gain from it will not be allowed to vote, when such ratification involves a director's negligence, default, breach of duty or breach of trust. The consequence of this is that it will now become easier for shareholders to obtain permission to continue a derivative action. If leave of court is granted, the company must reimburse the shareholder for the costs of litigation.
Stemming from the premise that those with more shares will have the well-being of the company in mind and will only decide according to the company's best interests since the interests of the company are likewise their interests as well, the majority rule is an equitable proposition in resolving company disputes. The majority rule culminated in the celebrated Foss v. Harbottle decision3 , recognized not only in the