Shareholder derivative claims: when can you act on the company’s behalf?

10th Mar 2026

Author: Mark Turner

If you are a shareholder and believe the company has suffered loss because of a director’s conduct, the immediate question is not simply whether something has gone wrong. The more important question is whether there is a viable legal and commercial route to address it. Partner Mark Turner, Commercial Dispute Resolution specialist, explains the position.

One possible route is a shareholder derivative claim under Part 11 of the Companies Act 2006. In broad terms, this allows a shareholder to pursue a claim on the company’s behalf where the company itself is unlikely to act. That can be particularly relevant where the alleged wrongdoing involves those who control the board or otherwise influence the company’s decision-making. Under the statutory regime, the claim is brought for the benefit of the company, so any recovery belongs to the company, not to the shareholder personally, although the court retains discretion to make costs and other orders where appropriate.

What is a shareholder derivative claim?

A derivative claim is a claim in respect of a wrong done to the company. It is not simply a mechanism for challenging a management decision you disagree with, nor is it a general tool for airing shareholder dissatisfaction. The focus is narrower than that.

In practice, these claims are usually considered where there is an allegation of misconduct by a director, such as misuse of company assets, an undisclosed conflict of interest or a transaction that appears to favour a director over the company’s interests. The statutory framework is aimed at claims arising from negligence, default, breach of duty, or breach of trust by a director.

That distinction matters. A derivative claim is concerned with loss to the company. If the real complaint is that your interests as a shareholder have been unfairly affected, a different remedy may be more appropriate.

Who can bring a derivative claim?

A member of the company can bring a derivative claim, including a minority shareholder. You do not need the board’s consent to start the process, but you do need the court’s permission for the claim to continue.

That means this is not a claim you issue lightly. At the outset, you need enough evidence to show that there is a genuine case worth examining. Suspicion, frustration or disagreement over strategy will not usually be enough. The application has to show a real issue, supported by evidence, and a credible basis for saying that the company should have a claim which is not being pursued.

How does the process work?

The permission stage is central. A shareholder who brings a derivative claim must apply to the court for permission to continue it. The court will first consider the application and the written evidence. If the papers do not establish a sufficient case, the court can dismiss the application at an early stage. If the application survives that first review, the court can require further evidence and decide whether permission should be granted.

From a commercial perspective, that initial stage is critical. It is the point at which the court filters out claims that are weak, tactical or not genuinely aligned with the company’s interests. It also means the quality of the evidence, the way the issues are presented and the clarity of the commercial rationale can be decisive.

What will the court consider?

The court will take a company-focused view. One of the key statutory tests is whether a director acting to promote the success of the company would seek to continue the claim. If the answer is no, permission must be refused.

The court will also consider factors such as whether the shareholder is acting in good faith, whether the alleged conduct could be authorised or ratified by the company, and the views of shareholders who do not have a personal interest in the matter. In practical terms, the court is looking at whether the claim is a proper use of the company’s resources and whether it genuinely serves the company’s interests, rather than a shareholder’s separate agenda.

What should you consider before taking action?

Before moving towards litigation, it is sensible to assess the issue on two levels: legal merit and commercial utility.

First, gather the evidence. You will need a clear chronology, relevant documents and a coherent explanation of the loss said to have been suffered by the company. Board papers, accounts, transaction documents and correspondence can all be important.

Second, consider proportionality. Even if there is a legal basis for a claim, that does not automatically make it the right course. The likely costs, management time, disruption to the business and the realistic prospect of recovery all need to be weighed carefully.

Third, consider alternatives. In some cases, a well-judged internal challenge, an independent review or a different form of shareholder claim may achieve a better outcome with less risk.

Key commercial considerations before bringing a derivative claim

Before pursuing a derivative claim, it is important to assess not only whether there may be a legal basis for the claim, but whether it is the right commercial course for the company.

Evidential strength: The permission stage is likely to turn on the quality of the evidence. A shareholder will need more than concern or suspicion. The court will expect a clear explanation of the alleged wrongdoing, the duty said to have been breached and the loss said to have been caused to the company. In practice, that means having a reliable chronology and supporting documents from the outset.

Proportionality: Even where there appears to be a valid complaint, that does not automatically mean proceedings should follow. The value of the claim, the likely prospects of success and the scale of the alleged loss all need to be weighed against the time, cost and disruption involved in litigation.

Cost, funding, and management time: Derivative claims can be demanding in terms of both legal spend and management attention. They can also affect internal relationships and decision-making within the business. Any recovery will usually belong to the company rather than the individual shareholder, although the court can make costs and other orders where appropriate. For that reason, it is important to consider at an early stage how the claim would be funded and whether the likely outcome justifies the investment.

Alternative remedies: A derivative claim is not always the most effective route. Depending on the facts, there may be a more practical solution, whether through internal action, an independent review, negotiated resolution or a different form of shareholder claim. The right strategy will depend on what outcome is being sought and whose interests have in fact been affected.

The company’s best interests: Ultimately, the central question is whether pursuing the claim is genuinely in the company’s best interests. That is not only a legal test, but a commercial one. A well-founded claim may still be the wrong step if it is unlikely to deliver a meaningful commercial benefit to the company.

 

How can Butcher & Barlow help

If you are considering a derivative claim, early advice is important. These cases often turn on evidence, timing, and whether the claim makes commercial sense as well as legal sense.

We can help you assess the underlying issue, review the available evidence and advise on whether a derivative claim is likely to be the right route. Where appropriate, we can also help you prepare the permission application and develop a strategy that reflects both the legal position and the wider commercial context.

If you are concerned that the company has suffered loss and those in control are not taking action, we can help you assess your options and decide on the most effective next step.

Mark can be contacted on 01606 334309 or email mturner@butcher-barlow.co.uk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The information in this article was correct at the time of publication. The information is for general guidance only. Laws and regulations may change, and the applicability of legal principles can vary based on individual circumstances. Therefore, this content should not be construed as legal advice. We recommend that you consult with a qualified legal professional to obtain advice tailored to your specific situation. For personalised guidance, please contact us directly.