[extract] A derivative action is an action brought by a shareholder or director of a company in the name and on behalf of that company. Such an action is ‘derivative’ in the sense that the right to sue belongs not to the party actually bringing the action, but is ‘derived’ from that of the company. Its purpose is to achieve relief in situations where a wrong has been done to the company, rather than to its shareholders personally. Normally, the decision to take action on the company’s behalf lies with the directors, as they generally have the responsibility of managing the company. However, in some cases it is necessary that the shareholders be given the right to commence action on the company’s behalf, usually because some or all of the board are themselves responsible for the wrong that has been committed.
This article discusses both the common law derivative action and the new statutory provision, including the application of sec 165 in the first cases to be brought since it was enacted. It seeks to answer the question: Has the New Zealand provision conferred any significant advantage on minority shareholders, in terms of their access to the courts and the remedies available to them, compared to the previous situation at common law and under existing statutory remedies, and should Australia follow New Zealand’s lead and enact its own statutory derivative as is proposed?