Kiani v Cooper & Ors

Permission for a statutory derivative claim requires more than a bare prima facie case at the second stage. The court must form a provisional view of the claim’s strength and apply the criteria in sections 262 and 263 of the Companies Act 2006. The mandatory bar applies only where no director acting under section 172 would continue the claim. The assessment is commercial and includes the claim’s value, costs, funding, recoverability, litigation risks and effects on the company. An alternative remedy, including an unfair prejudice petition, is only a factor and does not necessarily displace a derivative claim. Permission may be limited, including to disclosure, and a claimant may be required to bear part of the adverse costs risk.

The claimant, a director and shareholder of Woodlands Properties 2006 Ltd, sought permission under sections 260 and 261 of the Companies Act 2006 to continue a derivative claim against the other director and a company controlled by him. The claim concerned alleged fiduciary breaches involving asserted loans, invoices and payments to a related company. The claimant also sought continuation of restraints preventing creditor winding-up petitions and an order concerning the company’s registered office.

The court had to decide whether there was a sufficient case of director default or breach of duty, whether permission was barred or justified under section 263, and how the claimant’s costs should be dealt with.

1. Derivative claim and provisional merits. A derivative claim must concern a cause of action vested in the company arising from a director’s actual or proposed act or omission involving negligence, default, breach of duty or breach of trust. At the first stage the applicant must establish a prima facie case for permission. At the second stage the court must do more than identify a prima facie case: it must form a provisional view of the strength of the claim, without conducting a mini-trial. The claimant had shown a strong case to answer concerning the alleged debts and related-party payments.
2. Section 263 assessment. The mandatory bar in section 263(2)(a) applies only if the court is satisfied that no director acting in accordance with section 172 would continue the claim. The assessment involves a commercial evaluation of matters including the size and value of the claim, costs, funding, recoverability, the company’s ability to meet an adverse costs order, disruption and fairness between members. The court considered that a properly acting director would continue the claim at least to disclosure.
3. Alternative remedy. A possible shareholders’ agreement claim or unfair prejudice petition under section 994 was relevant, but the availability of a more roundabout route to relief did not prevent permission for the derivative claim. Permission was therefore granted, but limited to disclosure.
4. Winding-up restraints and costs. Because the alleged debts were genuinely disputed, continuation in principle of the restraints against creditor winding-up petitions was justified, subject to any undertakings. The claimant’s costs could be paid from company assets, but she was not indemnified against adverse costs. In a dispute between the company’s two directors and shareholders, she was required to bear part of the litigation risk, subject to review after disclosure. The application concerning the registered office was also accepted in principle.

First-instance decision. No appellate history is stated in the judgment.