Gerard Chimbganda v Judith Kundodyiwa & Anor

Permission for a derivative claim is not automatically barred because the shareholder is also pursuing a Companies Act 2006 section 994 petition concerning substantially the same conduct.

At the permission stage, the court must assess whether there is at least a prima facie case, without conducting a mini-trial. It must then exercise the statutory discretion by considering whether a hypothetical independent director or board would regard continuation as consistent with the duty to promote the company’s success. The availability of an alternative shareholder remedy is relevant but not conclusive. The risk that the company, rather than the shareholder, may ultimately be entitled to relief may justify maintaining both proceedings, subject to appropriate case management and costs conditions.

The claimant and the first defendant were equal shareholders and sole directors of the second defendant, a domiciliary care company. The claimant had brought a section 994 petition alleging unfairly prejudicial conduct and sought a share purchase order. He also brought a derivative claim alleging breaches of duty causing financial, reputational and regulatory harm to the company.

The first defendant opposed second-stage permission. She argued that the claims substantially overlapped, that the derivative claim had become pointless after withdrawal of a proposed costs indemnity, and that the claimant was acting in bad faith. The central issue was whether the derivative claim should continue despite the overlapping petition.

1. Permission granted. The derivative action was allowed to continue, subject to case management directions and a condition that the claimant remain personally liable for his own costs and any costs ordered against the company.
2. At the second permission stage, the claimant must establish more than a seriously arguable case. The court must form a provisional view on the strength of the claim and apply the prima facie case test. That assessment must be conducted on the evidence available, without undertaking a mini-trial. In this case, the claimant had established at least a prima facie case.
3. The absolute bar in section 263(2)(a) of the Companies Act 2006 applies only where no director acting in accordance with section 172 would seek to continue the claim. If reasonable directors might take different views, the matter falls within the discretionary factors in section 263(3).
4. The statutory good-faith requirement concerns whether the claimant honestly pursues the company’s cause of action and has no ulterior purpose unrelated to the litigation. Other personal benefits do not necessarily amount to bad faith. The disputed evidence and alleged retaliatory motive could not properly be resolved without a trial.
5. The existence of a section 994 petition is not an absolute bar. The broader jurisdiction recognised in Ntzegkoutanis v Kimionis did not make a separate derivative claim abusive or pointless. The two claims might not stand or fall together, and the derivative proceedings could protect the company against the risk that it, rather than the shareholder, was entitled to relief.
6. The hypothetical board had to consider matters beyond the immediate shareholder dispute, including employees, creditors, the company’s reputation, migrant care workers, vulnerable care recipients, regulatory risks and the restoration of diverted assets. Overlap between the proceedings was a case-management issue, not a reason automatically to refuse permission.