(1)This Chapter applies to proceedings in England and Wales or Northern Ireland by a member of a company—
(a)in respect of a cause of action vested in the company, and
(b)seeking relief on behalf of the company.
This is referred to in this Chapter as a “derivative claim”.
(2)A derivative claim may only be brought—
(a)under this Chapter, or
(b)in pursuance of an order of the court in proceedings under section 994 (proceedings for protection of members against unfair prejudice).
(3)A derivative claim under this Chapter may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.
The cause of action may be against the director or another person (or both).
(4)It is immaterial whether the cause of action arose before or after the person seeking to bring or continue the derivative claim became a member of the company.
(5)For the purposes of this Chapter—
(a) “director” includes a former director;
(b)a shadow director is treated as a director; and
(c)references to a member of a company include a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law.
Cases considering section 260 (51)
[2023] EWCA Civ 1480 · 12 December 2023Disapplies
A statutory derivative claim requires proceedings by a member concerning a company cause of action and seeking relief on the company’s behalf. The requirements are cumulative. (see paras [35]-[40]; [61]-[77])
By a majority, claims for company compensation and constructive-trust relief within the petition were “in respect of” causes of action vested in the company. Snowden LJ considered that the provision instead catches representative enforcement of the company’s cause of action. The disagreement did not affect the outcome. (see paras [36]-[37]; [61]-[76])
A member pursuing a personal unfair prejudice petition does not seek relief “on behalf of the company”, although the requested order would benefit it. This condition was therefore not satisfied. (see paras [38]-[40]; [74]-[77])
The restriction on how derivative claims may be brought did not apply because the petition failed to satisfy the definition in section 260(1)(b). (see paras [38]-[40]; [77])
The provision contemplates a derivative claim brought after authorisation under section 996. It does not imply that a contemporaneous unfair prejudice petition is itself a derivative claim. (see para [72])
Cited only.
[2023] EWCA Civ 873 · 21 July 2023Defines
Defines statutory derivative proceedings as a member’s action in respect of a cause of action vested in the company, with relief sought on the company’s behalf. (see paras [67]-[70])
Identifies negligence, default, breach of duty and breach of trust by a director as possible causes of action for a statutory derivative claim. (see para [67])
[2026] EWHC 2004 (Ch) · 30 July 2026Limits
The court treats the statutory Chapter as the exclusive route for a derivative claim and identifies the statutory limits governing such claims. (see paras [5]-[6])
The court notes that a derivative claim may be brought only under the statutory Chapter. (see para [6])
The court applies the requirement that the cause of action arise from an act or omission involving specified wrongdoing by a director. It questions whether alleged contractual and trust duties arose from breach by Mr Hughes in his capacity as director. (see paras [6]; [47])
31 more judgments, and what each says about section 260, are in the
case-law panel in the full Act.
494.This section sets out the key aspects of a derivative claim.
Subsection ( 1) defines what is meant by a derivative claim. There are three elements to this: the action is brought by a member of the company; the cause of action is vested in the company; and relief is sought on the company’s behalf. (A “member” is defined in section 112. Subsection ( 5) provides that references to a member in this Chapter include a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law, for example where a trustee in bankruptcy or personal representative of a deceased member’s estate acquires an interest in a share as a result of the bankruptcy or death of a member).
Subsection ( 2) provides that the claim may only be brought either under this Chapter or in pursuance of an order of the court in proceedings under section 994 (proceedings for protection of members against unfair prejudice).
Subsection ( 3) provides that a derivative claim “may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company”. As such, a derivative claim may be brought in respect of an alleged breach of any of the general duties of directors in Chapter 2 of Part 10, including the duty to exercise reasonable care, skill and diligence (section 174).
Subsection ( 3) also provides that the cause of action may be against the director or against a third party, or both. Derivative claims against third parties would be permitted only in very narrow circumstances, where the damage suffered by the company arose from an act involving a breach of duty etc on the part of the director (e.g. for knowing receipt of money or property transferred in breach of trust or for knowing assistance in a breach of trust).
Subsection ( 4) provides that a derivative claim may be brought by a member in respect of wrongs committed prior to his becoming a member. This reflects the fact that the rights being enforced are those of the company rather than those of the member and is the position at common law.
Under subsection ( 5) , the reference to a director in this Chapter includes a former director; and a shadow director is treated as a director.