Companies Act 2006, section 262

Application for permission to continue claim as a derivative claim

Part 11 Derivative claims and proceedings by members

(1)This section applies where—

(a)a company has brought a claim, and

(b)the cause of action on which the claim is based could be pursued as a derivative claim under this Chapter.

(2)A member of the company may apply to the court for permission (in Northern Ireland, leave) to continue the claim as a derivative claim on the ground that—

(a)the manner in which the company commenced or continued the claim amounts to an abuse of the process of the court,

(b)the company has failed to prosecute the claim diligently, and

(c)it is appropriate for the member to continue the claim as a derivative claim.

(3)If it appears to the court that the application and the evidence filed by the applicant in support of it do not disclose a prima facie case for giving permission (or leave), the court—

(a)must dismiss the application, and

(b)may make any consequential order it considers appropriate.

(4)If the application is not dismissed under subsection (3), the court—

(a)may give directions as to the evidence to be provided by the company, and

(b)may adjourn the proceedings to enable the evidence to be obtained.

(5)On hearing the application, the court may—

(a)give permission (or leave) to continue the claim as a derivative claim on such terms as it thinks fit,

(b)refuse permission (or leave) and dismiss the application, or

(c)adjourn the proceedings on the application and give such directions as it thinks fit.

Read section 262 in the full Act → Definitions (4) Cases (8)

Definitions used in section 262

company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
derivative claim

This is referred to in this Chapter as a “derivative claim”.

Defined in s.260(1) · see it in the full Act
member

(2) In sub-paragraph (1) “member” has the same meaning as it has by virtue of section 7(1) of that Act .

Defined in Sch.2 Pt.1 · see it in the full Act
the court

(1) Except as otherwise provided, in the Companies Acts “the court” means—

(a)in England and Wales, the High Court or the county court;

(b)in Scotland, the Court of Session or the sheriff court;

(c)in Northern Ireland, the High Court.

Defined in s.1156(1) · see it in the full Act

(2) The provisions of the Companies Acts conferring jurisdiction on “the court” as defined above have effect subject to any enactment or rule of law relating to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom.

Defined in s.1156(2) · see it in the full Act

Cases considering section 262 (8)

SDI Retail Services Ltd v King & Ors

[2017] EWHC 737 (Ch) · 6 April 2017

The court considered the statutory mandatory bars to permission and treated the relevant hypothetical-director inquiry as objective. (see paras [51]-[62])

Iesini & Ors v Westrip Holdings Ltd & Ors

[2009] EWHC 2526 (Ch) · 16 October 2009Interprets

The provision permits a member to seek control of qualifying proceedings already brought by the company where, for example, the company is not pursuing them diligently. It is intended to address improper company control of litigation rather than ordinary dissatisfaction with its progress. (see paras [70]; [80])

Hitesh Gandesha v Narendra Gandesha & Ors: Re Milestar Limited

[2023] EWHC 2153 (Ch) · 8 September 2023

Confirms that the company’s potential costs exposure under an indemnity is relevant when assessing the section 172 factors (see para [54]).

What each judgment says about section 262 is in the case-law panel in the full Act.

Explanatory note

496.This section addresses the possibility that, where a company has brought a claim and the cause of action on which the claim is based could be pursued by a member as a derivative action:

  • the manner in which the company commenced or continued the claim may amount to an abuse of process (e.g. the company brought the claim with a view to preventing a member bringing a derivative claim);

  • the company may fail to prosecute the claim diligently; and

  • it may be appropriate for a member to continue the claim as a derivative claim;

497.The section provides that, in these circumstances, a member may apply to the court to continue the claim as a derivative action.

All the explanatory notes for the Act

Amendments and notes

6 notes from legislation.gov.uk

Modifications

  1. C467Ss. 260-269 modified (1.3.2016) by The NRAM plc (formerly Northern Rock plc) Consequential and Supplementary Provisions Order 2016 (S.I. 2016/114), arts. 1(1), 7(1), (3), Sch. para. 1(m)
  2. C468Ss. 260-269 modified (16.7.2026) by The Modification of the Law (British Steel Limited Property Transfer) Regulations 2026 (S.I. 2026/833), regs. 1(2), 6(2), Sch. para. 1
  3. C473Ss. 260-269 modified (22.2.2008) by The Northern Rock plc Transfer Order 2008 (S.I. 2008/432), art. 17(1), Sch. para. 2(m)
  4. C474Ss. 260-269 modified (8.00 a.m. on 29.9.2008) by the The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 (S.I. 2008/2546), art. 13(1)(3), Sch. 1 para. 2(m)
  5. C475Ss. 260-269 modified (9.30 a.m. on 7.10.2008) by The Heritable Bank plc Transfer of Certain Rights and Liabilities Order 2008 (S.I. 2008/2644), art. 26, Sch. 2 para. 2(m)
  6. C476Ss. 260-269 modified (retrospective to 30.3.2009 at 8.00 a.m.) by The Amendments to Law (Resolution of Dunfermline Building Society) Order 2009 (S.I. 2009/814), arts. 1(2), 7, Sch. para. 2(m)