Companies Act 2006, section 263

Whether permission to be given

Part 11 Derivative claims and proceedings by members

(1)The following provisions have effect where a member of a company applies for permission (in Northern Ireland, leave) under section 261 or 262.

(2)Permission (or leave) must be refused if the court is satisfied—

(a)that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, or

(b)where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company, or

(c)where the cause of action arises from an act or omission that has already occurred, that the act or omission—

(i)was authorised by the company before it occurred, or

(ii)has been ratified by the company since it occurred.

(3)In considering whether to give permission (or leave) the court must take into account, in particular—

(a)whether the member is acting in good faith in seeking to continue the claim;

(b)the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it;

(c)where the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be—

(i)authorised by the company before it occurs, or

(ii)ratified by the company after it occurs;

(d)where the cause of action arises from an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company;

(e)whether the company has decided not to pursue the claim;

(f)whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company.

(4)In considering whether to give permission (or leave) the court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter.

(5)The Secretary of State may by regulations—

(a)amend subsection (2) so as to alter or add to the circumstances in which permission (or leave) is to be refused;

(b)amend subsection (3) so as to alter or add to the matters that the court is required to take into account in considering whether to give permission (or leave).

(6)Before making any such regulations the Secretary of State shall consult such persons as he considers appropriate.

(7)Regulations under this section are subject to affirmative resolution procedure.

Read section 263 in the full Act → Definitions (3) Cases (50)

Definitions used in section 263

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
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
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 263 (50)

Durnont Enterprises Limited v Fazita Investment Limited & Ors

[2024] EWCA Civ 299 · 26 March 2024Disapplies

Interpreted as inapplicable to a derivative claim for an overseas company. CPR 19.17 does not refer to it, so the court instead applied common-law principles (see [21]-[22]).

Lawrence Ewan McGaughey & Anor v Universities Superannuation Scheme Limited & Ors

[2023] EWCA Civ 873 · 21 July 2023

The provision was used to explain that permission must be refused where no director acting in accordance with section 172 would seek to continue the claim, a consideration which includes company loss or harm. (see paras [67]-[68]; [103]) Cited only. The court recognised the availability of a personal cause of action as a relevant consideration when deciding whether derivative permission should be granted. (see paras [67]; [166]-[167]; [185]-[186]) Cited only.

Philip Gamett v Paul Hughes & Anor

[2026] EWHC 2004 (Ch) · 30 July 2026Disapplies

The court applies the statutory scheme of mandatory refusal grounds, discretionary factors and consideration of disinterested members’ views. (see paras [8]; [68]; [78]) The court treats subsection (2) grounds as mandatory bars. It disposes of the application under paragraph (a) and considers paragraph (c) separately. (see paras [8]; [59]-[66]) The court applies the test whether no director acting in accordance with section 172 would seek to continue the claim. It finds the test satisfied because the claim is weak, costly, legally problematic and better pursued personally. (see paras [35]-[59]) The court considers authorisation and ratification as separate possible answers to otherwise actionable conduct. It does not find either bar decisive because paragraph (a) already disposes of the application; conditionally, it would not have been satisfied on the material. (see paras [60]-[66]) The court exercises the discretion by considering the statutory factors in light of claim weakness, value, cost, alternative remedies and company circumstances. (see paras [67]-[85]) The court treats good faith as relevant but non-determinative. A collateral motive may coexist with good faith where company benefit is dominant; the court was not satisfied of bad faith but gave the factor little weight. (see paras [69]-[74]) The court gives little weight to continuation where a hypothetical director would attach little importance to a weak, low-value claim that could be pursued personally. (see paras [75]-[77]) The court treats paragraph (c) as irrelevant because the alleged acts and omissions had already occurred. (see para [78]) The court gives paragraph (d) no particular weight because the company is split 50/50 and ratification is not possible. (see para [78]) The court gives paragraph (e) no particular weight because the 50/50 company could not make an independent decision whether to pursue the claim. (see para [78]) The court treats the availability of a personal cause of action as particularly powerful. A personal claim would avoid exposing the company to its own and adverse costs. (see paras [79]-[82]) The court has nothing to consider under paragraph (4) because the company had no members without a personal interest. (see para [78])

30 more judgments, and what each says about section 263, are in the case-law panel in the full Act.

Explanatory note

498.This section sets out the criteria which must be taken into account by the court in considering whether to give permission to continue a derivative claim.

499.Subsection ( 2) provides that the court must refuse leave to continue a derivative claim if it is satisfied that:

  1. a person acting in accordance with the general duty of directors to promote the success of the company (section 172) would not seek to continue the claim; or

  2. the act or omission giving rise to the cause of action has been authorised or ratified by the company. Section 180(4) preserves any rule of law enabling the company to give authority for anything that would otherwise be a breach of duty. Section 239 preserves the current law on ratification of acts of directors, but with one significant change. Any decision by a company to ratify conduct by a director amounting to negligence, default, breach of duty or breach of trust in relation to the company must be taken by the members, and without reliance on the votes in favour by the director or any connected person.)

500.Subsection ( 3) sets out the criteria which the court must, in particular, take into account in considering whether or not to grant permission for the derivative claim to be continued.

501.Subsection ( 4) provides that, in considering whether to give permission, the court must have particular regard to any evidence before it as to the views of independent members of the company i.e. members who have no personal interest, direct or indirect in the matter.

502.Subsection ( 5) confers on the Secretary of State a power to make regulations with regard to the criteria to which the court must have regard in determining whether to grant leave to continue a derivative claim and where leave of the court must be refused. Subsection ( 6) provides that, before making any such regulations, the Secretary of State must consult with such persons as he considers appropriate. The power reflects a recommendation by the Law Commission in its 1997 report on shareholder remedies in respect of analogous shareholder actions in Scotland. Under subsection ( 7) , the regulations will be subject to the affirmative resolution procedure.

All the explanatory notes for the Act

Amendments and notes

7 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. C477Ss. 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. C478Ss. 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. C479Ss. 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. C480Ss. 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)

Commencement

  1. I96S. 263 wholly in force at 1.10.2007; s. 263 not in force at Royal Assent, see s. 1300; s. 263 in force for specified purposes at 20.1.2007 by S.I. 2006/3428, art. 3(3) (subject to art. 5, Sch. 1 and with arts. 6, 8, Sch. 5); s. 263 in force at 1.10.2007 by S.I. 2007/2194, art. 2(1)(e) (with saving in art. 12 and with transitional provisions and savings in Sch. 3) this amendment is subject to savings and/or transitional provisions, see the commentary. text for certain specified purposes only, see the commentary.