Chapter 3: Derivative and
Class actions
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Article A: Derivative Action and Derivative Defense
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194. (a) Any shareholder and any director of a
company (in this Chapter “plaintiff”) may file a derivative action if the
provisions of this Article prevail.
(b) Any person wishing to
file a derivative action shall address the company in writing, demanding that it
exhaust its rights by instituting an action (in this Chapter “a demand”).
(c) The demand shall be
presented to the chairman of the board of directors of the company, and it shall
set out in detail the facts giving rise to the cause of action and the reasons
for its submission.
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Preconditions for filing of claim
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195. A company that receives a demand may proceed
in one of the following ways:
(1) do any act or pass
any resolution resulting in the dropping of the cause of action;
(2) reject the
plaintiff’s demand, for reasons specified in its resolution;
(3) resolve to file a
suit.
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Response of company
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196. The company shall inform the plaintiff of the
way in which it proceeded under section 195 within forty-five days of the date
of receipt of the demand, giving details of the action taken and the body that
passed the resolution, including the names of those who participated in passing
the resolution; where a participant or an
office holder in the company has a personal
interest in the resolution, this shall be stated in the resolution and in the
notice to the plaintiff.
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Company’s response to plaintiff
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197. A plaintiff may file a derivative action with
the approval of the court, in accordance with the provisions of section 198, if
one of the following applies:
(1) the act done or the
resolution made under section 195(1) did not, in the plaintiff’s opinion, bring
about the dropping of the cause of action;
(2) the company rejected
the plaintiff’s demand as provided in section 195(2);
(3) the company gave
notice to the plaintiff that it has resolved to file a suit, as provided in
section 195(3), but no suit was filed within seventy-five days of the date of
such notice;
(4) the company did not
respond to the demand in accordance with section 196.
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Right to file derivative action
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198. (a) A derivative action requires the approval
of the court, which shall approve it if convinced that the claim, and the
conduct thereof, are prima facie in the best interests of the company and
that the plaintiff is not acting with lack of good faith.
(b) The court may approve
the filing of a derivative action filed before the dates laid down in sections
196 or 197 have elapsed if it is of the opinion that failure to file the claim
on such date would cause it to become prescribed, and it may make the approval
conditional upon the fulfillment of the conditions laid down in this article for
filing a derivative action.
(c) In this article,
“court” – a court having competence to hear the action.
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Approval of derivative action
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199. Where the
court has approved a derivative action, it may:
(1) give instructions as
to the manner and dates of payment of court fees, including the division of
payment of the fee between the plaintiff and the company;
(2) order the company to
pay the plaintiff such sums as it may prescribe to cover the plaintiff’s costs
or to deposit a security for such payment;
(3) require the company
or the plaintiff to deposit security to cover the defendant’s costs.
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Fee and costs |
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200. Where the
court has adjudicated on a derivative action, it may require the company
to pay the plaintiff’s costs and it may require the plaintiff to pay
costs incurred by the company, in whole or in part, taking into account
the judgment and the other circumstances of the case.
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Costs |
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201. Where the
court rules in favor of the company, it may order the payment of a
reward to the plaintiff taking into account, inter alia, the
benefit derived by the company from filing the claim and from winning
it.
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Reward |
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202. A plaintiff shall not withdraw a derivative
action, and shall not enter into an arrangement or settlement with the
defendant, other than with the consent of the court; the application for such
consent specify all details of the arrangement or settlement, including any
payment offered to the plaintiff.
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Arrangement or settlement
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203. (a) Where a claim is filed against a company,
the court may, at the request of a shareholder or director (in this Chapter “the
derivative defendant”) allow such person to defend the claim on behalf of the
company (hereinafter “the derivative defense”) provided that the court is
convinced that the conduct of the derivative defense is for the benefit of the
company, and that the derivative defendant is not acting with lack of good
faith.
(b) The provisions of
this Article regarding a derivative action shall apply, mutatis mutandis,
to a derivative defense to the extent that provisions are not prescribed by the
Minister.
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Derivative defense
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204. A creditor of a company may file a derivative
action on behalf of the company in respect of a prohibited distribution effected
by the company, and the provisions of this Article shall apply thereto,
mutatis mutandis.
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Prohibited distribution of dividend
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205. Neither a derivative action nor a derivative
defense shall be filed on behalf of a company over which a liquidator has been
appointed under Chapter 12 of the Companies Ordinance.
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Company in liquidation
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206. The
Minister may prescribe provisions regarding derivative actions and
derivative defenses, including the procedures for the approval thereof. |
Regulations |
