Checkmate – understanding derivative claims

• 22 July 2026
• News
• Commercial and corporate disputes

Derivative claims occupy a unique position in English company law. While the pursuit of claims by companies is ordinarily a matter for its directors, a derivative claim provides shareholders with a limited route to pursue claims on the company’s behalf where the directors are unwilling to take action.

Below we consider:

1. What is a derivative claim?
2. What causes of action can be brought via a derivative claim?
3. What is the process for seeking permission to bring a claim?
4. In what circumstances is the court required to refuse permission?
5. What factors will the court otherwise consider when deciding whether to grant permission?
6. Practical tips for potential claimants.

This article forms part of our Checkmate – your essential guide to commercial disputes series, a collection of practical insights designed to help businesses navigate common dispute scenarios with clarity and confidence.

What is a derivative claim?

A derivative claim is a claim brought by a shareholder on behalf of a company in respect of a wrong committed against that company arising from a director’s act or omission. As such, derivative claims can be pursued against directors and also third party accessories who have assisted directors in their wrongdoing.

While a derivative claim is brought by a shareholder on the company’s behalf, the underlying cause of action belongs to the company. As a result, any recovery (whether by way of damages or other relief) is for the benefit of the company rather than the individual shareholder.

Derivative claims fall into two broad categories:

• Statutory derivative claims, brought under the Companies Act 2006 by shareholders of companies formed and registered under that Act.
• Common law derivative claims, which continue to have relevance in cases falling outside the statutory regime, including certain claims involving overseas companies, LLPs and claims by shareholders concerning breaches by a company’s subsidiary.

The remainder of this article focuses on statutory derivative claims, which are the most commonly encountered in practice.

What causes of action can be brought via a derivative claim?

A statutory derivative claim may be brought in respect of an underlying cause of action against a director arising from:

• negligence;
• default i.e., a failure by a director to discharge their obligations under the Companies Act 2006;
• breach of duty, including contractual, fiduciary or tortious duties; and
• breach of trust.

The range of claims covered is therefore intended to be broad and to cover most instances where a director’s conduct could cause harm to the company.

What is the process for seeking permission to bring a claim?

The court’s permission is required to bring a claim. This involves two stages.

Stage 1 – a prima facie case

Once the claim form has been issued, the claimant must file an application for permission to continue the claim together with supporting evidence. The claimant must notify the company of the claim and the permission application as soon as practicable.

The court will then decide whether the application and evidence submitted discloses a prima facie case. This initial assessment usually takes place on the papers without a hearing. The court does not receive submissions at this stage from the director accused of wrongdoing.

The court must be satisfied that there is an arguable case that the company has a cause of action arising from the alleged misconduct. If that threshold is not met, the application will be dismissed.

Stage 2 – the substantive hearing

If the claimant succeeds at the first stage, the application proceeds to a substantive hearing. At this point, all relevant parties have an opportunity to participate.

Although the hearing is not intended to be a full trial of the underlying allegations, the court undertakes a broader assessment of whether allowing the claim to continue would be in the company’s interests.

The starting point is that a statutory derivative claim is a tightly controlled remedy. The courts are generally reluctant to interfere with a company’s internal management where decisions have been made by those acting within the scope of their authority. Furthermore, English law places significant weight on the majority rule – which means that if decisions are made, authorised or ratified by the majority of shareholders, other shareholders are usually unable to complain about such conduct.

In what circumstances is the court required to refuse permission?

Permission will be refused without further consideration if the court is satisfied that either of the below grounds are satisfied:

• A director acting in accordance with their duty to promote the success of the company would not seek to continue the claim. This test is subjective and permission will therefore only be refused where the court is satisfied that no director would seek to continue the claim. This is a high bar.
• The conduct complained of has been validly authorised in advance or subsequently ratified by the company. In assessing ratification, the votes of the alleged wrongdoer and any connected shareholders are disregarded.

What factors will the court otherwise consider when deciding whether to grant permission?

If permission is not refused on either of the two grounds above, the court will then consider the following factors when deciding whether to grant permission:

• whether the claimant is acting in good faith in seeking to continue the claim;
• the importance that a director acting in accordance with their duty to promote the success of the company would attach to continuing the claim;
• whether the conduct in question would likely be authorised or ratified by the company;
• whether the company has decided not to pursue the claim; and
• whether the shareholder has a personal cause of action that could be pursued directly rather than through a derivative claim.

The court must also have regard to the views of shareholders of the company who have no direct or indirect personal interest in the matter.

Practical tips for potential claimants

Before commencing a derivative claim, a shareholder should carefully consider a number of questions, including:

• Does the company have a cause of action arising from negligence, default, breach of duty or breach of trust and is there sufficient evidence to establish a prima facie case? If not, the company will be refused permission to bring the claim at the first permission stage.
• Is it clear that no director acting in accordance with the interests of the company would seek to continue the claim? Has the conduct already been authorised or ratified by the company?  If the answer to either question is “yes”, permission to bring the claim will be automatically refused at the second permission stage.
• Is there an alternative remedy available? If so, permission to bring the claim is likely to be refused. In any event, a shareholder may be better served by pursuing a personal remedy, such as an unfair prejudice petition, rather than seeking to litigate on the company’s behalf.
• Is pursuing the claim genuinely in the company’s interests? This is likely to be a central consideration when the court decides whether to give permission to bring the claim. This requires a broad assessment going beyond the legal merits of the cause of action. Relevant considerations are likely to include the value of the claim, the costs of the litigation, the prospects of recovering under any judgment, the potential reputational impact on the company and the extent to which the proceedings may divert management time and resources from the company’s business. A claimant should also consider whether shareholders who have no direct or indirect interest in the dispute would support the company pursuing the claim.

This insight is one of a series of Checkmate articles exploring the core themes that underpin modern commercial disputes, from post-acquisition claims to shareholder conflicts and directors’ duties.

To access the full guide and build a broader understanding of the risks and strategic considerations across these areas, visit here.