Introduction
The Abouraya v Sigmund [2014] EWHC 277 (Ch) case shaped the rules for derivative claims in English company law. This judgment clarified and widened the situations where a shareholder can bring a derivative action on behalf of a company against directors of a subsidiary. The focus was on applying common law rules for derivative actions, as modified by Part 11 of the Companies Act 2006. Key requirements include showing a strong initial argument of misconduct against the subsidiary and proving that those responsible control the subsidiary, preventing it from acting independently. This ruling advanced corporate law, giving shareholders more methods to address harm to companies in multi-level corporate groups.
The Facts of Abouraya v Sigmund
The case involved a complicated company structure. The claimant, Mr. Abouraya, held shares in the first defendant company, Anthea UK Limited. Anthea UK owned all shares in the second defendant, Anthea Overseas Limited. The claim argued that the directors of Anthea Overseas, Mr. and Mrs. Sigmund, had improperly taken assets from Anthea Overseas for personal benefit. Since the Sigmunds controlled Anthea Overseas, Mr. Abouraya sought to bring a derivative claim on its behalf against them.
Expanding Derivative Actions
Before Abouraya v Sigmund, the rule from Foss v Harbottle (1843) 2 Hare 461 stated that a company itself must bring claims for wrongs against it. Exceptions allowed shareholders to act in cases of fraud against minority interests or when wrongdoers controlled the company. Abouraya v Sigmund extended these rules, confirming the "wrongdoer control" exception could apply to claims across multiple company levels where harm affects a subsidiary, and the parent company (which would typically act) is also under wrongdoer control.
The Court's Analysis
Mr. Justice Newey examined the legal framework in detail. He reviewed the Companies Act 2006, particularly section 260(3), which formalized exceptions to Foss v Harbottle. He confirmed the statute did not restrict multi-level derivative actions. The Court found a strong initial argument that the Sigmunds breached their duties as directors of Anthea Overseas and controlled both Anthea Overseas and Anthea UK, blocking either from pursuing the claim.
Impact on Corporate Governance
This ruling affects how company groups are managed. It helps minority shareholders challenge directors of subsidiaries, even if those directors control the parent company. This serves as a check against misuse of power in multi-level company groups.
Practical Steps for Multiple Derivative Claims
After Abouraya v Sigmund, shareholders must examine company structures and evidence of misconduct carefully. Showing control by wrongdoers at both subsidiary and parent levels is necessary. Claimants must also show they act fairly and that the claim serves the company’s interests. Rules under Part 11 of the Companies Act 2006, including requiring court approval to proceed, must be followed completely.
Conclusion
The Abouraya v Sigmund case sets a key precedent for derivative claims in multi-level company structures. The judgment clarifies when multi-level derivative actions are permitted, giving shareholders a method to address harm to subsidiaries controlled by wrongdoers. This strengthens corporate accountability and protects minority shareholders. The case highlights the challenges of derivative claims in complicated company groups and stresses strict compliance with the Companies Act 2006 rules. The principles from Abouraya v Sigmund remain relevant to derivative claims, maintaining their role in upholding corporate standards in structured company arrangements. The judgment is a key reference for shareholders, directors, and legal professionals working with company law rules.
