Rule in Foss v Harbottle vs. Section 212 of the Companies Act 2014

Attribute	Rule in Foss v Harbottle	Section 212 of the Companies Act 2014
Standing to sue	Shareholders can only bring a derivative action if the company refuses to take action	Any member can bring a derivative action without needing the company's refusal
Scope of application	Applies to common law principles governing derivative actions	Specific statutory provision governing derivative actions
Remedies available	Equitable remedies such as injunctions and damages	Wide range of remedies including damages, injunctions, and orders for the company to take certain actions

Introduction

Rule in Foss v Harbottle and Section 212 of the Companies Act 2014 are both legal principles that deal with the issue of shareholder remedies in cases of corporate wrongdoing. While they serve similar purposes, there are key differences in their application and scope. This article will explore the attributes of both rules and analyze how they impact shareholder rights and corporate governance.

Rule in Foss v Harbottle

The Rule in Foss v Harbottle is a common law principle that restricts the ability of individual shareholders to bring a claim on behalf of the company. The rule states that where a wrong has been done to the company, the proper claimant is the company itself, and not the individual shareholders. This principle is based on the idea that the company is a separate legal entity and should be the one to seek redress for any harm caused to it.

One of the key attributes of the Rule in Foss v Harbottle is its emphasis on protecting the interests of the company as a whole. By preventing individual shareholders from bringing claims on behalf of the company, the rule aims to avoid multiple and conflicting lawsuits that could harm the company's operations and reputation. This aspect of the rule promotes corporate unity and ensures that decisions regarding legal action are made in the best interests of the company as a whole.

However, the Rule in Foss v Harbottle has been criticized for potentially limiting shareholder rights and preventing minority shareholders from seeking redress for wrongs committed by the majority. Critics argue that the rule may allow for corporate misconduct to go unchecked if the majority shareholders are unwilling to take action against wrongdoers. This limitation on shareholder remedies has led to calls for reform and the introduction of statutory provisions to address these concerns.

Section 212 of the Companies Act 2014

Section 212 of the Companies Act 2014 is a statutory provision that allows shareholders to bring derivative actions on behalf of the company in certain circumstances. Unlike the Rule in Foss v Harbottle, which is a common law principle, Section 212 is a legislative provision that provides a specific mechanism for shareholders to seek redress for corporate wrongdoing. This section of the Companies Act 2014 aims to strike a balance between protecting the interests of the company and ensuring that shareholders have a means to hold wrongdoers accountable.

One of the key attributes of Section 212 is its flexibility in allowing shareholders to bring derivative actions in cases where the company has suffered harm due to the actions of its directors or officers. This provision enables minority shareholders to seek redress for wrongs committed by the majority or by those in control of the company. By providing a statutory basis for derivative actions, Section 212 enhances shareholder rights and promotes accountability within the corporate structure.

However, Section 212 also has its limitations, as it imposes certain procedural requirements and restrictions on shareholders seeking to bring derivative actions. For example, shareholders must obtain leave from the court before commencing a derivative action, and the court has discretion to grant or deny such leave based on various factors. These procedural hurdles can make it challenging for shareholders to pursue derivative actions effectively, especially in cases where the company's directors or officers are resistant to legal action.

Comparison

When comparing the Rule in Foss v Harbottle and Section 212 of the Companies Act 2014, it is clear that both legal principles aim to address the issue of shareholder remedies in cases of corporate wrongdoing. While the Rule in Foss v Harbottle is a common law principle that limits shareholder actions on behalf of the company, Section 212 provides a statutory basis for shareholders to bring derivative actions in certain circumstances.

• One key difference between the two rules is their legal basis: the Rule in Foss v Harbottle is based on common law principles, while Section 212 is a statutory provision enacted by the legislature.
• Another difference is the scope of the rules: the Rule in Foss v Harbottle applies broadly to all cases of corporate wrongdoing, while Section 212 is more specific in allowing shareholders to bring derivative actions in cases of harm caused by directors or officers.
• Additionally, the Rule in Foss v Harbottle emphasizes the interests of the company as a whole, while Section 212 focuses on protecting shareholder rights and promoting accountability within the corporate structure.

Overall, while both rules serve important functions in the realm of corporate governance, they have distinct attributes that impact the rights and remedies available to shareholders in cases of corporate wrongdoing. Understanding the differences between the Rule in Foss v Harbottle and Section 212 is essential for shareholders, directors, and officers alike to navigate the complexities of corporate law and ensure proper accountability within the corporate structure.