Plain language law

New Zealand law explained for everyone

Companies Act 1993

Enforcement - Derivative actions

165: Derivative actions

You could also call this:

“Court permission for shareholders or directors to act on behalf of a company in legal matters”

If you’re a shareholder or director of a company, you can ask the court for permission to do certain things for the company or a related company. You can ask to start a legal case in the company’s name or join in a case that the company is already part of. This is called a derivative action.

When deciding whether to let you do this, the court will think about a few things. They’ll consider if the case is likely to succeed, how much it might cost compared to what you might get, if the company has already tried to solve the problem, and if it’s good for the company to be involved in the case.

The court will only say yes if they think the company isn’t going to handle the case properly itself, or if it’s better for the company if the directors or shareholders don’t make the decision.

You have to tell the company that you’re asking the court for permission. The company can then come to court to say what they think and tell the court if they plan to deal with the case themselves.

Remember, unless you get permission from the court like this, you’re not allowed to start or join in legal cases for the company.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320825.

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Part 9 Enforcement
Derivative actions

165Derivative actions

  1. Subject to subsection (3), the court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to—

  2. bring proceedings in the name and on behalf of the company or any related company; or
    1. intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.

      1. Without limiting subsection (1), in determining whether to grant leave under that subsection, the court shall have regard to—

      2. the likelihood of the proceedings succeeding:
        1. the costs of the proceedings in relation to the relief likely to be obtained:
          1. any action already taken by the company or related company to obtain relief:
            1. the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

              1. Leave to bring proceedings or intervene in proceedings may be granted under subsection (1), only if the court is satisfied that either—

              2. the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or
                1. it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

                  1. Notice of the application must be served on the company or related company.

                  2. The company or related company—

                  3. may appear and be heard; and
                    1. must inform the court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be.

                      1. Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.