ABSTRACT
Chapter 2 considers whether derivative actions are indeed a potent means to facilitate the enforcement of directors’ duties and shareholder protection. It also explains the functions of the derivative action in shareholder protection and its importance in the broader framework of company law and corporate governance. In essence, it inquires into the rationale for the shareholders’ right to enforce the company’s claims and its role in protecting certain interests. This Chapter employs three, interrelated, perspectives to explain why an effective framework on shareholder protection against wrongs done to the company is important. The first perspective concerns the protection of shareholders’ proprietary interests, particularly focusing on the issue of remedying reflective loss. The second perspective is that of corporate governance, illustrating the potential of the derivative action in addressing agency conflicts. The last perspective relates to economic efficiency. In doing so, it assesses differing views on the role of shareholder law in promoting investment in share equity.
