Statutory Derivative Actions under Section 216A

Under the principle of majority of control, the wishes of the majority must prevail. The disadvantage of the rule
is that it could allow the majority to plunder the assets of the company, leaving the minority without a remedy.

Foss v. Harbottle

A crucial exception to the principle in Foss v. Harbottle is the allegation called “Fraud on the Minority”. The
minority member must prove that wrongdoers have committed a fraud on the minority shareholders and, that
by controlling the board of director or the general meeting’s voting rights that are, in fact, preventing the
company from taking legal action with respect to the fraud. The minority member may then be able to bring an
action on behalf of the company against them. This is supported by the case of Cook v. Deeks.

Under Section 216A of the CA, it allows a minority shareholder to make an application to court for permission to
bring or intervene (involve) in an action on company’s behalf.

A member / the minister / any other person who, in the discretion of the court, is a proper person to make an
application under this section, may seek to bring an action on the company’s behalf if certain conditions are met.
The conditions are as follows:
(1) Complainant has given 14 days’ notice to the directors of the company of his intention to apply to the court
under subsection (2) if the directors do not bring, diligently prosecute or defend or discontinue the action or
arbitration;
(2) The complainant is acting in good faith, and
(3) It appears to be prima facie (at first sight) in the interest of the company that the action be brought,
prosecuted, defended or discontinued