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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Arjun, a shareholder in Bharat Logistics Ltd, believes the directors have diverted a valuable contract to a company they privately own, harming Bharat Logistics. The board refuses to act because the wrongdoers control it. Arjun brings a claim on behalf of the company against the directors, with any recovery going to the company. What is this type of action called?

This is a derivative action. A shareholder sues on the company's behalf where wrongdoer directors control the board and block the company from suing, and any recovery goes to the company rather than the shareholder personally.

  1. AA personal action
  2. BA derivative actionCorrect
  3. CA winding-up petition
  4. DA representative arbitration
  5. A garnishee proceeding

Explanation

A derivative action lets a shareholder sue on the company's behalf where wrongdoers in control prevent the company suing, and recovery goes to the company. A personal action would enforce Arjun's own rights, which is not the case here. A winding-up petition seeks to end the company rather than recover its loss.

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