The High Court has ruled that James Glynn and Kevin McCabe cannot pursue derivative claims against three fellow shareholders and directors on behalf of Fatstrippa Holdings Company and Fatstrippa Corporation Limited. The court decided only whether the claims could proceed as derivative actions; it did not determine whether the alleged wrongdoing occurred.
In a judgment delivered on 5 October 2007, Ms Justice Finlay Geoghegan considered whether the plaintiffs could rely on exceptions to the rule that a company itself is normally the proper party to sue over harm done to it. The plaintiffs had withdrawn their personal claims, leaving only derivative claims on the companies’ behalf. The court had directed that their entitlement to pursue those claims be decided as a preliminary issue.
The claims against the third defendant included alleged failures to protect company intellectual property and to follow a board resolution, as well as an alleged attempt to remove McCabe from a company role. The judge said the claims against the third defendant did not allege that he had improperly benefited at the companies’ expense. She also said any claim over McCabe’s removal from his role would belong to him personally, not to the companies. The judge found that the plaintiffs had not established that the third defendant was part of a controlling majority or that the interests of justice justified allowing the derivative claims against him.
The claims against the first and second defendants included allegations concerning distribution licences, company funds, a £10,000 payment, the US Fatstrippa trade mark, use of company information and a €300,000 credit extended to a UK distributor. The judge considered that the pleaded claims could allege benefits to the first or second defendant at the companies’ expense. But, even assuming they jointly controlled 40 per cent of each company, she found they were a minority and that the plaintiffs had not shown the third defendant would join them in controlling the companies. She also found no exceptional circumstance that justified letting the claims proceed in the interests of justice.
The court therefore concluded that the plaintiffs had not established a right to pursue derivative claims against any of the three defendants. The judgment records that the plaintiffs were no longer pursuing their personal claims. The judge said she would hear counsel on the form of order; the judgment does not set out a final order dismissing the proceedings.