Smith v Croft (No 2)

Smith v Croft Ch 114 is a UK company law case concerning derivative claims. Its principle that in allowing a derivative claim to continue the court will have regard to the majority of the minority's views has been codified in Companies Act 2006, section 263.

Facts

Minority shareholders claimed to recover money paid away contrary to the financial assistance prohibition and being ultra vires. They had 14% of the company's shares, the defendants held 63%, and another shareholder, who did not want litigation, held 21%.

Judgment

Knox J held that if the claimants were a minority even after the wrongdoers were taken out of the equation, then there is no right to sue, even with a Foss v Harbottle exception. Independence is a question of fact. He followed Burland v Earle in Lord Davey’s dicta that shareholders cannot have a bigger right to sue than the company with its procedural and substantive limitations.

Significance

The case was cited in the Law Commission Shareholder Remedies Report in regards to the amount of court time involved: