Institute of Shareholders’ Derivative Action in Lithuanian Legal System
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Abstract
From the 1 January 2004 the Law of the Republic of Lithuania on Companies embeds the institute of shareholders’ derivative action, which is entirely new for the Lithuanian legal system. Article 16(1)(4) of the Law of the Republic of Lithuania on Companies has validated the right of shareholders to file an action with the court for reparation of damage resulting from nonfeasance or malfeasance by the company manager and Board members of their obligations.
Through a derivative action one or several shareholder(s) defend rights and lawful interests of a company and, at the same time, defend rights and lawful interests of entirety (group) of the company’s shareholders, therefore the derivative action is classified as a class action. When defending rights and lawful interests of a company or association through a derivativeaction, a shareholder indirectly defends not only his or her personal interests but also rights and interests of all the shareholders as a group of persons. The right to file such an action is granted to a shareholder by the above–mentioned law, when a company, due to a variety of reasons, is not able to defend its rights and interests independently.
A distinctive feature of the derivative action is the fact that such an action defends a public interest, since in a lawsuit brought under derivative action a court judgement may establish obligation of company manager or Board members to compensate damage done to the company due to their illegal activities resulting from nonfeasance or malfeasance of their obligations, and the company may be constituted by a fairly large group of shareholders. In such a lawsuit, however, a court is not authorised to take decision on compensation of a company’s shareholders losses incurred due to activities of the above–mentioned persons.
Such provisions related to the institute of derivative action once again confirm the fact that the derivative action should be attributed to class actions. Article 49(5) of the Civil Proceedings Code of the Republic of Lithuania lays down that a class action can be brought for protection of a public interest.
This fact suggests that shareholders’ derivative action for protection of rights and lawful interests of a company can be reasonably considered as a class action by shareholders for the purpose of protection of a public interest, namely the interest of all the shareholders of that company.
The author believes that problems related to shareholders’ derivative action in the Lithuanian legal system can be properly solved and precise answers to most of problematic questions can be obtained, if laws on proceedings include rules regulating the proceedings of class actions.
Through a derivative action one or several shareholder(s) defend rights and lawful interests of a company and, at the same time, defend rights and lawful interests of entirety (group) of the company’s shareholders, therefore the derivative action is classified as a class action. When defending rights and lawful interests of a company or association through a derivativeaction, a shareholder indirectly defends not only his or her personal interests but also rights and interests of all the shareholders as a group of persons. The right to file such an action is granted to a shareholder by the above–mentioned law, when a company, due to a variety of reasons, is not able to defend its rights and interests independently.
A distinctive feature of the derivative action is the fact that such an action defends a public interest, since in a lawsuit brought under derivative action a court judgement may establish obligation of company manager or Board members to compensate damage done to the company due to their illegal activities resulting from nonfeasance or malfeasance of their obligations, and the company may be constituted by a fairly large group of shareholders. In such a lawsuit, however, a court is not authorised to take decision on compensation of a company’s shareholders losses incurred due to activities of the above–mentioned persons.
Such provisions related to the institute of derivative action once again confirm the fact that the derivative action should be attributed to class actions. Article 49(5) of the Civil Proceedings Code of the Republic of Lithuania lays down that a class action can be brought for protection of a public interest.
This fact suggests that shareholders’ derivative action for protection of rights and lawful interests of a company can be reasonably considered as a class action by shareholders for the purpose of protection of a public interest, namely the interest of all the shareholders of that company.
The author believes that problems related to shareholders’ derivative action in the Lithuanian legal system can be properly solved and precise answers to most of problematic questions can be obtained, if laws on proceedings include rules regulating the proceedings of class actions.
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Please see Copyright and Licence Agreement for further details.
