Derivative Action Application Dismissed on Direct Access

On 21 June 2018, in Goodwin v Cook, Hayes & Kite Developments Ltd, the Chancery Division refused the Claimant permission to bring a derivative action on Kite Development Ltd’s behalf against Messrs Cook & Hayes. The dispute arose out of a failed property development to which the 3 men were the parties, the Company having been set up to ensure that VAT could be reclaimed. The Claimant alleged that Messrs Cook & Hayes had breached their obligations to the Company by removing money from it and failing to account for that money. Both men denied those allegations by reference to the Company’s accounting records. The Claimant also wished to sue Mr Cook for failing to authorise proceedings against Mr Hayes.

Following a hearing over 2 days the Judge refused permission on a number of bases. He found that the Company was clearly insolvent, having become so as a result of the failure of the property venture and that the lack of clear evidence to support the allegations would mean that an objective director seeking to discharge their duties under CA s.172 (to promote the success of the Company) would not attribute sufficient importance to the proposed action. The Judge was also of the view that the Claimant could achieve everything that he was seeking by issuing a petition for unfair prejudice. In that action he could make the same allegations (as unfairly prejudicial conduct of the affairs of the Company) without putting the Company at risk of a costs liability (which it could not in any event afford).

Accordingly, the Application was dismissed and the Claimant was ordered to pay the costs of Messrs Cook & Hayes.

William McCormick QC was retained by Mr Cook on direct access.

26th June 2018