Derivative Lawsuit in Ukraine: The Issue of Improving Legal Regulation

Abstract

Background: Some jurisdictions provide for the right of members of a corporation to sue on its behalf and in its interests. This remedy is called ‘a derivative action’ (derivative lawsuit), and the right to file such a lawsuit is granted to a company’s members in case the wrongdoers are in its control, preventing the company from taking actions to protect its rights and interests – which is detrimental to the interests and rights of minority shareholders. However, derivative lawsuit’s regulation differs in each jurisdiction despite sharing common features, raising a variety of issues to be resolved. Methods: In this article, the author points out several issues and their possible solutions, which could be implemented in Ukrainian legislation: property qualification by itself cannot prevent abuse in filing a derivative lawsuit – extended ‘locus standi’ has to be implemented; holders of preferred shares have to be granted the right to file a derivative lawsuit; property qualification has to be substituted with a representation quota for members of non-entrepreneurial corporations; the circle of defendants should include major members (majority of members) and third parties, etc. Results and Conclusions: The concepts of a preventive derivative lawsuit and a derivative lawsuit for the invalidation of a company’s transaction and possible issues regarding them are analysed. Additionally, the necessity for implementing a ‘business judgement rule’ is emphasised.