THE NO REFLECTIVE LOSS PRINCIPLE IS NOT AN OLD-FASHIONED CORPORATE LAW RELIC

Abstract

Abstract Shareholders are not allowed to bring actions for damages due to a fall in share value or loss of dividend, which are “reflective” of their company’s loss. Later, this principle also found its application to “reflective” losses of employees and creditors. The Supreme Court, however, in Marex Financial v Sevilleja, unanimously held that the principle would apply only to shareholders and not to creditors. The article argues that, while the majority opinion in the Marex decision is reasonably balanced, the minority opinion went a step further by even doubting the very existence of the no reflective loss principle without properly appreciating what shareholding entails. If the minority’s position becomes the law, it will jeopardise companies’ existence as separate legal entities with the capacity to decide with respect to their assets. Further, if the protection of the principle is removed, companies’ counterparties will have to worry constantly about facing numerous direct shareholders’ actions, whether they settle the dispute with the company or not. As a result, if the minority view becomes the law, it can potentially make the company a less dependable commercial partner.