Shareholders’ Derivative Suits Against Corporate Directors, Following Cross-Border Mergers: A Functioning Remedy Within the EU?
Mergers, including those involving the cross-border element, have been the subject of EU and Community law and—consequently—academic debate, for some time. However, as this paper shows, the effect of this form of corporate transformation on shareholder litigation remains a grey area.
Despite the fact that the—now codified—3rd Company Law Directive demands that Member States provide for remedy of shareholders’ loss, in a national context, EU law, including that on cross-border mergers, does not address in concreto the matter of derivative suits. The latter remedy, enabling shareholders to enforce the company’s claims, may come to the fore not only where a claim involves the propriety of the merger per se; but also, when it concerns the pre-merger misfeasance of the board of directors, thus affecting the valuation of the merged company.
This study shows that shareholders championing corporate interests may face several obstacles following (cross-border) mergers within the EU, depending on whether the suit is temporally prior to the merger or vice versa. The fact that, post-merger, the merged company ceases to exist (and is succeeded by another entity, in another jurisdiction), gives rise to issues regarding the application of rules intrinsic to the mechanics of derivative suits and particularly those on: continuous ownership; contemporaneous ownership; costs; and on the requirement for shareholders to first demand the board to take action.
Given that the derivative suit, in all its variations, is a form of shareholders’ (and corporate stakeholders’) representative action common among most European countries—and often the only such available—this paper argues in favour of a policy facilitating shareholders’ enforcement of corporate claims in the cross-border merger context; so that no wrong is left unremedied.
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