The Derivative Action Remedy for Minority Shareholder Protection in Pakistan

Abstract

This article examines the derivative action as a minority shareholder protection remedy. The derivative action, as an important minority shareholders protection remedy, has developed at common law but the recent trend is codification of this remedy. The article discusses critically the common law derivative action and subsequent codification in the UK and its possible convergence in corporate laws of Pakistan. Globalization and competition has increased the convergence process at the corporate law. This led many jurisdictions to incorporate derivative action as a minority protection in their corporate laws. The derivative action is not recognized by the company law of Pakistan. The nature of ownership structure in Pakistan suggests that the derivative action should be incorporated in corporate law of Pakistan. However, the efficient functioning of proposed statutory derivative action will be dependent upon two necessary preconditions: Firstly, codification of directors’ duties and secondly, enhancement of judicial efficiency in Pakistan.