The Missing Part in Law on Derivative Action: The Study of Private Company

Abstract

The characteristic of derivative action is that the shareholder is entitled to bring an action on behalf of the company against directors if the company fails to do. The purpose of granting the right to derive the company’s action is to provide a relief of grievances to the shareholder as the company ignores to sue wrongdoing directors. Such legal concept appears in section 1169 of the Civil and Commercial Code which allows both the shareholder and creditor to initiate a derivative lawsuit. The research focuses on the comparative study of the United Kingdom, United States and Thai laws governing derivative actions in private companies and analyses the legal issues under Thai laws. The research finds that the provision under the Civil and Commercial Code on demand requirement which the shareholder must fulfil before bringing an action is unclear. The law also fails to address the scope of the litigation expense reimbursement advanced by the plaintiff shareholder. Consequently, the plaintiff shareholder may not be fully compensated. Besides, the scope of the derivative action against the wrongdoers provided is very limited. This becomes a significant burden on the shareholder to bring the derivative lawsuit. The study addresses that the provision authoring the creditors to initiate the derivative lawsuit does not cohere with the fundamental concept of derivative actions. The research therefore suggests some legal amendments to ensure that Thai laws on derivative action cohere with the objective of derivative action concept.