Derivative Actions under English and German Corporate Law – Shareholder Participation between the Tension Filled Areas of Corporate Governance and Malicious Shareholder Interference

Derivative actions, i. e. the ability of shareholders to bring proceedings to enforce a cause of action vested in the company, may be considered an essential constituent of almost every corporate governance system. Derivative action litigation has been commonly used in both common law and civil law systems as a means to monitor corporate management and to protect minority shareholders' interests. However, to be effective as a minority shareholder protection device, it is key that derivative action legislation strikes the right balance to ensure that both shareholder incentives and effective safeguards are in place. Indeed, if the pendulum swings too far in any direction, derivative actions may either be a dull corporate governance sword or an open floodgate for vexatious shareholder litigation. In this article, the author undertakes to explore this balance on a comparative basis involving English and German corporate law and argues that despite obvious conceptual similarities in both jurisdictions the pendulum swings different ways.