What is a derivative action (actio pro socio)?
A derivative action, known in Polish law as actio pro socio, is a legal mechanism that allows a shareholder or partner, in the circumstances provided by law, to bring a claim for damages caused to a company when the company itself does not take action. The purpose of this procedure is to protect the company’s assets and, indirectly, the interests of its shareholders, partners and creditors.
In a typical damages claim, the company is represented by its management board or another authorised corporate body. This may create difficulties where the persons responsible for the damage are members of the management board, supervisory board, shareholders or other persons connected with the company. A derivative action enables an individual shareholder or partner to seek judicial protection when the company remains inactive.
Under the Polish Commercial Companies Code, this mechanism applies to a limited liability company, a joint-stock company and a simple joint-stock company. A shareholder may bring an action if the company has not filed a damages claim within one year from the date on which the act causing the damage was disclosed. Different rules also apply to partnerships regulated by the Code.
What does a derivative action concern?
An actio pro socio claim is not designed to compensate a shareholder directly for a decrease in the value of their shares. Its principal purpose is to obtain compensation for the company. If the claim is successful, the damages are paid to the company’s assets rather than to the shareholder or partner who initiated the proceedings.
A derivative action may concern, for example, damage resulting from a breach of management duties, acting contrary to the company’s interests, entering into an unfavourable transaction, misuse of corporate funds, failure to exercise due care, disclosure of confidential information or breach of statutory and contractual obligations by corporate officers.
In practice, such claims frequently relate to the liability of management board members. They may also concern supervisory board members, liquidators, founders or other persons whose conduct has caused damage to the company. The precise legal basis, evidentiary requirements and scope of liability depend on the legal form of the company, the role of the defendant and the circumstances of the case.
There is a legal distinction between damage suffered by the company and damage suffered directly by an individual shareholder. A fall in the value of shares resulting solely from damage to the company will usually be treated as indirect damage. In such circumstances, the appropriate remedy may be a derivative action brought for the benefit of the company, rather than an individual claim for compensation by the shareholder.
When is it worth considering a derivative action?
A derivative action may be considered when there are credible grounds to believe that the company has suffered damage, but its authorised bodies do not seek compensation. This may happen where the management board is unwilling to sue one of its members, where there is a conflict of interest, or where controlling shareholders prevent the company from pursuing a claim.
For minority shareholders, actio pro socio can be an important instrument for protecting the company against passivity by those in control. It may also be relevant in disputes following failed investments, transactions with related parties, improper disposal of assets, breaches of corporate duties or financial irregularities.
Before bringing proceedings, it is necessary to assess whether the company has a viable damages claim, whether the statutory conditions for a derivative action have been met and whether there is sufficient evidence to establish the occurrence of damage, the causal link between the conduct and the loss and, where required, the defendant’s fault.
A prompt legal assessment can help avoid procedural errors, limitation issues, unnecessary litigation costs and disputes concerning the proper representation of the company. It may also help determine whether a derivative action is appropriate or whether another measure, such as a corporate resolution, injunction, direct damages claim or criminal-law notification, should be considered.
Legal support in derivative action proceedings
Support from a law firm in matters concerning derivative actions may include in particular:
- assessing whether the company has suffered legally recoverable damage;
- verifying the conditions for bringing an actio pro socio claim;
- analysing the liability of management board members, supervisory board members and other corporate officers;
- reviewing corporate documents, resolutions, contracts and financial records;
- preparing pre-litigation demands and litigation strategy;
- representing shareholders, partners and companies in court proceedings;
- advising on evidence, security for costs and procedural risks;
- supporting negotiations and settlement discussions in corporate disputes.
Need legal assistance with a derivative action? Contact us.