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Derivative Suit


What is A Derivative Suit?
Philippine jurisprudence has defined a derivative suit as an action brought by the minority stockholders for and in behalf of the corporation to redress wrongs committed against it for which the directors may refuse to sue. The Philippine Supreme Court has further elaborated on this concept by stating that the right to sue derivatively is an attribute of corporate ownership which, to be exercised, requires that the injury alleged be indirect as far as the stockholders or members are concerned, and direct only insofar as the corporation is concerned. As such, the stockholders are merely nominal parties while the corporation itself is considered as the real party in interest. Given the nature of a derivative suit, stockholders bringing a derivative action under the name of the corporation are required to allege that they are doing so for and on behalf of the corporation and all the stockholders who are similarly situated would like to bring such an action.
Under the Interim Rules of Procedure for Intra-corporate controversies, a stockholder or member may bring an action in the name of the association or corporation in the Philippines provided that the following requirements are present:

  1. He was a stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed;
  1. He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

 

  1. No appraisal rights are available for the act or acts complained of; and
  1. The suit is not a nuisance or harassment suit.

Furthermore, a derivative action shall not be discontinued, compromised or settled without approval of the court. During the pendency of the action, any sale of shares of the complaining stockholders must be approved by the court before which the case is pending. If the court determines that the interest of the stockholders or members will be substantially affected by the discontinuance, compromise or settlement, the court may direct that a notice, by publication or otherwise, be given to the stockholders or members whose interest it determines will be so affected.


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