4.2. Ease of enforcement

It may be useful to integrate the three elements of derivative actions discussed above (standing, conditions to bring the derivative action, and cost rules) into a minority shareholder enforcement index in order to facilitate cross-country comparison and allow an appreciation of the overall ease with which shareholders can enforce breaches of directors’ duties in each Member State if the authorised organs of the company fail to do so. We therefore quantify the three elements on a scale from 1 to 4, with 4 indicating the most advantageous rule for purposes of minority shareholder protection, and aggregate the scores. The assignment of the scores to different statutory rules regarding the three components of the derivative action mechanism is shown in Table 1, and the constituent as well as aggregate scores per country are listed in Table 2. Map 7 depicts the distribution in the EU.

Two caveats are in order. First, in quantifying the regulation of derivative actions in this way, we make the assumption that the three components are of roughly equal importance. This assumption is, in our view, warranted. Restrictive provisions on standing and the conditions for bringing a derivative action impose clear statutory limitations on the possibility of shareholders to enforce the claims of the company against the directors. Either element may have the propensity to render minority shareholders suits altogether impractical. For example, the very generous rule on standing that exists in Cyprus, Ireland, and the United Kingdom (1 share) is all but neutralised by the restrictive conditions of Foss v Harbottle (now superseded in the UK97). On the other hand, a light regulation of the procedure of shareholder suits in Denmark, Greece, and a number of other countries is outweighed by the requirement that shareholders must hold at least 10% of the outstanding capital. Furthermore, disadvantageous cost rules create practical, but no less effective, impediments.98 Nevertheless, such schematic quantification inevitably involves simplifications and a value judgment, which is amplified by the division of the different regulatory approaches into only three (or, in the case of standing, four) groups. Therefore, it must be emphasised that the enforcement index is only intended as a rough approximation of the conduciveness of the regulatory environment to minority shareholder suits. The availability of the derivative action in a given case will depend on a host of other factors that are not part of below calculus.

Second, a high or low score in the enforcement index should not be equated with a high or low level of minority shareholder protection in the respective jurisdiction. The jurisdiction may have developed substitute mechanisms that supplement private enforcement and give minority shareholders other avenues to complain of an alleged breach of duty or focus on public enforcement through administrative sanctions and criminal law.99

Table 1: Minority shareholder enforcement index – quantification

97Companies Act 2006, ss. 260-264.

98See supra text to n 90.

99See supra notes 86-87.

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Electronic copy available at: https://ssrn.com/abstract=2249050

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Electronic copy available at: https://ssrn.com/abstract=2249050