Derivative Action Remedy and the Protection of Minority Shareholders’ Interests: An Analysis

Abstract

This article undertakes a comprehensive analysis of Pakistan's corporate structure,
with a specific emphasis on the safeguards for minority shareholders outlined in the
Companies Act 2017. Within the corporate sphere, instances of directors with
substantial control or major shareholders exploiting their capital for personal gain are
regrettably prevalent. This exploitative conduct disproportionately affects minority
shareholders, rendering them prone to undue coercion by the majority. The
consequences of such exploitation are multifaceted, ranging from disruptions in the
normal course of corporate activities to the initiation of litigation and the stimulating of
tensions among shareholders, culminating in substantial financial burdens. Existing
remedial measures, while well-intentioned, are beset by limitations that contribute to
worsening the situation. Recognizing this imperative, the article posits that the
recourse of derivative action stands as a pivotal and hitherto underutilized remedy,
offering a more robust shield for shareholders. Significantly, the current form of the
Companies Act of 2017 fails to acknowledge derivative action as a viable remedy for
safeguarding the rights of minority shareholders. In light of this deficiency, the article
advocates for legislative amendments to strengthen company law, thereby
supplementing shareholders' enforcement capabilities and establishing a framework
for enhanced corporate accountability within the Pakistani context.