Double Derivative Action as Mechanism for Parental Control Over Subsidiary Companies in Uganda
Abstract:This study analysed the law governing derivative actions within the context of intercompany relationships for the furtherance of good corporate governance and effective monitoring of the activities of kindred companies. It evaluated the appropriateness of the existing conceptual model on double derivative action in Uganda vis-à-vis case law developments in other jurisdictions. A major finding indicates that there is potential miscomprehension of the conceptual foundation of double derivative actions in Uganda namely; the understanding of the right to bring a derivative action as a membership right. The practical effect of this restrictive model is an outright denial of standing to bring an action by members of a parent company to vindicate the rights of a subsidiary where the subsidiary’s directors fail to institute an action. It argues that unlike direct derivative suit which is a membership right, double derivative action comes in to protect a plaintiff’s legitimate claim as a member of company with shareholding in another. In consequence therefore, the study craves for more liberal application of the rules of standing to allow for greater parental control over subsidiary companies.
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