The decision also offers guidance on the good faith test for permission to bring a derivative claim and its parallels with a director's duty to promote the success of the company.
The High Court has confirmed that a claimant may pursue both a derivative claim and an unfair prejudice petition against the same company director, even where both arise out of the same factual matrix. The decision provides guidance on the procedural interplay between sections 994 and 260 of the Companies Act 2006 (the "Act"), and confirms that the existence of one proceeding does not preclude the other: Chimbganda v Kundodyiwa & Anor (Re Derivative Claim - Goodpeople Health Care Ltd) [2025] EWHC 1543 (Ch).
The court considered the requirement for the court to refuse permission to bring a derivative claim if a person acting in accordance with the duty to promote the success of the company would not seek to continue the claim, and for the court to consider whether the party seeking permission is acting in good faith. The court reaffirmed that the first test is objective and company-focused, requiring an assessment of whether a hypothetical director, acting in accordance with the duty under s.172 to promote the success of the company, would reasonably pursue the claim.
Regarding the second test, the court observed that once a prima facie case is established, it will often be difficult to conclude that the applicant does not honestly believe in the company's claim or that the applicant is otherwise not acting in good faith.
The judgment also clarifies the scope of parallel relief available under the Act in respect of unfair prejudice and derivative claims. It emphasises that, while there may be some factual overlap, the remedies under each provision serve different purposes: unfair prejudice protects the shareholder's personal rights, whereas a derivative claim enables redress for wrongs done to the company itself.
Background
The case arose from a dispute between the two shareholders and directors of Goodpeople Health Care Ltd, a company providing care services to local authorities (the "Company"). The claimant, Mr Chimbganda, and the first defendant, Ms Kundoyiwa, each held one share in the Company and were its only directors. Their relationship deteriorated following separate business dealings in Ireland, where Ms Kundodyiwa had made allegations against Mr Chimbganda.
Against this background, Mr Chimbganda commenced two proceedings:
- A derivative claim on behalf of the Company under s.260, alleging breaches of the fiduciary duties owed by Ms Kundoyiwa to the Company in her role as director (the "Derivative Claim").
- A petition under s.994, alleging unfair prejudice in the conduct of the Company's affairs (the "Shareholder Petition").
The Derivative Claim alleged that Ms Kundoyiwa had mismanaged the Company's finances, incurred personal and family-related expenditure using Company funds, misused the Company's Certificate of Sponsorship licence and diverted business opportunities to a company owned by her sister.
Mr Chimbganda had already obtained first-stage permission to bring the Derivative Claim (where the court considers whether to give permission, primarily by assessing whether the claim discloses a prima facie case, without the intervention of the Company) and sought second-stage permission to continue the claim (where the Company makes submissions as to whether permission should be granted) alongside the Shareholder Petition. He argued that the purpose of the Derivative Claim was to remedy the wrongdoings and losses suffered by the Company, including financial, reputational and regulatory damage.
Decision
The court (Freedman J) granted permission for the continuation of the Derivative Claim.
S.263(2)(a): requirement to refuse permission if not compatible with s.172 duty
Ms Kundoyiwa sought to challenge the continuation of the Derivative Claim on the basis that it was retaliatory and brought in bad faith. She argued that Mr Chimbganda's motivation was not to protect the Company's interests, but to deflect attention from allegations made against him in separate Irish proceedings. Accordingly, she contended that the claim should be refused permission under s.263(2)(a).
The High Court (Mr Justice Freedman) rejected this argument. The statutory test under s.263(2)(a) requires the court to refuse permission if it is satisfied that a hypothetical director, acting in accordance with the duty under s.172 (to promote the success of the company), would not seek to continue the claim. This is an objective test, focused not on the claimant's subjective motives, but on whether a reasonable director could conclude that the claim serves the Company's best interests.
In applying this test, the court emphasised the seriousness of the allegations, including misuse of Company funds, diversion of business opportunities, and potential regulatory breaches. These were not trivial or personal grievances; they raised substantive concerns about the Company's governance, financial integrity, and compliance with its sponsorship obligations.
The court concluded that a hypothetical director could reasonably support the continuation of the claim for several reasons. Allowing the Derivative Claim to continue in the name of the Company would protect the position of creditors and employees, especially by restoring assets to the Company. In this instance the factors relevant included:
- Restoring diverted business to the Company;
- Supporting foreign workers through its Certificate of Sponsorship;
- Protecting potential third party creditors such as HMRC.
Accordingly, the court held that this was a case in which a hypothetical board of directors would reasonably support the continuation of the claim.
S.263(3): discretionary factors
Where s.263(2) does not bar permission, the court considers the discretionary factors set out in s.263(3) of the Act. These factors assist the court in determining whether permission to continue the derivative claim should be granted, and include:
- whether the claimant is acting in good faith in seeking to continue the claim (s.263(3)(a));
- the importance that a hypothetical director, acting in accordance with s.172 (duty to promote the success of the company), would attach to continuing the claim (s.263(3)(b)); and
- whether the alleged wrongdoing gives rise to a personal cause of action that the claimant could pursue in their own right, rather than on behalf of the company (s.263(3)(f)).
Good faith
Ms Kundoyiwa argued that the Derivative Claim was a tactical ploy, designed to distract from allegations made against Mr Chimbganda in separate Irish proceedings. She asserted that the claim was not genuinely intended to benefit the company and therefore failed the good faith requirement under s.263(3)(a).
However, the court noted that, in considering whether the claim was made in good faith, where a prima facie case is made out and an applicant has established that a cause of action has a reasonable prospect of success, it will often be difficult to infer or to show that an applicant is not acting in good faith at the permission stage of the proceedings.
The court further noted that it would decline to engage in a premature inquiry into motive, noting that a mini-trial on subjective intent at the permission stage would be inappropriate. Instead, the court focused on the substance of the allegations and their relevance to the Company's interests. The court found that the allegations, including financial mismanagement, misuse of company resources, and diversion of corporate opportunities, were serious, credible, and directly concerned the Company's governance and regulatory standing. These were not mere shareholder grievances; they raised legitimate concerns about breaches of fiduciary duty with potentially material consequences for the Company.
Accordingly, the court concluded that it was not possible at that stage to infer that Mr Chimbganda did not believe in the case or that he was otherwise not acting in good faith.
Importance of continuing the claim
In considering, under s.263(3)(b), the importance that a person acting in accordance with s.172 would attach to continuing the claim, the court held that the allegations, if proven, were sufficiently serious to justify permission to proceed with the Derivative Claim. They could materially affect the Company's financial and regulatory standing and were not merely duplicative of the Shareholder Petition.
Personal cause of action
In relation to s.263(3)(f), Ms Kundoyiwa argued that Mr Chimbganda had sought a personal remedy in the Shareholder Petition and that the Derivative Claim, seeking a remedy for the Company, should therefore be refused permission to continue. The court disagreed.
It confirmed that parallel proceedings under s.260 and s.994 are permissible. While courts are generally cautious about duplication and inefficiency, they will allow both proceedings to continue where:
- The derivative claim protects the company's interests.
- The unfair prejudice petition protects the shareholder's personal rights.
- The remedies sought are distinct and non-conflicting.
Under the Shareholder Petition, Mr Chimbganda sought an order that Ms Kundoyiwa sell her shares in the Company to Mr Chimbganda based on the value of the shares prior to the alleged prejudicial conduct. In contrast, the Derivative Claim sought damages or compensation in favour of the Company. The Derivative Claim sought to vindicate the Company's rights, while the Shareholder Petition addressed Mr Chimbganda's personal position as a shareholder. As such, there was no legal or procedural barrier to allowing both proceedings to continue concurrently.
Finally, the court observed that the overlapping nature of the Derivative Claim and the Shareholder Petition supported the exercise of discretion to grant permission in this case. It noted that the Derivative Claim would add minimal burden to the litigation overall. From a case management perspective, the court was satisfied that both proceedings could be efficiently managed in parallel, with any duplication of effort mitigated through coordinated preparation. This practical consideration weighed in favour of allowing the Derivative Claim to proceed. Further, Mr Chimbganda agreed not to seek an indemnity from the Company in respect of his costs. The judge noted that this was an important factor in respect of the exercise of discretion and, indeed, required that it be recorded in the order as a condition of granting permission.
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