Derivative Action in Pakistan in Context of Protection of Minority Shareholders; a Comparative Analysis with UK and USA

Minority shareholders are put in a precarious position in Pakistan's predominantly family-owned/private sector companies. Controlling shareholders abuse their power and make self-serving decisions that harm the rights of both the company and minority shareholders. To that end, it is suggested that one of the legal procedures, derivative litigation, might be a useful regulatory mechanism in Pakistan. It has been debated in the process of analyzing the rights of minority shareholders under the Companies Act what are the challenges and possible remedies for minority shareholders. Unlike the United Kingdom and the United States, the companies act in Pakistan does not recognize derivative proceedings. It is crucial to consider codification of derivative action systems as a supplement to existing weak managerial disciplinary proceedings in addition to providing stronger enforcement authority to the minority. This article proposes a comprehensive structure for a statutory derivative action process in Pakistan, intending to strengthen the protection of shareholders' interests. To that aim, the statutory derivative litigation regimes of the United Kingdom and the United States have been considered for comparative analysis to identify what may be replicated and provide reform recommendations to allow a viable statutory structure for the same in Pakistan