The Unconvincing Rise of the Statutory Derivative Action in Hong Kong: Evidence from its 10 Years of Enforcement

Abstract

In this article the performance of the Statutory Derivative Action (SDA) in Hong Kong was investigated for the period 2005-14. Although in this period the SDA and the common law derivative action coexisted under the same regime, the SDA became the most preferred remedy. The SDA’s requirement for leave of court proved more benign than expected in terms of number of applications approved by the courts and indemnity orders granted covering the application’s legal costs. But serious shortcomings in the SDA have persisted. No indemnity orders were granted regarding the costs of SDA substantive litigation. Nor was a single case observed where the plaintiff ended up winning the SDA litigation and obtaining relief. These limits cast serious doubt whether the SDA has thus far performed meaningfully its core functions in regards to compensating corporate harm and deterring future misconduct.

Keywords: derivative action, private enforcement, minority shareholders, shareholder protection, shareholder litigation

JEL Classification: K22