This Supreme Court of Appeal judgment confirms that the common law derivative action is available to members of close corporations.

The common law derivative action was abolished in section 165(1) of the Companies Act and replaced with a statutory derivative action for companies.

Sections 49 and 50 of the Close Corporation Act do not exclude such an action for close corporations. Section 165 of the Companies Act has not affected the common law rights in respect of close corporations which were incorporated prior to the commencement of the Companies Act but which have not been converted to companies pursuant to that Act.

While section 165 expressly abolishes the common law derivative action, it provides for a third party right which is not found in sections 49 and 50 of the Close Corporation Act.

The court held that the common law rights of members of close corporations including in this case an unregistered owner of a member’s interest to bring a derivative action remain available.

If the close corporation had converted to a company as it was entitled to do under that Act, it would have had to make use of the statutory derivative action.