Manhattan Coffee: JCPC clarifies who may bring derivative claim on behalf of company in liquidation

In Manhattan Coffee Investment Holding (in liquidation) v Mwagiru [2026] UKPC 21 (14.05.26), on appeal from the Supreme Court of Mauritius, the Judicial Committee of the Privy Council recently provided guidance on the jurisdiction to authorise proceedings in the name of a company in liquidation.

A former director of a company, now in liquidation, sought permission to continue proceedings in the name of the company, the liquidators having decided not to do so. The JCPC disallowed the attempt.

Whilst the JCPC in Manhattan Coffee considered non-Isle of Man statutory provisions, its reasoning on the common law position as to who may bring a derivative claim on behalf of a company in liquidation is likely to be highly persuasive to a Manx Court.

Of course, in a derivative claim – in contrast to a minority shareholder oppression claim – the claimant is not suing in a personal capacity, but on behalf of the company itself.

Interestingly, Manhattan Coffee follows the JCPC’s recent judgment in another highly significant company case, THG Plc v Zedra Trust Company (Jersey) Ltd [2026] UKSC 6 (25.02.26) (also given by Lord Richards, albeit with Lord Hodge, with whom Lord Lloyd-Jones and Lord Briggs agreed). (In Zedra Trust, it was held, at § 158, that a minority shareholder oppression claim has no limitation period.) The two cases reflect Lord Richards’ contribution to company law.

Review of authorities

After reviewing the authorities, Lord Richards in Manhattan Coffee confirmed the existence of the common law power: “to authorise proceedings to be brought by a creditor or contributory in the name of a company in liquidation”. He went to hold (at §§ 57-58 and 60):

“57… First… the basis of the power is to enable in appropriate cases those who have an interest in the collection, realisation and distribution of the company’s assets to pursue claims for the benefit of the estate.

Second, although many of the cases identify statutory provisions giving the court a supervisory role as the source of this power, … it is also based on the court’s inherent power to supervise the liquidation. It is not therefore necessary for creditors or contributories to rely on an express statutory provision for standing to make an application for such an order. It is their interests in the liquidation which gives them standing.

58… These elements are in no way surprising, when set in the context of some fundamental aspects of a liquidation. The principal purpose of a liquidation is to get in and realise the assets of the company and to distribute the net proceeds of realisation, after payment of the costs and expenses of the liquidation, among the creditors and, if there is a surplus, the contributories. … the effect of a liquidation is to impose a form of statutory trust whereby, in accordance with the applicable legislation, the assets are to be realised for the benefit of creditors and contributories…

60… the power to authorise a person other than the liquidator to bring a claim in the name of the company has always been treated as one available to creditors and contributories, but not to others.”

Derivative claims – the Isle of Man position

Manhattan Coffee deals with standing to bring a derivative claim, where a company is in liquidation. It clarifies that, under common law, a creditor or contributory may have standing.

The standing of a shareholder of a 2006 Act company, in the Isle of Man, is provided for by statute.

Under s 175(1) of the Companies Act 2006, on the application of a shareholder, the Court can grant that shareholder permission to bring proceedings in the name and on behalf of the company, or to intervene in proceedings in which the company is a party.

Section 175(2) sets out the mandatory factors for the Court to take into account on such an application: “(a) whether the member is acting in good faith; (b) whether the derivative action is in the interests of the company taking into account the view of the company’s directors on commercial matters; (c) whether the proceedings are likely to succeed; (d) the cost of the proceedings in relation to the relief likely to be obtained; and (e) whether an alternative remedy to the derivative claim is available”. 

These mandatory factors were considered by Deemster Doyle in Gulf Hibiscus Ltd v Lime Petroleum PLC (in liquidation) (ORD 2016/1) (31.05.16) (see §§ 8-31) and by the Staff of Government Division (Judge of Appeal Storey QC & Deemster Corlett) in related proceedings (2DS 2017/20) (07.12.17).

Gulf Hibiscus involved an unsuccessful action, under s 175(1), by a 35% minority shareholder to bring proceedings in the name of the company against several directors. Deemster Doyle noted (at § 22) that Tynwald appeared to have followed BVI, rather than English, legislation, in respect of companies formed or re-registered under the Companies Act 2006.

Under s 175(3), leave may only be granted if the Court is satisfied that: “(a) the company does not intend to bring, diligently continue or defend, or discontinue the proceedings…” or “(b) it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders or members as a whole”.

The Court’s powers, under s 177(1), include the power to make “any order it considers appropriate in relation to proceedings brought by the member or in which the member intervenes”, including:

“(a) an order authorising the member or any other person to control the proceedings;
(b) an order giving directions for the conduct of the proceedings;
(c) an order that the company or its directors provide information or assistance in relation to the proceedings; and
(d) an order directing that any amount ordered to be paid by a defendant in the proceedings shall be paid in whole or in part to former and present members of the company instead of to the company”.

Deemster Doyle considered the standing of a shareholder of a 1931 Act company in Belgravia Corporate Services Ltd v B3 Group Ltd 2005-06 MLR 139 (12.07.06) (§§ 87-110 & 121):

“89. The rule in Foss v Harbottle can be summarised as follows: The proper plaintiff in an action in respect of a wrong alleged to be done to a company is, prima facie, the company… There is an exception to the rule where what has been done amounts to a fraud and the wrongdoers are themselves in control of the company…

93. A derivative action should not be allowed if the majority can ratify or release the wrong which is the subject matter of the derivative action. There is an exception to this general principle where what has been done amounts to fraud or other serious wrongdoing and the wrongdoers are themselves in control of the company…

94. Derivative actions are allowed by the courts generally speaking where the alleged wrongdoers are directors who would otherwise be able to stifle an action by reason of their control of the company’s organs.

95. It is not however every wrong to the company which justifies a derivative action (i.e. there are wrongs which are ratifiable by the majority even if the majority are made up of the wrongdoers)…

97. When considering whether to grant leave to permit a derivative action to continue the court should generally consider the nature of the cause of action as pleaded or at least as appears from the material placed before the court… If it triggers an exception to the rule in Foss v Harbottle the court then disregards the votes of the alleged wrongdoers…

99. … an action based on an allegation of ultra vires application by the directors of a company’s funds may be brought by way of derivative action.

100. If it is alleged that directors have made a profit at the expense of the company as a result of a breach of their fiduciary duty then this may bring the case within the exceptions to the rule in Foss v Harbottle.

101. … an exception can be established “where the allegation is that directors who control a company have improperly appropriated to themselves money, property or advantages which belong to the company or, in breach of their duty to the company, have diverted business to themselves which ought to have been given to the company”…

103. The Court has a discretion whether or not to permit a derivative action to continue and will have regard to the availability of other remedies and the claimants’ motives…

105. Defendants are entitled to have determined as a preliminary issue whether the plaintiff has established a prima facie case:

(1) that the company is entitled to the relief claimed and
(2) that the action falls within the proper boundaries of the exceptions to the  rule in Foss v Harbottle…”.

The relevant procedure is prescribed by Rule 3.31 of the Rules of the High Court of Justice 2009.

Note for practitioners: Manhattan Coffee offers useful guidance on who has standing to bring a derivative claim on behalf of a company in liquidation.

Disclaimer: professional advice should be sought before applying any information in a given case.

For advice on litigation relating to Isle of Man company or insolvency law, contact Coren Law.

See also Coren Law’s Isle of Man civil procedure portal: Click On | Coren Law.