On September 29, 2006, Chadbourne & Parke LLP has won dismissal of shareholder derivative claims submitted in federal court against the directors of a British Virgin Islands hedge fund, Integral Hedging Offshore, Ltd.
One of the investors of Komodo Holdings brought a derivative suit against Integral’s directors alleging corporate waste and breach of fiduciary duty. Despite the fact that the complaint was filed in New York and Integral purportedly was doing business in New York, BVI law dealt with the question whether a derivative suit could be prosecuted. So, the directors moved to dismiss.
In accordance with BVI law, shareholder derivative suits are not accepted (with the exception of narrow circumstances not applicable here).
On September 27, Judge Richard Berman of U.S. District Court for the Southern District of New York agreed to dismiss the derivative claims. The court indicated that, according to the law of the state of incorporation, which in that particular situation was the British Virgin Islands, a shareholder has right to object to conduct occurring in the operation of the corporate enterprise. Also, the court concluded that under English (unlike American) law, it is not permitted to maintain a derivative suit to remedy a breach of fiduciary duty that is not connected with self-dealing by those in control.
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