Representative action
A shareholder who has held shares continuously for six months may file a claim against a stock company for an action to hold the officers liable (Article 847, Paragraph 1 of the Companies Act). However, for non-public companies with restrictions on the transfer of shares, there is no requirement of “continuously for six months,” so any shareholder may file a claim at any time.
If a stock company that has received a request to file an action for pursuit of liability does not file an action for pursuit of liability within 60 days from the date of the request, the stock company must notify the shareholder who made the request of the reason for not filing the action for pursuit of liability (Article 847, Paragraph 4 of the Companies Act). (Article 847, Paragraph 4 of the Companies Act).
If a shareholder requests the filing of a lawsuit, but the company does not file the lawsuit within 60 days from the date of the request, the shareholder who made the request may file an action for pursuit of liability (so-called representative action) on behalf of the company (Article 847, Paragraph 3 of the Companies Act). In addition, if there is a risk that the company may suffer irreparable damage if it waits for the expiration of the 60-day period, the shareholder may immediately file an action for pursuit of liability without waiting for the expiration of the 60-day period (Article 847, Paragraph 5 of the Companies Act).
Counterparty to a representative action
The officers against whom a representative action may be brought include directors, accounting counsel, corporate auditors, executive officers, accounting auditors, and liquidators. Any officer involved in the company can be a defendant.
Purpose of claim for representative action
In a representative suit, the shareholder makes a claim for damages on behalf of the company, so the purpose of the claim in a representative suit is in the form of “Director ● shall pay XX yen to ▲ Corporation. In other words, if the shareholder wins the lawsuit, the losing director will only pay the company, not the shareholder who filed the representative suit.
Notice of lawsuit
A shareholder who has filed a representative action must notify the stock company of the action without delay (Article 849, Paragraph 4 of the Companies Act). A stock company that has received a notice of lawsuit must give public notice or notify shareholders to that effect without delay (Article 849, Paragraph 5 of the Companies Act). The method of public notice depends on the method stipulated in the articles of incorporation, which may be publication in an official gazette, a daily newspaper, or electronic public notice (Article 939, Paragraph 1 of the Companies Act). However, for companies with restrictions on the transfer of shares (non-public companies), the method of public notice is not permitted and a notice to shareholders must be given (Article 849, Paragraph 9 of the Companies Act).
Intervention by the Company in the Lawsuit
A company may intervene on the side of a director (defendant) in a shareholders’ representative action, but if the company intervenes on the side of a director (defendant), it is required to obtain the consent of all corporate auditors in a company with corporate auditors (Article 849, Paragraphs 1 and 3 of the Companies Act).
Costs of a representative action
In the past, there was criticism that the amount of stamps to be attached to the complaint (calculated based on the value of the suit subject matter) was too high when filing a high-cost representative suit, making it impossible to file a representative suit. Therefore, in order to allow anyone to file a representative suit, the amount of the complaint is deemed to be “an action pertaining to a claim that is not a claim on property rights” (Article 847-4, Paragraph 1 of the Companies Act), and the value of the suit is deemed to be 1.6 million yen (Article 4, Paragraph 2 of the Act on Costs of Civil Procedure, etc.). As a result, the amount of stamps to be attached to a representative suit is now uniformly 13,000 yen.
Jurisdiction
Jurisdiction for representative actions is the district court having jurisdiction over the location of the company’s head office.
Costs
If a shareholder prevails in a shareholder derivative action, the shareholder may demand that the company pay an amount deemed reasonable from among the legal costs and attorney’s fees (Article 852, Paragraph 1 of the Companies Act). If the shareholder loses the lawsuit, the shareholder is not obligated to compensate the company for damages caused by the shareholder’s loss, but if the shareholder acted in bad faith, the shareholder must compensate the company for damages caused by the shareholder’s bad faith (Article 852, Paragraph 2 of the Companies Act).
