A Platonian Approach to Shareholder Derivative Claim: Rationale for Legislative Reforms in Cyprus with Lessons from England and Germany

One of the most powerful tools of shareholder protection is the derivative action. The thesis argues that shareholder protection in Cyprus is weak, because Cypriot law lacks effective mechanisms of shareholder protection. In particular, it argues that the common law derivative action, as it stands in Cypriot company law, is deficient in protecting the interests of Cypriot shareholders against mismanagement. Its thesis is that a legal reform, which will replace the Cypriot common law on derivative claims with a statutory remedy, is necessary in order to strengthen the protection of minority shareholders against managerial misconduct and to improve the weaknesses of corporate governance practices within Cypriot markets. This aim will be achieved through the comparative analysis of Cypriot, English and German law and the development of a new conceptual framework, upon which the reform proposals would be based. This conceptual framework is rooted on the famous Plato’s allegory of cave and provides an innovative outlook on how the law on derivative claims should be formulated, so that minority shareholders are equipped with an effective corporate governance mechanism against maladministration. Based on the allegory, the study argues that the derivative action can only amount to an effective corporate governance mechanism, if it is accessible to minority shareholders. The development of this conceptual framework provides for the introduction of a new model on derivative claims that the thesis named as Platonian Remedial Model (PRM)