O.C.G.A. § 14-2-745 (2019)
Discontinuance or settlement
A derivative proceeding may not be discontinued or settled without the court’s approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interests of the corporation’s shareholders or a class of shareholders, the court shall direct that notice be given to the shareholders affected.
History
(Code 1981, § 14-2-745, enacted by Ga. L. 1988, p. 1070, § 1.)
Annotations
Law reviews. - For survey article on business associations, see 60 Mercer L. Rev. 35 (2008). For article, ‘‘2008 Annual
Review of Case Law Development,’’ see 14 (No. 6) Ga. St. B.J. 28 (2009).
COMMENT Source: Model Act, § 7.45 (under consideration, 1987). This replaces provisions formerly found in § 14-2-123(d).
CORPORATIONS & PARTNERSHIPS
Section 14-2-745 follows the Federal Rules of Civil Procedure, and the provisions of former Georgia law, and requires that all proposed settlements and discontinuances must receive judicial approval. This requirement seems a natural consequence of the proposition that a derivative suit is brought for the benefit of all shareholders and avoids many of the evils of the strike suit by preventing the individual shareholder-plaintiff from settling privately with the defendants. Section 14-2-745 also requires notice to all affected shareholders if the court determines that the proposed settlement may substantially affect their interests. This provision permits the court to decide that no notice need be given if, in the court’s judgment, the proceeding is frivolous or has become moot. This preserves the policy of former § 14-2-123(d). This section also makes a distinction between classes of shareholders, which is not in Federal Rule of Civil Procedure 23.1, is adapted from the New York and Michigan statutes. This procedure could be used, for example, to eliminate the costs of notices to preferred shareholders where the settlement does not have a substantial effect on their rights as a class, such as their rights to dividends or a liquidation preference. Like former law, Section 14-2-745 does not address the issue of which party should bear the costs of giving this notice. That is a matter left to the discretion of the court reviewing the proposed settlement. JUDICIAL DECISIONS Trial court abused its discretion in approving settlement. - In a derivative action suit, the trial court abused its discretion when it approved a settlement and dismissed the action since the $2.54 million that was part of the settlement
agreement was to be paid directly to the suing shareholder, with no real gain being obtained on behalf of the corporation. Stephens v. McGarrity, 290 Ga. App. 755, 660 S.E.2d 770 (2008).
RESEARCH REFERENCES Am. Jur. 2d. - 19 Am. Jur. 2d, Corporations, § 105 et seq. ALR. - Settlement or compromise of asserted right of corporation pending a derivative action to enforce it, 150 ALR 872.
Accountability of stockholder for money received upon settlement or discontinuance of derivative action, 169 ALR 946.