Under what condition may derivative action proceedings be settled?

The correct condition under which derivative action proceedings may be settled is with court approval. Derivative actions are typically brought by shareholders on behalf of the corporation when the corporation itself fails to address wrongdoing by its directors or officers. Given the complexities and potential conflicts of interest involved in these cases, the court plays a crucial role in overseeing settlements to ensure fairness and that the corporation’s interests are upheld. Court approval allows for a legal assessment of whether the terms of the settlement are appropriate and in the best interests of the corporation, safeguarding against any self-serving resolutions.

While the involvement of majority shareholder approval or a simple majority of directors might seem sufficient in other corporate decisions, derivative actions are fundamentally about protecting the minority shareholders and the corporation itself from mismanagement. Therefore, relying solely on internal governance mechanisms without the oversight of a court could lead to unfair outcomes. Thus, the requirement for court approval serves to enhance accountability and transparency in the settlement process of derivative actions.