Addressing minority shareholder oppression: Effective remedies

Being a minority shareholder can leave you powerless in situations where decisions are made against your wishes. Most Memorandums of Incorporation (MOIs) typically require a 75% majority vote for special resolutions to pass, regardless of your dissent. This scenario can lead to feelings of oppression and unfair prejudice.

The word oppressed was derived from the dictionary meaning in the case Scottish Co-operative Wholesale Society Ltd v Meyer [1958] 3 All ER 66 (HL) and described as conduct which is ‘burdensome, harsh and wrongful. In the case Technology Corporate Management (Pty) Ltd v De Sousa and Others [2024] 2 All SA 684 (SCA) such a situation can further be described as: “… exercised their powers in a way that was oppressive or unfairly prejudicial to minority shareholders…”.

Fortunately, the Companies Act 71 of 2008 (the Act) provides remedies for such situations. Section 163 of the Act allows shareholders or directors to seek relief from conduct that is oppressive, unfairly prejudicial, or disregards their interests. Section 163(1) of the Act sets out the circumstances for when an oppressed or prejudiced shareholder may rely on such remedies and are as follows:

“A shareholder or a director of a company may apply to a court for relief if-

(a)    any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant;

(b)   the business of the company, or a related person, is being or has been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant; or

(c)    the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant.”

In terms of section 163(2) the Act describes the orders a court may make on application, which is quite an extensive list, however, are not limited to this if good cause can be shown for the order that is sought. The Act sets it out as follows:

“Upon considering an application in terms of subsection (1), the court may make any interim or final order it considers fit, including-

(a)    an order restraining the conduct complained of.

(b)   an order appointing a liquidator, if the company appears to be insolvent.

(c)    an order placing the company under supervision and commencing business rescue proceedings in terms of Chapter 6, if the court is satisfied that the circumstances set out in section 131(4)(a) apply.

(d)   an order to regulate the company’s affairs by directing the company to amend its Memorandum of Incorporation or to create or amend a unanimous shareholder agreement.

(e)    an order directing an issue or exchange of shares.

(f)     an order-

(i)     appointing directors in place of or in addition to all or any of the directors then in office; or

(ii)    declaring any person delinquent or under probation, as contemplated in section 162.

(g)    an order directing the company or any other person to restore to a shareholder any part of the consideration that the shareholder paid for shares, or pay the equivalent value, with or without conditions.

(h)    an order varying or setting aside a transaction or an agreement to which the company is a party and compensating the company or any other party to the transaction or agreement.

(i)     an order requiring the company, within a time specified by the court, to produce to the court or an interested person, financial statements in a form required by this Act, or an accounting in any other form the court may determine.

(j)     an order to pay compensation to an aggrieved person, subject to any other law entitling that person to compensation.

(k)    an order directing rectification of the registers or other records of a company.

(l)     an order for the trial of any issue as determined by the court.”

The Act’s objective, in short, includes specifically two factors:

• promote compliance with the Bill of Rights as provided for in the Constitution.
• promote the development of the South African economy by encouraging entrepreneurship, to create flexibility and simplicity in formation and maintenance of companies and encouraging transparency and high standards of corporate governance.

In essence, the Act aims to uphold constitutional rights and promote economic development by fostering entrepreneurship and ensuring corporate governance transparency. Section 163 reflects these objectives, aligning with South Africa’s Constitution and Bill of Rights.

In conclusion, while minority shareholders may face challenges in influencing corporate decisions, the Companies Act 71 of 2008 serves as a crucial safeguard, offering avenues for legal recourse to protect their interests and promote fair corporate practices in South Africa.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.