A shareholder is defined as the holder of shares issued by a company and who is entered as such in the certificated or uncertificated securities register. A director is a member of the board of a company, as contemplated in section 66 of the Companies Act 71 of 2008 (“Act”). It is trite that by becoming a shareholder, a person undertakes to be bound by the decisions of the majority, even where these decisions may adversely affect their rights or interests. The question that arises from the above is, what remedies are available to shareholders and directors who are victims of oppressive and unfairly prejudicial conduct?
The answer can be found in section 163 of the Act which provides inter alia:
- A shareholder or a director of a company may apply to a court for relief if 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.
- If 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.
The Court in Grancy Property Limited v Manala and Others considered the concept of oppressive conduct. With reference to a decision of the House of Lords it is stated that “the concept of “oppressive” denotes conduct that is burdensome, harsh and wrongful and such conduct would include a lack of probity or good faith and fair dealing in the affairs of a company to the prejudice of some portion of its members.”
The test for unfair prejudice is objective and it seeks to determine whether a reasonable bystander observing the consequences of the conduct would regard it as having a prejudicial effect. The minority shareholder must establish that the particular act or omission complained of is oppressive or unfairly prejudicial.
In conclusion, once a court is satisfied that the conduct complained of meets the requirements of the Act, it may make any interim or final order it considers fit including an order restraining the conduct complained of, an order regulating the company’s affairs, directing a company to amend its memorandum or to create or amend a shareholder’s agreement. The court may even appoint replacement or additional directors or declare any person delinquent or under probation.
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