Minority Shareholder Protection

The most common corporate law dispute that we deal with in practice are shareholder and/or director disputes. These disputes are often involve the majority shareholders using various tactics to further their own interests which disregard and/or marginalize the interests of minority shareholders or the directors appointed to the board by such minority shareholders.

The Companies Act 71 of 2008 brought into effect an era where minority shareholders have a voice and where their rights can be protected. The protection of minority shareholder’s rights must be understood within the context of the Companies Act, the common law, the Company’s Memorandum of Incorporation (MOI) and if applicable, Shareholders Agreement. Section 163 of the Companies Act affords either a director or shareholder may apply to Court for relief where any conduct by the company or related person (e.g. director) either has had a result that is oppressive or unfairly prejudicial to the rights or interests of the applicant.

In terms of section 163(2) the court has a vast variety of remedies that it can grant to such an oppressed and prejudiced shareholder or director which includes:

• restraining the conduct complained of;

• placing the company under supervision and commencing business rescue proceedings;

• directing the company to amend its Memorandum of Incorporation or to create or to amend its shareholders’ agreement;

• directing an issue or exchange of shares;

• appointing directors in addition to existing directors;

• directing the company or any person to pay a shareholder any part of the consideration paid for shares or the equivalent value thereof;

• setting aside a transaction to which the company is a party and payment of appropriate compensation; or

• for the trial of an issue as determined by the court.

An objective test is used by the courts for determining whether the conduct complained of is unfair and/or with regard to the facts in each case.

Section 163 is a powerful section of the Companies Act that can assist minority shareholders from being oppressed and/or unfairly prejudiced by their fellow majority shareholders.

If you would like more information on this subject or need assistance with a shareholder and/or director dispute, please contact our offices for assistance.