Within the corporate setting minority shareholders in many instances are placed in a position of vulnerability to oppression by majority shareholders as a result of the imbalance in voting rights. An example of oppressive and prejudicial conduct would be where majority shareholders or directors make decisions regarding a company without taking the minority’s concerns into consideration, withholding information when taking such a decision, or alienating assets without the prior consent of minority shareholders.

Section 163 of the Companies Act[1] (“the new Act”) makes provision for an oppression remedy in that an aggrieved minority shareholder or director may apply to court for relief if: (a) an act or omission of the company, or a related person is oppressive or unfairly prejudicial, or unfairly disregards the interest of a minority shareholder; (b) the business of the company is carried on or conducted in a prejudicial manner; or (c) the powers of a director of the company is being exercised in a prejudicial manner.[2]

Section 163(2) sets out a long list of the relief that may be granted by the courts, including an order restraining the conduct complained of, appointing directors in place of or in addition to all or any of the directors then in office, or declaring any person delinquent or under probation.  The section, however, does not define which factors will be taken into account by the court to reach a decision on whether the oppression remedy will be appropriate. In order to determine what the courts will take into consideration when having to decide on section 163 applications, it will be necessary to do a brief study on what factors the courts relied on thus far.

In the case of Aspek Pipe Co (Pty) Ltd v Mauerberger[3] the court held that in order for the conduct to be oppressive, there must be a visible departure from fair standards of dealing and fair play to which a shareholder is entitled to. The court will therefore factor in whether a director or a shareholder had acted contrary to the fiduciary duty and standard of care owed to the company.  Furthermore, in terms of section 31 of the new Act, a person who holds interest in a company has the right to access to information. In the case of Robinson v Imroth[4] it was stated by the court that the views of the minority should be considered.[5] This indicates that compliance with the new Act will be a factor to be considered by the courts.

In the case of Grancy Property Ltd v Manala[6] the court had to consider whether the appellant had sufficient grounds to rely on the relief sought in terms of section 163.  The appellant made various allegations of misconduct, fraud and that he had been denied his entitlements as a shareholder of the company as a result of the alleged transgressions.[7] The Court held that the prejudicial and disregardful conduct must be done unfairly.[8] The mere fact that a decision causes prejudice to a minority shareholder, does not mean that it is prima facie unfair.

From the case law as discussed it becomes clear that, to determine whether a minority shareholder or director can seek relief in terms of section 163, it must be considered whether the  prejudice caused to the minority by the decision taken, resulted from a contravention of the rights and duties placed on directors in terms of the Companies Act. Furthermore, the decision must have been taken unfairly. There is no closed list of what would constitute oppressive conduct, and the conclusion to be drawn is that oppressive conduct does not mean conduct with which a minority shareholder does not agree with. The courts should objectively consider whether the majority complied with the provisions and regulations of the Companies Act regarding the conduct of shareholders.

Carmin Cornelius is a candidate attorney in the litigation department at Barnard Incorporated in Centurion.

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[1]        Companies Act 71 of 2008 as amended.

[2]        Act 71 of 2008: sec 163(1)(a) – (c).

[3]        Aspek Pipe Co (Pty) Ltd v Mauerberger 1968 (1) SA 517 (C): 525H–526E.

[4]        Robinson v Imroth (1917) AD 159.

[5]        Robinson v Imroth (1917) AD 159: par 171.

[6]        Grancy Property Ltd v Manala (2013) JOL 30345 (SCA).

[7]        Grancy Property Ltd v Manala (2013) JOL 30345 (SCA): par 6.

[8]        Grancy Property Ltd v Manala (2013) JOL 30345 (SCA): par 32.

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