Relief Afforded to a Shareholder or Director from Oppressive or Prejudicial Conduct

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South African Company law provides remedies to shareholders and directors for oppressive corporate conduct.

Section 163 of the Companies Act 71 of 2008 (the Act) provides:

‘163(1) 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, being or has been exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of the applicant.’

The above three subsections indicate the circumstances in which relief may be sought by a shareholder or director of a company.

In considering the circumstances given rise to the shareholder or director applying for relief under this section of the Act, it is the results of those circumstances to the director or shareholder which must be oppressive or unfairly prejudicial or disregard their interest.

With regard to what conduct is oppressive or unfairly prejudicial, or that disregards interests of the director or shareholder the following may be of guidance –

Oppressive conduct

According to Henochberg on the Companies Act 71 of 2008 (Publishers – Lexis Nexis) “Conduct that is “burdensome, harsh and wrongful” would generally be regarded as “oppressive”…”

Unfair conduct

Henochberg further in considering case law states “Mere prejudice is therefore not sufficient, the prejudice must be “unfair”…” and “the requirement was stated as a “significant element of unfairness”.

Further conduct which is unlawful and in breach of a director’s fiduciary duties is likely unfair.

In applying for relief under section 163 of the Act, section 7 which sets out the purposes of the Act must also be considered and in particular the need to “(i) balance the rights and obligations of shareholders and directors within the companies” as well as “(j) encourage the efficient and responsible management of companies”.

The relief granted in terms of the Act is wide ranging and provides the court with a discretion to apply any order it deems fair and equitable and includes but is not limited to:

  •  an order restraining the conduct complained of;
  • replacing or removing a director;
  • declaring a director delinquent;
  • amending the company’s memorandum of incorporation to regulate the company’s affairs;
  • an order director the exchange or issue of shares.

Should you require professional assistance to consider the above law further contact Lisa Boogaard on 0721164121 to arrange a consultation.