Exploring The Concept of Unfairly Prejudicial Conduct as A Minority Shareholder Remedy Under the South African Company Law

Abstract

The South African Constitution recognises freedom of association. Generally, persons associate to form a company, but not all those that form a company are involved in the management of a company. Instead, management decisions are taken by the board of directors, and in some cases by the majority shareholders. It is a well-known principle that when one intends to be a shareholder in a company, he/she agrees to be bound by the decisions of the board or the majority of the members. In the corporate world, the directors of a company are faced with decision-making on a daily basis. Some of these decisions may not be favourable to the interests of the minority shareholders and the company. However, the law insists that only the company, through the board or the majority shareholders, can seek relief. That is the stringent common law rule in Foss v Harbottle. The quest to mitigate the burden placed on the minority shareholders by the application of that rule has led to the evolution of the remedy against oppression, which is now codified in section 163 of the Companies Act 71 of 2008. This research examines the efficiency of section 163 of the Companies Act 71 of 2008 in ensuring the protection of minority shareholders’ interests with regards to unfair and oppressive conducts of the majority in the conduct of a company’s affairs. The researcher adopted a doctrinal approach in this work, which requires a focus on existing literature to discover the extent to which the interests of the minority shareholders are protected in a company’s affairs. A comparison is made between the South African Companies Act provision in section 163 and that of the other countries as well as judicial pronouncements in these jurisdictions, to determine the advances which the South African law has made in affording protection to minority shareholders beyond the common law precept.