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Aggrieved Minority Shareholders: You Have Plenty of Options

Aggrieved Minority Shareholders: You Have Plenty of Options

May 23, 2017

The Companies Act gives directors substantial leeway to run a company and gives them considerable powers to do this. So how does it protect minority shareholders who disagree with how the directors operate the business?

What remedies are available to you?

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  • A shareholder may seek court relief when there is “an unconscionable abuse” of the company’s separate legal persona.
  • Shareholders may “demand” that the company purchase  their shares at “fair value” in the event of a:
    • Change in the company’s Memorandum of Incorporation (MOI)
    • Disposal of a large part of the company’s assets
    • Merger with another business
    • Scheme of arrangement being entered into by the company.
  • A shareholder may ask the court to protect his/her/its rights in matters affecting the MOI, company rules and company debt.
  • A shareholder may apply to court to have one or more directors declared delinquent.
  • If shareholders are being treated in an “oppressive” or unfair manner which prejudices their rights, the courts are given wide discretion. Inter alia, they can appoint new directors, restrain behaviour, change the MOI, award compensation to the prejudiced shareholder, issue shares, set aside transactions or require a trial be held.

The Supreme Court of Appeal in 2013 found in favour of a minority shareholder under this section:

Shareholders may institute a derivative action by demanding the company take legal action against wrongdoers who have acted in a manner harmful to the company.

Whilst we are often told the Companies Act favours directors, there are numerous avenues sanctioned by the Companies Act to address grievances of minorities.

Ask your accountant for help in doubt.

NOTE FOR ACCOUNTANTS:  See “The rights of minority shareholders – should you stay or should you go?” here.

The 2013 Supreme Court of Appeal case referred to above is Grancy Property Ltd v Manala and Others (665/12) [2013] ZASCA 57; [2013] 3 All SA 111 (SCA); 2015 (3) SA 313 (SCA) available on SAFLII.

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