When minority shareholders are protected

28 January 2015 | Construction, Engineering and Infrastructure

The Companies Act provides minority shareholders with a right to apply to court for relief against conduct that is "oppressive, or unfairly prejudicial to, or unfairly disregards the interests" of the shareholders concerned.

In a recent decision of the Supreme Court of Appeal (SCA), the court provided guidance on the application of this remedy. It concluded that it was not the motive for the conduct complained about that the court must consider, but the conduct itslef and the effects on the shareholders.

This areticle considers the protection provided to minority shareholders against oppressive or prejudicial conduct.

The scope of protection available to aggrieved shareholders under section 163 of the new act is significantly broader thanthat provided in its predecessor, section 252 of the old Companies Act of 2973.

This is evident from the following:

  • The introduction of a new ground upon which relief may be sought, namely conduct that "unfairly disregards the interests of the applicant".
  • The extention of the kinds of "conduct" that the applicant may rely on in relation to its grievance.
  • The latitude given to courts to grant appropriate relief. The court is empowered to make any interim or final order it considers fir, including:
    • An order directing the company to amend its Memorandum of Incorporation ot to create or amend a unanimous shareholder agreement.
    • An order directing an issue or exchange of shares
    • An order appointing directors in place of or in addition to any of the directors then in the office.

In the case of Grancy Property Limited v Manala and others, the SCA came to the assistance go a minority shareholder who successfully relied on the minority protection provision.

The appellant in this case sought and was granted an order for the appointment of two independent directors to the board of the company, of which it was a shareholder, for them to investigate allegations of misconduct on the part of the other directors of the company.

The SCA held that "in determining whether the conduct comlained of is oppressive, or unfairly prejudicial, or unfairly disregards the interests of (a shareholder) it is not the motive of the conduct complained of that the court must look at, but the conduct itself and the effect which it has on other members of the company".

The SCA noted that "Not all acts which prejudicially affect shareholders, or which disregard their interests, will entitle them to relief; it must be shown that the 'conduct' is not only prejudicial or disregardful but also that it is unfailry so."

Given the extensive power of the courts under section 163, shareholders and directors would do well to keep abreast of any new and innovative remedies imposed by the courts.


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