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Johannesburg - Minority protection will receive a substantial boost with the introduction of the new Companies Act, which will ensure that while the will of the majority prevails, the interests and rights of lesser shareholders are upheld.
This is according to Natasha Bouwman, supervisor at the Centre for Corporate Governance at the Institute of Directors SA.
Minority protection is important for aggrieved shareholders in private companies, rather than those in public listed companies.
The latter, said Bouwman, can dispose of their shares on the open market as an easy recourse.
"This isn't as simple for private company shareholders."
Under common law, directors have fiduciary duties to act in the best interest of the company. If these duties are breached, only the company would be able to sue for damages, not minorities.
Bouwman said the remedy for minorities is limited at present to a statutory action based on oppressive or unfairly prejudicial conduct, or action under common law.
Not only does the new act explicitly codify directors' fiduciary duties and their duty of care and skill, but it also states that anyone who contravenes them is liable for damages suffered as a result of such contravention.
This is significant for minority shareholders, said Bouwman.
"Simply put, in a literal interpretation, they may institute action against directors should they suffer damages due to a director's breach of his duties."
The new act also contains a statutory remedy that provides relief to minority shareholders in the event of oppressive or prejudicial conduct, or abuse of separate juristic personality of the company.
Bouwman said that this provision might be helpful to minorities as it will be available to any shareholder.
"In short, it gives the courts wider grounds to intervene and affords them a wider range of remedial powers."
The new act also provides for an application to determine or protect a shareholder's rights, or to rectify harm done to a shareholder. This is in addition to the available common law and statutory remedies.
Further statutory remedies for minority shareholders introduced in the new act, Bouwman said, are provided in the event of fundamental transactions such as disposal of all or the greater part of the assets, an amalgamation or merger and a scheme of arrangement.
Provision is also made in terms of dissenting shareholders' appraisal rights for a shareholder to demand a company to pay the fair value of all its shares.
Bouwman said it is available to minority shareholders in circumstances where a company intends on amending its memorandum of incorporation or entering into a fundamental transaction.
The new act also allows any shareholder to apply to court to declare a director to be delinquent or under probation.
"The new act affords minority shareholders more protection than the current one. It attempts to find balance between majority rule and minority rights, something which is not easily achieved," she said.
This is according to Natasha Bouwman, supervisor at the Centre for Corporate Governance at the Institute of Directors SA.
Minority protection is important for aggrieved shareholders in private companies, rather than those in public listed companies.
The latter, said Bouwman, can dispose of their shares on the open market as an easy recourse.
"This isn't as simple for private company shareholders."
Under common law, directors have fiduciary duties to act in the best interest of the company. If these duties are breached, only the company would be able to sue for damages, not minorities.
Bouwman said the remedy for minorities is limited at present to a statutory action based on oppressive or unfairly prejudicial conduct, or action under common law.
Not only does the new act explicitly codify directors' fiduciary duties and their duty of care and skill, but it also states that anyone who contravenes them is liable for damages suffered as a result of such contravention.
This is significant for minority shareholders, said Bouwman.
"Simply put, in a literal interpretation, they may institute action against directors should they suffer damages due to a director's breach of his duties."
The new act also contains a statutory remedy that provides relief to minority shareholders in the event of oppressive or prejudicial conduct, or abuse of separate juristic personality of the company.
Bouwman said that this provision might be helpful to minorities as it will be available to any shareholder.
"In short, it gives the courts wider grounds to intervene and affords them a wider range of remedial powers."
The new act also provides for an application to determine or protect a shareholder's rights, or to rectify harm done to a shareholder. This is in addition to the available common law and statutory remedies.
Further statutory remedies for minority shareholders introduced in the new act, Bouwman said, are provided in the event of fundamental transactions such as disposal of all or the greater part of the assets, an amalgamation or merger and a scheme of arrangement.
Provision is also made in terms of dissenting shareholders' appraisal rights for a shareholder to demand a company to pay the fair value of all its shares.
Bouwman said it is available to minority shareholders in circumstances where a company intends on amending its memorandum of incorporation or entering into a fundamental transaction.
The new act also allows any shareholder to apply to court to declare a director to be delinquent or under probation.
"The new act affords minority shareholders more protection than the current one. It attempts to find balance between majority rule and minority rights, something which is not easily achieved," she said.
