LEARNING UNIT 13:
REMEDIES AND ENFORCEMENT
INTRODUCTORY NOTICE
Please read:
Unless otherwise stated in these lecture slides, these lecture slides have been prepared
using the materials referred to in the Module Outline for BUEL6212, particularly the
prescribed textbook, Dennis Davis, et al Companies and Other Business Structures in
South Africa 3rd ed. Oxford (‘PM’ or ‘Davis’)
These lecture slides have been prepared specifically for the lecturer’s use for purposes
of presenting the class/online lectures and are not intended to be used by students as a
substitute for studying the full content of the PM and the other materials (including the
cases) referred to in the Module Outline, as well as the content on VC Learn, all of
which need to be fully studied by students.
Ensure that you have purchased a copy of Davis to use for this Module.
LEARNING UNIT OVERVIEW
• This LU examines remedies available to inter alia
shareholders and how the provisions of the Companies
Act are enforced.
• The LU covers Davis Chapter 14, para. 14.2 - 14.3,
14.4 and 14.5 (The other paragraphs of Chapter 14 have
been dealt with in earlier LU’s).
THEME 1: REMEDIES
• Davis Chapter 14, para. 14.2 – 14.3
• The statutory derivative action
Under the common law – generally only the company, not the
shareholders, had an action against the directors for harm they cause
(Foss v. Harbottle).
Shortcoming – company unlikely to act where the wrongdoers in
effect control the company.
THEME 1: REMEDIES
Common law therefore accepted that in certain circumstances the
shareholders themselves could sue on behalf of the company. Since
that right derives from the company whose rights are sought to be
protected, it became known as the common law derivative
action. It is often used by minority shareholders to protect the
company against abuse by the majority shareholders who control the
company.
THEME 1: REMEDIES
• Shortcomings of the common law derivative action
Risk of incurring personal legal costs to protect
company’s interests;
Plaintiff often did not have access to the required
information in the hands of the company and or
wrongdoers;
THEME 1: REMEDIES
Unclear to what extent a simple majority could or
could not confirm or ratify the action (majority rule
principle);
Case law blurred distinction between a shareholder
seeking to protect own interests and that of seeking to
protect company’s interests.
THEME 1: REMEDIES
Statutory derivative action in terms of section 165
of the Companies Act, 2008
• This was introduced as an alternative remedy to address
the aforesaid shortcomings in the common law remedy.
• The remedy is typically available against an alleged
wrongdoer who is in control of the company.
THEME 1: REMEDIES
• The persons that may use it are a shareholder, director,
prescribed officer, representative of employees (usually a
trade union) or any person with permission of the court.
• The following 5 steps need to be followed to use the
statutory derivative action in terms of section 165:
THEME 1: REMEDIES
• [1] The person wishing to pursue the action must serve a demand on
the company requiring it to commence legal proceedings to protect
the interests of the company;
• [2 ] Unless company successfully applies to court to have demand set
aside, it must appoint an independent and impartial person or
committee to investigate the demand and report to the board on
whether it is in the best interests of the company to institute the legal
proceedings against the wrongdoer;
THEME 1: REMEDIES
• [3] Within 60 days of receiving the demand, the company must initiate
the legal proceedings or notify that person that it refuses to do so;
• [4] If it refuses, then that person may apply to court for leave to bring
the action on the company’s behalf
• ‘[5] Court will grant the leave if it considers it in the best interests of
the company to do so and it involves a matter of material consequence
to the company.
Read case study on page 364/365 of Davis
THEME 1: REMEDIES
Davis para 14.3
Statutory remedies for shareholders
There are three types of statutory remedies available to shareholders to
protect their own rights, namely:
Relief from oppressive or prejudicial conduct in terms of section 163;
Appraisal rights in terms of section 164 (dealt with in an earlier LU); and
A declaratory order in terms of section 161.
Each of these (save for the appraisal rights which has been discussed earlier)
is discussed below.
THEME 1: REMEDIES
Davis para. 14.3.1
Relief from oppressive or prejudicial conduct in terms of
section 163
• This remedy applies to both shareholders and directors acting in the
interest of a minority shareholder.
• Applicant must establish that: ‘an 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.’
THEME 1: REMEDIES
• Alternatively, the applicant must establish that ‘the business of
the company or the related person is being or has been …
conducted in a manner that is oppressive or unfairly prejudicial
to, or that unfairly disregards, the interests of the applicant.’ (A
related person in this context is one who directly or
indirectly controls the company).
THEME 1: REMEDIES
• There is a also a similar remedy that relates to the manner in which
the powers of a director, prescribed officer or person related to the
company are being exercised. This can relate, for example, to a CEO
abusing his/her power.
• Court has wide ranging powers. Can, for example, order the MOI to
be altered, an agreement be set aside, a person to be compensated,
company to be wound-up etc.
• Read case studies in Davis at pages 368-371.
THEME 1: REMEDIES
Additional remedy: declaratory order
• Section 161 also allows a shareholder to apply for a declaratory order
regarding the rights that it may have in terms of any of the following:
The Companies Act, 2008
The MOI
The rules of the company
Any applicable debt instrument.
• Alternatively, an order can be sought to protect those rights or rectify any
harm caused to them.
THEME 2: ENFORCEMENT AND DISPUTE
RESOLUTION
There are 4 alternatives for addressing complaints regarding
alleged contraventions of the Companies Act or for
enforcement of rights:
Alternative dispute resolution (ADR) in terms of section 166:
mediation, conciliation or arbitration [Read Davis, para 14.5.3]
Application to Companies Tribunal [Read Davis, para 14.5.2]
Application to High Court [dealt with in earlier slides]
File a complaint with CIPC [Read Davis, para 14.5.1, 14.5.1.1, 14.5.1.2 and
14.5.1.3]
