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The oppression section of the Companies Act provides the most important statutory protection of shareholders' rights

The first Supreme Court of Appeal decision on the oppression section of the new Companies Act of 2008

The judgment in Grancy Property Ltd v Manala [2013] ZASCA 57, handed down on 10 May 2013, is the first decision of the Supreme Court of Appeal on the interpretation of section 163 of the Companies Act 71 of 2008 which empowers the court to grant relief to an applicant who establishes that –

  • the conduct of a company has had a result that is oppressive or unfairly prejudicial to him or that unfairly disregards his interests; or that
  • the business of the company or of a related person is being or has been carried on or conducted in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards his interests; or that
  • the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards his interests.

What constitutes oppressive or unfair conduct?

The court affirmed the interpretation of what constitutes oppressive conduct as laid down in Aspek Pipe Co (Pty) Ltd v Mauerberger 1968 (1) SA 517 (C) which held (at 525H-526E) that –

“Oppressive” conduct has been defined as “unjust or harsh or tyrannical”... or “burdensome, harsh and wrongful”... or which “involves at least an element of lack of probity or fair dealing”... or “a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely”... It will be readily appreciated that these various definitions represent widely divergent concepts of “oppressive” conduct. Conduct which is “tyrannical” is obviously notionally completely different from conduct which is “a violation of the conditions of fair play.

[T]yrannical” conduct represents a higher degree of oppression than conduct which is “harsh” or “unjust”. The Shorter Oxford Dictionary defines “tyrannical” as “severely oppressive; despotically harsh or cruel”... I do not think it is necessary for an applicant to have to go to the lengths of establishing conduct of such a nature before he is entitled to relief..."

The factual background to the case

In essence, the applicant in this case – a minority shareholder of the company in question – averred that certain named directors (who had by then resigned) of the company had engaged in conduct that disregarded its interests, inter alia by paying themselves unauthorised remuneration and by withdrawing funds from the company for payment to themselves.

The applicant had been unsuccessful in the Cape High Court, which dismissed its claim for relief.

The Supreme Court of Appeal said (at para [16] of the judgment) that the question was whether the applicant had made out a case to be entitled to relief in terms of section 163 of the Companies Act 2008.

Predictably, the directors in question denied the allegations of wrongdoing, but the court pointed out (at para [18]) that, in their version of events, they did not seriously dispute that the amounts of money in question had in fact been paid to them, though they averred that they were entitled to those amounts. Significantly, the directors had not taken issue with a report by the company's auditors regarding grave irregularities committed by the directors in question.

The order of the Supreme Court of Appeal

The Supreme Court of Appeal ordered that a certain senior counsel practising at the Cape Bar and a named senior chartered accountant from a leading firm of accountants were to be appointed as independent directors of the company in question, and that they were to have the sole right, in their absolute discretion and to the exclusion of the company's other directors, to determine whether there should be an investigation into the company's affairs in the light of the allegations that had been made against the directors in question. The order further provided that those independent directors could not be removed from office except by the unanimous vote of the company's shareholders or by an order of the high court.

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