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?
- 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.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)