Shareholder Protection under the Companies Act 71 of 2008

SHAREHOLDER PROTECTION UNDER THE COMPANIES ACT 71 OF 2008

The Companies Act 71 of 2008 (“the Act”) introduced significant reforms aimed at enhancing shareholder protection in South Africa. These protections are crucial for maintaining investor confidence and fostering a stable economic environment. This article examines the key provisions of the Act that safeguard shareholder rights and evaluates their effectiveness.

 

Minority Shareholder Protection

Minority shareholders often find themselves at a disadvantage due to the majority rule principle. To address this imbalance, the Act includes several measures designed to protect minority interests. Section 163 provides a remedy for shareholders who experience oppressive or unfairly prejudicial conduct by the company or its directors. This section allows shareholders to apply to court for relief if they can demonstrate that the company’s actions are detrimental to their interests. The court may grant various forms of relief, including restraining the conduct in question or ordering the company to amend its memorandum of incorporation (“MOI”).

A significant provision is Section 164, which introduces the appraisal rights remedy. This remedy, in certain instances, allows dissenting shareholders to demand that the company buys back their shares at fair value if they object to certain fundamental transactions, such as mergers or asset disposals. This ensures that shareholders are not forced to remain part of a company undergoing major changes they do not agree with. 

Judicial Oversight and Remedies

The Act also empowers courts to play a crucial role in protecting shareholder rights. Section 162 permits the court to declare a director delinquent or place them on probation if they are found to have acted in a manner that is grossly negligent, wilfully misconducted, or breached their duties. This provision aims to hold directors accountable for their actions and prevent them from engaging in harmful conduct.

Additionally, Section 161 allows shareholders to apply to the court for relief if they believe that a company’s actions are illegal, fraudulent, or otherwise harmful. This section underscores the importance of judicial oversight in ensuring that companies adhere to legal and ethical standards.

 

Shareholder Agreements and Memoranda of Incorporation

The Act recognizes the importance of shareholder agreements and memorandums of incorporation in regulating the relationships between shareholders and the company. These documents can include provisions that offer additional protections to shareholders, such as pre-emptive rights, which allow existing shareholders to maintain their proportional ownership in the event of new share issuances. By enabling shareholders to customize their agreements and MOI’s, the Act provides a flexible framework that can accommodate the specific needs and preferences of different companies and their shareholders.

 

Comparative Perspectives

South Africa’s approach to shareholder protection aligns with international standards. For instance, the appraisal rights remedy under Section 164 is comparable to similar provisions in the USA, Canada, and New Zealand. This international benchmarking ensures that South African corporate law remains competitive and attractive to investors.

In the case of  Cilliers v La Concorde Holdings Limited (“Cilliers”), the court extended the ambit of Section 164 to the shareholders of the holding company, demonstrating the judiciary’s willingness to interpret the Act broadly to protect shareholder interests. This case underscores the dynamic nature of South African corporate law and its ability to adapt to evolving business environments.

Challenges and Criticisms

Despite these robust protections, there are challenges in effectively enforcing shareholder rights. One significant issue is the difficulty minority shareholders face in proving that the conduct in question is unfair. The requirement that the conduct must be not only prejudicial but also unfair, as highlighted in Vryenhoek and Others v Powell NO and Others, raises the bar for successful claims under Section 163. This high threshold can deter shareholders from seeking redress, particularly in cases where the unfairness is subtle or indirect.

Moreover, the effectiveness of the appraisal rights remedy has been questioned. In Cilliers the court had to determine the fair value of shares, a process that can be complex and contentious. The determination of fair value often involves intricate financial assessments and may require expert testimony, which can be costly and time-consuming for shareholders.

Additionally, the requirement for shareholders to provide written notice to the company under Section 164(3) has been criticized as a procedural hurdle that can impede the exercise of appraisal rights. If the company does not receive a written notice, the subsequent steps in the appraisal process cannot proceed, effectively nullifying the shareholder’s rights. 


Conclusion

The Act represents a significant step forward in protecting shareholder rights in South Africa. Its provisions for minority protection, judicial oversight, and flexible shareholder agreements provide a comprehensive framework for safeguarding investor interests. However, the practical challenges in enforcing these rights highlight the need for ongoing refinement and judicial interpretation to ensure that the Act fulfils its intended purpose.

As South Africa continues to develop its corporate governance landscape, it is crucial to balance the need for robust shareholder protections with the flexibility required for effective company management. By doing so, the country can maintain its attractiveness as an investment destination and foster a thriving, equitable business environment.

 

Should you require more information please contact Sarah Marx on smarx@bissets.com or via the relevant contact details below.

Written by – Rufus Dercksen (Candidate Attorney) 

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Bissets Whatsapp:  072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professional.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).



Enforcement of company beneficial ownership filings and securities registers by CIPC

ENFORCEMENT OF COMPANY BENEFICIAL OWNERSHIP FILINGS AND SECURITIES REGISTERS BY CIPC


The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (the “Act”) has made several changes to the beneficial ownership framework of companies and trusts. The intention of these changes is to aid in preventing fraud and corruption in South Africa.

In May 2023, the Companies and Intellectual Property Commission (CIPC) implemented a beneficial ownership register and it became mandatory for all entities to disclose the ownership and securities register of the entity. Entities incorporated after May 2023 have to file their beneficial ownership information within 10 business days after the date of incorporation. The same timeline applies regarding the updating of beneficial ownership information where there have been changes in the entity.

Entities incorporated before May 2023 are also required to file their beneficial ownership information and securities register and are now prevented from filing their CIPC annual returns if the beneficial ownership register has not been filed with CIPC. CIPC have stated that all entities need to have filed their beneficial ownership information by 24 May 2024.

Non compliance with the filing of the beneficial ownership and securities register may result in administrative fines and the inability to file the CIPC annual returns (which may eventually lead to the deregistration of the entity by CIPC). Clients should seek to understand more about these changes to ensure that they never fall foul of their legal obligations.

Should you require more information please contact Sarah Marx on smarx@bissets.com or via the relevant contact details below.

Written by – Sarah Marx (Associate)

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).

 

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Website: www.bissets.com

 

Bissets Whatsapp: 072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professionals



Understanding Curatorship in South Africa: An overview

UNDERSTANDING CURATORSHIP IN SOUTH AFRICA:  AN OVERVIEW

 

In South Africa’s legal framework, curatorship serves as a vital mechanism for safeguarding the interests of individuals who are incapable of managing their own affairs due for various reasons.

 

legislation and entwined with legal intricacies, curatorship plays a pivotal role in safeguarding the rights and assets of vulnerable individuals. This article delves into the essence of curatorship, its application and utilisation in South Africa, and the issues surrounding its implementation.

 

Curatorship: A Legal Framework

 

At its core, curatorship is a legal process that involves appointing a curator to manage the affairs of an individual who lacks the capacity to do so themselves. This inability may stem from multiple factors, such as mental illness, intellectual disability, or advanced age.

 

In South Africa, curatorship is primarily governed by the Administration of Estates Act 66 of 1965, the Children’s Act 38 of 2005, and the Uniform Rules of Court which provide frameworks for appointing curators and overseeing their responsibilities.

 

Types of Curatorship

 In South Africa, curatorship takes on various forms, customised to address the unique requirements and situations of each incapacitated individual.

1. Curator Bonis:

 This type of curatorship involves the managing and safeguarding of the financial resources of the incapacitated person. A curator bonis is appointed by the High Court and is entrusted with the responsibility of handling the individual’s investments, property, assets and financial transactions. Additionally, the curator bonis must maintain accurate records and reports of all such transactions made on behalf of the incapacitated person and is accountable to the Master of the High Court of South Africa. The curator bonis must file and annual report to the Master to account for the individual’s funds.

2. Curator Ad Litem:

In cases where legal proceedings involve a party who is unable to effectively represent themselves, the court might designate a curator ad litem to advocate on their behalf. This would usually be an advocate of the High Court. The curator ad litem ensures that the incapacitated individual’s interests are adequately represented and protected in legal proceedings. It’s also up to the curator ad litem to make recommendations to the court relating to guardianship, financial management, and general welfare of the incapacitated person.

3. Curator ad Personam:

In cases where an individual requires assistance with personal matters, such as healthcare decisions or daily living activities, a curator ad personam may be appointed. This curator is responsible for making decisions related to the individual’s personal welfare, social gatherings, recreational activities, meal preparation, hygiene and overall wellbeing, to name but a few. The courts are always cautious when appointing a curator ad personam due to the restrictive nature of the role for the individual concerned.

 

Challenges and Controversies

 

While curatorship serves as a vital protective measure, it is not without its challenges and controversies. One significant issue revolves around the potential for abuse of power by curators, especially in cases where there is insufficient oversight or accountability. Instances of financial exploitation or neglect of the incapacitated person underscore the need for robust safeguards and monitoring mechanisms within the curatorship system.

 

Furthermore, the process of appointing a curator can be complex and time-consuming, often requiring extensive legal proceedings and assessments to determine the individual’s capacity and the necessity for curatorship. Delays in appointing a curator can impede the protection of the incapacitated person’s interests and assets, potentially exposing them to harm or exploitation.

 

Another area of concern revolves around to the limited access to curatorship services, particularly in rural or underserved communities due to financial or other constraints. The availability of legal representation and support for incapacitated individuals and their families is crucial for ensuring equitable access to curatorship resources and upholding the principles of justice and protection for all members of society.

 Conclusion

 

In conclusion, curatorship’s stand as a cornerstone of South Africa’s legal framework for protecting the rights and assets of individuals who are unable to manage their affairs independently.

 

Despite its importance, there are still various challenges and controversies, ranging from concerns about misuse of power to issues of accessibility and efficiency. Addressing these challenges requires a comprehensive thoughtfully devised strategy, encompassing legislative reforms, enhanced oversight mechanisms, and efforts to improve access to curatorship services for all members of society. By continuously  improving and strengthening the curatorship system, South Africa can fulfil its pledge to protect the rights and dignity of its most vulnerable citizens.

 

The above article outlines the framework of the appointment of curators in South Africa. If you know of an individual who is in need of the assistance of a curator or wishes to be released from curatorship, or if you require more information please contact Rifqah Omar on romar@bissets.com or via the relevant contact details below.

 

Written by: Rufus Dercksen – Candidate Attorney 

 

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).

 

Switchboard: 021-441 9800

Website: www.bissets.com

Bissets Whatsapp: 072 370 0416 – our Client Liaison, Tracy, will put you in contact with the relevant professionals