Minority shareholders are not without recourse when they have suffered from oppressive or unfairly prejudicial conduct by the majority. The minority shareholder can approach the court for an order for the company to buy back their shares.

The Companies Act 2008 provides for the business and affairs of a company to be managed by or under the direction of its board (and not its shareholders). The reasons for this are self-explanatory as the identities of the shareholders are constantly changing, and it would be impossible to get a majority shareholder body together for every business decision that has to be taken. However, one must be cognisant of the fact that the majority shareholders usually control the board with the power to appoint the majority of board members and, seeing shareholders owe no fiduciary duty to the company or to other shareholders, they are entitled to act in their own interests, even where it is detrimental to the minority shareholders.

Where such a minority shareholder can show that the conduct of the company or a related person has had the result of being oppressive or unfairly prejudicial to them, the court has a wide discretion to do what is fair and equitable in the circumstances, including ordering the company to buy back the shares of the minority shareholder. This was recently illustrated in De Sousa v Technology Corporate Management (Pty) Ltd.

While shareholders are often described as the owners of a company, a company has a juristic personality allowing it to stand as an entity separate from its shareholders and directors. The directors, and not the shareholders, are charged with managing the business and affairs of the company, despite the shareholders being the so-called ‘owners’. In larger companies, shareholders are usually far-removed from the management of that company. This is not the case in smaller companies where there is often an overlap between the shareholders and the directors as major individual shareholders will often also be directors. While a person can be both a shareholder and a director, he or she does so in different capacities with different obligations and duties depending on the capacity in which he or she acts at a given time.

Shareholders are not powerless. For one, the majority shareholders often control the board through power to appoint the majority of board members. Minority shareholders are not, however, without recourse.

Section 163 of the Companies Act allows for a shareholder to apply to court for relief if the conduct of the company is oppressive or unfairly prejudicial or unfairly disregards the interests of the minority shareholder.

In the De Sousa case the court had to decide whether the minority shareholders suffered from oppressive or unfairly prejudicial conduct and whether the company should repurchase the shares of the minority shareholders. While this case was decided under the 1973 Companies Act, the relevant section providing protection for minority shareholders under the 2008 Companies Act has even wider, more flexible application and a court has a wider discretion to grant any relief deemed appropriate, which makes it more flexible compared to the 1973 Act.

In this case, the court held that the affairs of the company were continuously conducted in a manner that was unfairly prejudicial, unjust and inequitable to the minority shareholders. The minority shareholders had been excluded from participating in the management of the company, and had also been unable to dispose of their shares at a fair value. The majority shareholders had refused to engage in good faith negotiations with the aim of permitting the minority shareholders to dispose of their shares. This, the court held, unfairly prejudiced the minority because they had been forced to remain passive shareholders in a company which appeared to have been mismanaged by the majority.

The court ordered the company to purchase and take transfer of the shares from the minority, prejudiced shareholder. The price of the shares would be the value of the shares at the date of the court order to be determined by an independent referee.

This judgment confirms that even though shareholders do not owe fiduciary duties to other shareholders or even the company, their decisions are not beyond challenge. If a majority decision has the result of being oppressive or unfairly prejudicial, the court has wide powers to give recourse to minority shareholders, including ordering the company to buy back their shares.