Background:

Section 163 of the Companies Act No. 71 of 2008 (“Companies Act”) contains provisions regarded as the ‘oppression remedy’ which can be utilised by both shareholders and directors of a company. Section 163 of the Companies Act provides, in broad terms, relief to shareholders and directors for prejudicial or oppressive conduct by the company itself or by a related person. In terms of Section 163, a competent court is granted the power to make an interim or final order which the court may consider appropriate in the specific circumstances before it.

This article shall briefly explore the concept of the oppression remedy and the rights which it provides to directors and shareholders of a company.

Who can rely on section 163:

Section 163 of the Companies Act states that the oppression remedy is only available for shareholders and directors of a company. The practical implication is therefore that a person whose name is not entered in the securities register of a company in terms of section 50 of the Companies Act cannot use the remedies for prejudicial or oppressive conduct provided for in terms of section 163, which will include requesting an order from a competent court for the rectification of the securities register in terms of section 163(2)(k).

Successful application for relief in terms of section 163:

To be successful with an application in terms of section 163, the applicant should be able to prove that the conduct being complained of was unfairly prejudicial, oppressive or completely disregarded the applicant’s interests. It will not be necessary for the applicant to show that the conduct was unlawful. When a court considers an application in terms of section 163, it will have to be satisfied that there was an existence of a conduct by an act or omission and that such conduct was unfairly prejudicial or oppressive or disregards the applicant’s interest.

It is important for any applicant to always take cognizance of the majority rule principal of company law, that by becoming a shareholder of a company such person undertakes to be bound by the decisions of the majority shareholders. As a result, not all acts that will affect the minority shareholder prejudicially or which may disregard the interests of such minority shareholder will necessarily entitle such shareholders to apply for relief under section 163. It will therefore be necessary to prove that such conduct was oppressive, unreasonable or unfair in the specific circumstances.

The courts wide discretionary powers:

Once a shareholder or director has applied to court for any believed prejudicial or oppressive conduct, the court will consider such an application and make an interim or final order as it considers appropriate. In terms of section 163 of the Companies Act, the court is given a wide range of discretion to make various orders it deems fit which includes, amongst others, an order to restrain the conduct complained of, an order to direct the issue or exchange of shares, and order to pay compensation to an aggrieved person subject to any other law and an order directing the rectification of the register or other records of the company. The court can also make alternative orders, which is not listed under section 163, given the courts wide discretion to make any order that it deems appropriate.

Concluding remarks:

In conclusion, Section 163 of the Companies Act is only available to shareholders and directors of a company. Section 163 should thus be narrowly applied, and no provision is made for an extended definition or a discretionary legal standing. Further considering the definition of a shareholder, a person not yet entered into the securities register cannot place reliance on the oppression remedy. Section 163 of the Companies Act can however still be used to rectify any irregularities in the securities register where oppression is established, subject to the statutory criteria being satisfied of having the required legal standing by being a shareholder (as defined in the Companies Act) or director of a company.

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Published 28 August 2023