Shareholder oppressive and prejudicial conduct under the Companies and Other Business Entities Act
KELVIN SABAO
Introduction
The Companies and Other Business Entities Act (the COBE Act) has established a comprehensive framework to regulate the conduct of companies and their members.
One of the key provisions that safeguard the interests of shareholders is section 223, which allows a shareholder of a company to apply to the court for an order when they believe that the company’s affairs are being conducted in a manner that is oppressive or unfairly prejudicial to their interests or to a part of the shareholders.
This article delves into the provisions of section 223 and section 225 of the COBE Act, outlining the legal recourse available to shareholders in cases of oppressive or prejudicial conduct.
Understanding Section 223
Section 223 of the COBE Act provides a powerful legal tool for shareholders who find themselves subjected to oppressive or prejudicial conduct by the company.
This section allows any shareholder of a company to apply to the court for an order under section 225 when they believe that:
- The company’s affairs are being or have been conducted in a manner that is oppressive or unfairly prejudicial to the interests of some part of the shareholders, including themselves.
- Any actual or proposed act or omission of the company, including acts or omissions on its behalf, is or would be oppressive or prejudicial.
This provision acknowledges that the interests of shareholders are not always aligned, and there may be situations where some shareholders suffer due to the actions or inactions of the company or its management.
The Powers of the Court under Section 225
Section 225 of the COBE Act details the powers of the court when it is satisfied that an application under section 223 is well-founded. The court has broad discretion to make any order it deems fit to provide relief for the matters complained of. These orders can include:
- Regulating the conduct of the company’s affairs in the future: The court may issue directives to ensure that the company conducts its business in a manner that is fair and equitable to all shareholders, preventing further instances of oppressive or prejudicial behaviour.
- Requiring the company to refrain from certain actions:If the applicant has complained about a specific act of the company, the court can order the company to stop the act or to perform an action it has omitted to do. This can help rectify past misconduct and prevent future harm.
- Authorizing civil proceedings on behalf of the company:In some cases, the court may permit civil proceedings to be initiated in the name and on behalf of the company. This enables shareholders to collectively seek remedies for grievances against the company’s actions.
- Facilitating the purchase of shares:The court may order the purchase of shares of aggrieved members by other members or by the company itself.
- Restricting alterations to constitutive documents:If the court believes that the company’s behaviour warrants such measures, it can prohibit the company from altering its constitutive documents without the court’s permission. This protects the interests of shareholders and ensures that the company does not take actions that may further harm their rights.
Conclusion
The provisions of section 223 and section 225 of the Companies and Other Business Entities Act provide a robust legal framework for shareholders to address oppressive and prejudicial conduct by a company.
These provisions acknowledge that the interests of shareholders can sometimes be compromised by the actions of the company or other shareholders. Shareholders have the option to seek relief from the court, which, in turn, has broad discretion to issue orders aimed at ensuring fairness and equity in the company’s affairs.
These legal safeguards ensure that shareholders are not left powerless in the face of oppressive or prejudicial behaviour and that their rights and interests are protected under the law.
Shareholders should be aware of these provisions and, if necessary, seek legal counsel to address any concerns related to the conduct of the company in which they hold shares.
The Companies and Other Business Entities Act is a crucial piece of legislation that upholds the principles of justice and fairness in corporate governance.
Disclaimer:
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.
Kelvin Sabao is a duly registered Legal Practitioner practising law at Titan Law. He writes in his personal capacity. He is a co-author of a book titled ‘The Directors’ Handbook in Zimbabwe’. This publication underscores his expertise and dedication to advancing the knowledge and understanding of corporate law and corporate governance in the Zimbabwean context. For more information, you can contact Kelvin via email at: sabaokelvin@gmail.com
