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Published online by Cambridge University Press: 10 November 2020
This article discusses relevant Australian case law with reference to the oppressive remedy in company law. In South Africa, only shareholders who are entered in the shareholders’ register can make use of the remedy, contrary to the Australian application. The Australian case law explains the locus standi of shareholders who are not entered in the register. Reference is also made to South Africa's previous Companies Act 1973 due to the Smyth v Investec appeal court case, where the court applied the principles, relevant to an oppressive remedy under the 1973 act. In this regard, the appeal court's reasoning is compared to that of the Australian court; possible new perspectives relevant to South Africa's new Companies Act 2008 are also discussed. The Australian perspective is included to facilitate investigation of a South African court's approach to oppressive conduct concerning the narrow interpretation of “shareholder”. It is concluded that “shareholder” should also be interpreted to include a beneficial shareholder.
MA (Regensburg), LLM (Pretoria), LLD (Free State). Former research fellow, Deakin University and Law Faculty member, University of the North West. The author thanks the PA and Alize Malan Memorial Trust for its grants; PA Malan founded Naspers Ltd and Santam Ltd / Sanlam Ltd in 1914 and 1918 respectively.
1 See generally Sammel v President Brand Gold Mining Co 1969 (3) SA 699 (A) at 699–707 for a definition of a nominee shareholder. Compare with note 2 below, which refers to South Africa's Companies Act 61 of 1973, sec 103(2) of which provides that, for a person to become a member, his or her name must be entered in the register. A nominee is not a member per se.
2 [2018] 1 ALL SA 1 (SCA) at 5, paras 2–3 and at 17, para 48. The first seven appellants made an application to the court as beneficial shareholders, ie as the rightful members of the respondent based on their individual ownership of their shares. The next 27 appellants, who were beneficial shareholders, applied to act as co-appellants, using the name of the nominee member. The remaining seven appellants changed the respondent's members’ register to show their names as members of the respondent. Needless to say, and very interestingly, this last group of appellants had to pay the legal costs in this matter (they were unsuccessful in their application as regards sec 252) because they were the only group that actually possessed locus standi under the law. This was the result of counsel having advised this group to update the respondent's members’ register to indicate membership of the respondent as a method of complying with sec 252.
3 Id at 6, para 9. See also the Companies Act 31 of 1909, under which, as an example, Table A, art 6 stipulates that every person whose name is entered as a member in the register of members shall receive a share certificate, specifying the number of shares held by him. See also generally Davis v Buffelsfontein Gold Mining Co Ltd 1967 (4) SA 631 (W) regarding the difference between share ownership and the right to enter a member's name in the register. See also Sammel v President Brand, above at note 1 at 699–707, in respect of the register of members.
4 Smyth v Investec, id at 5, para 1. See also In Re A Company (No 003160 of 1986) [1986] BCLC 391.
5 Smyth v Investec, id at 6, para 7.
6 Id at 7, paras 12–16.
7 Id at 8, paras 16–19. Also see Re Nuneaton Borough AFC [1989] BCLC 454; Sammel v President Brand, above at note 1 at 699–707; In Re a Company 1986 BCLC 376 (Ch) at 378. The reason why the South African courts only extend limited minority protection to registered members, seems to stem from the fact that the company's constitution is a contract between members and the company: Oosthuizen, MJ “Statutere Minderheidsbeskerming in die Maatskappyereg” [Statutory minority protection in company law] (1981) Journal of South African Law 223Google Scholar.
8 Smyth v Investec, id at 8, para 15. Sec 102 refers to the holder of a share (which could imply a beneficial shareholder) and provides that the holder should be able to make use of sec 252. See also generally Sammel v President Brand, above at note 1.
9 Smyth v Investec, id at 11, para 30. See generally Brodie v Secretary for Inland Revenue 1974 (4) SA 704 (A) at 712; Standard Bank of SA Ltd v Ocean Commodities Inc 1980 (2) SA 175 (T) at 177; Brown v Nanco (Pty) Ltd 1976 (3) SA 832 (W), in which a member maintains membership until his or her name is deleted from the register of members; Sammel v President Brand, above at note 1 at 699–707; IJ Dawson and IS Stephenson The Protection of Minority Shareholders (1st ed, 1993, Tolley Publishing Company) at 58–59. This book should also be considered in respect of the UK's new Companies Act 2006.
10 The 1973 Act, sec 103(2) straightforwardly stipulates that, for every person who agrees to become a member of a company, his or her name must be entered in the register of members.
11 Compare with the 2008 Act, sec 49(3), which refers to a share certificate as a certificated security. In principle there is no real difference between certificated and uncertificated (ie listed) securities. The Financial Markets Act 19 of 2012 of South Africa defines securities in sec 1 to include shares. Furthermore it is possible to convert uncertificated securities into certificated securities and vice versa under secs 49(5)–(6) and 54 of the 2008 Act. See generally Standard Bank of South Africa Ltd v Ocean Commodities Inc 1983 (1) SA 276 (A) at 288.
12 See generally Lombard v Suid-Afrikaanse Vroue-Federasie Transvaal 1968 (3) SA 473 (A); Brown v Nanco, above at note 9. See also the 1973 Act, sec 397(1)(b) in respect of Table A, arts 15 and 16, and Table B, arts 16 and 17. Art 17 clearly states that the board of directors can refuse to register the name of the executor in the register in the same manner that is relevant to a pre-emptive right, for example, and article 20 requires the registration of the name in the members’ register.
13 The 2008 Act, sec 101 exempts an executor of a deceased estate from complying with the requirements of a written statement containing details of the company when the executor sells shares in the secondary market. See also, for example, the 1973 Act, Table B, art 20, which requires registration as a member.
14 Smyth v Investec, above at note 2. See for example the 1973 Act, Table B, art 17.
15 Smyth v Investec, id at 6, para 9.
16 Id at 7, paras 10–12. See also Sammel v President Brand, above at note 1 at 699–707.
17 Smyth v Investec, id at 9, paras 21–28.
18 See generally, E Boros and J Duns Corporate Law (1st ed, 2007, Oxford University Press) at 245 and 273–77; Hoffman, M “The statutory derivative action in Australia: An empirical review of its use and effectiveness in Australia in comparison to the United States, Canada and Singapore” (2005) Corporate Governance EJournal 1Google Scholar at 11. Hoffman uses “applicant” instead of “shareholder”. Sec 234 of the Australian Corporations Act 2001 states: “An application for an order under section 233 in relation to a company may be made by: (a) a member of the company, even if the application relates to an act or omission that is against: (i) the member in a capacity other than as a member; or (ii) another member in their capacity as a member; or (b) a person who has been removed from the register of members because of a selective reduction; or (c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or (d) a person to whom a share in the company has been transmitted by will or by operation of law; or (e) a person whom [the Australian Securities and Investment Commission] thinks appropriate having regard to investigations it is conducting or has conducted into: (i) the company's affairs; or (ii) matters connected with the company's affairs”. Sec 236(1)(a) also states that a former member (even a member who is entitled to be registered as a member) can bring an application on behalf of the company; see N Frawley “The cost of bringing a statutory derivative action in Australia: Is it time to reconsider the terms of section 242 of the Corporations Act 2001?” (paper presented at the Corporate Law Teachers Conference, Melbourne, 4–6 February 2007) at 5 where the author makes reference to “member”, available at: <https://cltadev.files.wordpress.com/2020/01/2007nf_cbsdaa.pdf> (last accessed 11 October 2020).
19 Smyth v Investec, above at note 2 at 11, para 28 and at 18, para 44. See also Sammel v President Brand, above at note 1 at 699–706, where the appeal court stated that the law is only concerned with the registered holder of the shares. Also see In Re London and Provincial Consolidated Coal Co (1877) 5 Ch D 525 at 530, where certain directors returned the money deposited by three other directors and decided that no shares were to be allotted to them; the court held that the directors had no power to return the deposits or to refuse to allot the purchased shares.
20 See also Bartle v On Q Securities Pty Ltd [2018] WASC 234 at 9 and at 16 (or para 66 as published by Westlaw); at 16, the Supreme Court of Western Australia refers to a members’ register as prima facie application of the oppressive conduct remedy. See also Wambo Coal (Pty) Ltd v Sumiseki Materials Co Ltd 290 FLR 19 (2014) at 13 and 14 (paras 29 and 34 as published by Westlaw), which held that a competent court may order a change in a company's constitution to prevent oppressive conduct.
21 M Berkahn Regulatory and Enabling Approaches to Corporate Law Enforcement: Patterns of Litigation 1986–2002 and the Effect of Recent Reforms in New Zealand, Australia and the United Kingdom (2003, PhD thesis, Deakin University) at 31 and 103, explaining that members and former members, for example, may make use of remedies on behalf of the company for oppressive conduct.
22 See in general also Dawson and Stephenson The Protection of Minority Shareholders, above at note 9 at 59, in respect of a former member of a company having no locus standi against unfairly prejudicial acts of the company. Today, the UK Companies Act 2006 regulates oppressive company conduct in sec 994, which states: “(1) A member of a company may apply to the court by petition for an order under this Part on the ground: (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself); or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. (2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company.” The result is that, in the UK, a non-member can also make use of the oppressive remedy, on the basis of sec 994(2).
23 (1990) 3 WAR 166.
24 The UK Companies Act 2006 regulates the orders a court could make in terms of sec 996, which stipulates: “(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. (2) Without prejudice to the generality of sub-section (1), the court's order may: (a) regulate the conduct of the company's affairs in the future; (b) require the company: (i) to refrain from doing or continuing an act complained of, or (ii) to do an act that the petitioner has complained it has omitted to do; (c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct; (d) require the company not to make any, or any specified, alterations in its articles without the leave of the court; (e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.” It is clear that sec 996 uses the term “persons” in sub-sec 2(c), but also “members” in sub-sec 2(e).
25 Above at note 23 at 7 of the original typed judgment.
26 Id at 15 of the original typed judgment.
27 Boros and Duns Corporate Law, above at note 18 at 273.
28 (1992) 6 ACSR 539 at 4 of the original judgment.
29 Id at 54.
30 Id at 5.
31 Id at 54. Boros and Duns Corporate Law, above at note 18 at 274–77.
32 See generally Tomasic, R “The challenge of corporate law enforcement: Future directions for corporations law in Australia” (2006) University of Western Sydney Law Review 1Google Scholar at 13–17.
33 See generally Australian Securities and Investment Commission v Ostrava Equities Pty Ltd [2015] FCA 543 at 2 and 3 (paras 1 and 7 as published by Westlaw), holding that ASIC may rely on the Corporations Act, sec 1323(1)(j) to prevent the respondent from leaving the country while an investigation is instituted, for example for oppressive conduct.
34 [1973] AC 360.
35 Id at 363. See also William Buck (WA) (Pty) Ltd v Faulkner (No 6) [2013] WASC 324 at 2 (para 1 as published by Westlaw) where a shareholder was excluded from management decisions or dividends as part of the oppressive remedy in the Corporations Act. See also Exton v Extons (Pty) Ltd [2017] VSC 14 at 3 (para 10 as published by Westlaw), where the oppressive remedy was relevant when members were being excluded from the company's internal management.
36 Ebrahimi, id at 363–64. See also the UK Companies Act 2006, sec 996(1), which states: “If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.” See also id, sec 997. In this regard, Ebrahimi is still relevant to the discussion.
37 Protection of members against unfair prejudice is now regulated by id, sec 994.
38 Id, sec 112(1)–(2) defines a member of the company as follows: “(1) The subscribers of a company's memorandum of incorporation are deemed to have agreed to become members of the company, and on its registration become members and must be entered as such in its register of members; (2) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.” Section 121 states that a former member's details may be removed from the register after ten years.
39 Ebrahimi, above at note 34 at 370, para F and at 388. Sec 222 relevant to a winding up order was not part of sec 210 at that time, while sec 210 regulated oppressive conduct in the UK 1948 Act.
40 Ebrahimi, id at 367.
41 See generally Campbell v Backoffice Investments (Pty) Ltd [2008] NSWCA 95 at 2 and 95 (paras 1 and 401 as published by Westlaw), where the Court of Appeal of New South Wales had to consider whether the selective buying-out of shareholders amounted to oppressive conduct.
42 Ebrahimi, above at note 34 at 370. See also Boros and Duns Corporate Law, above at note 18 at 274.
43 Nilant v RL & KW Nominees (Pty) Ltd [2007] WASC 105 at 17, para 96, may still be relevant due to the Corporations Act, sec 461, which requires “just” and “equitable” reasons to wind up a company.
44 See also Tomasic, R et al. Corporations Law in Australia (2nd ed, 2002, Federation Press)Google Scholar at 412.
45 [1965] 1 All ER 667.
46 Id at 667.
47 Id at 671.
48 Ibid. Boros and Duns Corporate Law, above at note 18 at 275.
49 Bellador Silk, id at 672.
50 Ibid.
51 Id at 674. Tomasic et al Corporations Law, above at note 44 at 412.
52 CCASA “What company compliance is required for beneficial ownership and non-beneficial ownership?”, available at: <https://www.ccasa.com.au/beneficial-ownership-vs-non-beneficial-ownership-whats-the-difference/> (last accessed 29 September 2020).
53 E Moran “Lifting the lid on beneficial owners of Australian companies” (24 February 2017) Pacific Legal Network, available at: <https://www.pln.com.au/single-post/2017/02/24/Lifting-the-lid-on-beneficial-owners-of-Australian-companies?_amp_> (last accessed 29 September 2020). The 2008 Act, sec 56(3) requires disclosure of the identity of a beneficial shareholder.
54 See also in general FHI Cassim et al Contemporary Company Law (2nd ed, 2016, Juta) at 759. The author discusses Lourenco v Ferela 1998 (3) SA 281 (T) where persons inherited shares, as well as the consequences of not registering them in the register.
55 See in this regard Willem Buck (WA) Faulkner (No 6) [2013] WASC 342 at 6, para 8. See also generally Moosa v Lalloo 1956 (2) SA 237 (D) at 244; and Kirby v Wilkens [1929] 2 Ch 444 pertaining to the legal relationship between trustees and trust beneficiaries.
56 Boros and Duns Corporate Law, above note 18 at 274.
57 [1989] 3 NZLR 513 at 520.
58 See also Boros and Duns Corporate Law, above note 18 at 274–79 for a detailed discussion of this case.
59 See also Tomasic et al Corporations Law, above note 44 at 412 in respect of an Australian court considering the oppressive remedy for a majority shareholder.
60 D Davis and W Geach (eds) Companies and Other Business Structures in South Africa (3rd ed, 2013, Oxford University Press) at 178. Uncertificated securities (ie shares) simply refers to listed shares on the Johannesburg Stock Exchange; see the South African Financial Markets Act 19 of 2012, sec 1, which defines securities (ie shares) as either being listed or not.
61 See also generally Cassim et al Contemporary Company Law, above note 54 at 759. The author states that a beneficial shareholder has no locus standi, neither does a non-member. A non-member may acquire locus standi if the company takes a very long time to register the member in the register.
62 Prentice, GN “The enforcement of ‘outsider’ rights” (1980) The Company Lawyer 179Google Scholar. Exactly how an outsider can enforce the rights and duties under a company's constitution depends on the willingness of the court to extend the meaning of the word “member”.
63 See also generally Cassim et al Contemporary Company Law, above note 54 at 760–61. A shareholder, director and / or related person could also make use of sec 163. A related person would include, for example, a company.
64 See generally Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324; and Re Dernacourt Investments Pty (Ltd) (1990) 20 NSWLR 588.
65 Davis and Geach (eds) Companies and Other Business, above note 60 at 180, footnote 21 concerning the abolition of a register of allotment of shares. This register was a requirement under the 1973 Act, sec 93, which did not require the true identity of the shareholder.
66 See generally Musselwhite v CH Musselwhite and Son [1962] 1 Ch 964, in which a registered shareholder who sold his shares but did not receive payment in return cannot be directed by the purchaser as to how to exercise a vote. The 1973 Act, sec 93(2) made clear that the company must keep a record of payment for allotted shares. If no payment was received, the shareholder's name would not be transferred from the allotted shareholder register to the shareholder register. An allotted register is not a requirement under the 2008 Act.
67 See also generally Cassim et al Contemporary Company Law, above at note 54 at 24. Under sec 163 the court has very wide powers to rectify oppressive conduct; it can even order compensation.
68 Cassim et al, id at 759.
69 Above at note 57.
70 Above at note 34.
71 See generally Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA) concerning decisions that would not lead to unbusinesslike results. See also In Re Hammer Ltd [1959] 1WLR 62, [1958] 3 All ER 689 where the court demoted a dictatorial father to the role of an expert adviser and held that the company should be managed by his sons irrespective of whether the shares received from their father were gifts; it is unclear whether their names were entered as members in the register.
72 The 2008 Act, sec 57(1) also states that the term “shareholder” includes any person who is entitled to exercise any votes in relation to a company.
73 See above at note 19.
74 See for example Jenkins v Enterprise, above at note 28.
75 See generally Vujnovich, above at note 57.