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Godknows Hofisi

Introduction

Many a time I have come across some businesspeople complaining about situations where they are being disadvantaged, for example where minority shareholders are being overlooked in key decisions. 

In other situations there are deadlocks which may threaten the going concern of the business. 

It is also common to find some shareholders alleging fraud by managers, directors or members (shareholders) and besides reporting the alleged offenders to the police the aggrieved fellow member are not sure what else to do.

In this article I look at legal or court remedies available in such situations based on section 62 of  the Companies and Other Business Entities Act (Chapter 24:31), the COBE Act or the Act.

Section 62 situations meriting remedies

According to section 62(1) in a legal action by a member of a private business corporation (PBC) or a company the court may order one or more of remedies provided for in sections 62(2) and 62(3) if it is established that:

The managers or directors or members of the entity are deadlocked, whether because of even division in their number or another reason, and irreparable injury to the entity is likely to be caused to the entity’s business or the business can no longer be conducted to the member’s advantage, or:

The managers, directors or any other person in control of the entity have acted illegally, fraudulently or oppressively towards the petitioning (aggrieved) member.

Court remedies available in terms of section 62(2)

According to section 62(2) in the situations provided for under section 62(1) as explained above  the court shall have the power to order one or more of the following remedies or similar remedies:

Dissolution or liquidation of the entity but the court may also order that the cause of action be cured within a reasonable period.

Performance, variance or setting aside of any transaction or other action of the entity or its members, managers or directors.

The cancellation or amendment of a provision of the entity’s constitutive documents.

Such documents are also called company secretarial documents and include for example,  the memorandum of association, articles of association, register of directors (CR6, previously called CR14), return of allotment (CR11, previously CR2), etc.

The removal of any manager, director or officer or the appointment of any person as a manager, director or officer. 

My view is that this part read together with section 124(4) (a)(iii) of the Insolvency Act (Chapter 6:07) can successfully be made for the appointment of a corporate rescue practitioner if it otherwise just and equitable to do so for financial reasons and there is a reasonable prospect for rescuing the company.

An investigation of the financial effects of any matter in dispute which may include a forensic audit.

The appointment of one or more inspectors to investigate the acts complained of or of a custodian to manage the business of the company or corporation for a term and under conditions determined by the court. Again, in my view use can be made of section

124(4)(a)(iii) of the Insolvency Act as explained above.

The submission of the dispute to mediation or other non-binding alternative dispute resolutions.

The payment of dividends or other distributions.

The award of damages to any aggrieved party.

The purchase by the company or corporation or another member or shareholder of all of the interests or shares of the petitioning member or shareholder for their fair value as determined by the court.

Piercing of the corporate veil

Section 62(3) of the COBE Act empowers the court to declare the entity not to be a juristic person (piercing of the corporate veil) in the event of certain abuses, acts or omissions and impute those abuses, acts or omissions to the persons responsible for them in their personal capacity.

The abuse or omission is normally to benefit one or more members or some other persons

Conclusion

These remedies are not known by many people. If used can provide relief to many especially minority shareholders to resolve corporate disputes.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant and consultant in deal structuring and is an experienced director of companies.

He writes in his personal capacity. He can be contacted on +263 772 246 900 or

[email protected]