ALERT CORPORATE & COMMERCIAL - Cliffe Dekker Hofmeyr
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10 FEBRUARY 2021
CORPORATE
& COMMERCIAL
ALERT
IN THIS ISSUE >
Pride, prejudice and section 163 of Revisiting the Companies
the Companies Act Amendment Bill 2018 - should
Whether a company’s affairs are managed across CIPC make details about private
the boardroom table, or across the family dining company share structures readily
room table, relations among shareholders and available to the public?
directors can (and do) easily go sour. For this
reason, the Companies Act 71 of 2008 provides It is often assumed that details about private
certain mechanisms through which parties may company share structures are intrinsically
find relief in instances where things go wrong. confidential. This is incorrect. Section 26(2) of
the Companies Act 71 of 2008 (Act) provides
any person with a right to inspect or copy the
securities register of a private company upon the
payment of a nominal fee.
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Pride, prejudice and section 163 of
the Companies Act
Whether a company’s affairs are Du Plessis refused to take his dismissal
managed across the boardroom table, lying down and brought an application
After Gent’s resignation or across the family dining room table, in the Gauteng Division of the High
relations among shareholders and Court seeking, among other things, a
in 2012, Du Plessis was
directors can (and do) easily go sour. liquidation order and alternatively, an
appointed as the sole For this reason, the Companies Act 71 order that Gent’s conduct towards him,
director until he was of 2008 provides certain mechanisms which included allegedly excluding him
subsequently removed through which parties may find relief from decision making in the company and
in instances where things go wrong. removing him as director of the company,
and dismissed in 2013 due One such mechanism is section 163 was oppressive and unfairly prejudicial in
to his gross misconduct which allows a shareholder or a director that it undermined his rights as a minority
and mismanagement of of a company, as the case may be, to shareholder of the company.
the company. approach the courts and ask for relief
The High Court found that neither
if any act or omission by the company
Du Plessis’ loss of confidence in the
or a related person has an oppressive
management of the company, which
or unfairly prejudicial result, or unfairly
was allegedly due to the fact that Gent
disregards the interests of such
excluded him from such management
shareholder or director. This section sets
and refused to provide him with certain
out a list of remedies which a court may
financial information, nor his resentment
consider granting in instances where
at having been removed as a director
such conduct was sufficiently proven,
had established the requirements for
including a restraint order against
section 163 relief to be granted. On appeal
the conduct complained of, an order
before a full bench of the High Court, the
directing an issue or exchange of shares,
court a quo’s finding that Du Plessis failed
an order to pay compensation, or an
to satisfy the requirements of section
order placing the company in liquidation
163 was upheld. Nevertheless, the full
or business rescue.
bench went on to grant relief in terms
of the section, justifying its approach by
Gent and another v Du Plessis
holding itself “duty-bound to design or
In Gent and another v Du Plessis the craft a mechanism which would result in
applicant (Gent) and the respondent a clean break between the parties”. It thus
(Du Plessis) were the only shareholders in ordered that Du Plessis buy Gent’s shares
Bonnox Proprietary Limited and had been in the company so Gent could exit as
the only shareholders since 2012, until a shareholder.
which time Gent was also the only director
On appeal, the Supreme Court of Appeal
of the company. After Gent’s resignation
had to assess the validity of the decision
in 2012, Du Plessis was appointed as the
by the full bench of the High Court to
sole director until he was subsequently
grant relief in terms of section 163, in
removed and dismissed in 2013 due to his
spite of the conclusion by the full bench
gross misconduct and mismanagement of
that Du Plessis had failed to show that
the company.
2 | CORPORATE & COMMERCIAL ALERT 10 February 2021
CORPORATE & COMMERCIAL
Pride, prejudice and section 163 of
the Companies Act...continued
the requirements of section 163(1) of the Lessons learnt
Companies Act were met. The SCA agreed
It can be very difficult, in particular in
It can be very difficult, in with the decisions of both the courts
closely held companies where the same
that Du Plessis had failed to show how
particular in closely held persons often occupy the dual positions of
Gent’s conduct towards him had been
companies where the same oppressive and unfairly prejudicial, holding
both directors and shareholders, if these
persons are at an impasse with no hope
persons often occupy that (i) Du Plessis was validly removed as a
of independently resolving their dispute.
the dual positions of both director and fairly dismissed after having
This case is, however, a testament to the
been found guilty of misconduct and his
directors and shareholders, dismissal did not constitute conduct which
principle that irrespective of however
if these persons are at an fell within the ambit of section 163(1);
much our courts would like to impose
their own sense of justice by crafting
impasse with no hope of and (ii) the mere exercise of majority
remedies to rectify a situation and resolve
independently resolving shareholding voting rights does not
a deadlock, they are still required to act
amount to oppression. Further, the SCA
their dispute. held that the full bench of the High Court
within the bounds set out in our legislation.
The Companies Act limits relief in terms
had misdirected itself in making an order
of section 163(2) to situations where the
that Gent sell her majority shareholding
requirements of section 163(1) have been
to Du Plessis and ought to have dismissed
met, and in the absence thereof, our
the appeal from the outset. The order of
courts are not free to independently grant
the full bench was set aside and replaced
such relief.
with an order that the appeal be dismissed
with costs.
Justine Krige, Zahrah Ebrahim and
Kara Meiring
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3 | CORPORATE & COMMERCIAL ALERT 10 February 2021
CORPORATE & COMMERCIAL
Revisiting the Companies
Amendment Bill 2018 - should CIPC
make details about private company
share structures readily available to
the public?
It is often assumed that details about The Bill represents the first set of
private company share structures substantive amendments to the Act since it
To paraphrase the are intrinsically confidential. This came into effect on 1 May 2011. Relevantly,
is incorrect. Section 26(2) of the the Bill:
Nova judgment, this is
Companies Act 71 of 2008 (Act) provides ∞ expands the categories of company
ostensibly a prioritisation any person with a right to inspect or records that can be accessed under
by the legislature of the copy the securities register of a private section 26(2) of the Act to include,
public’s right to access company upon the payment of a among others, a private company’s
nominal fee.
information over the memorandum of incorporation, annual
financial statements, and minutes of
right to privacy of private Section 26(2) of the Act conveys an
shareholder meetings; and
unqualified right. It is neither subject to the
company security holders. substantive or procedural requirements of ∞ proposes a new section 33(1)(aA) that
the Promotion of Access to Information requires a company to submit to the
Act 2 of 2000, nor dependent on the Companies and Intellectual Property
motive behind the request (see Nova Commission (CIPC) a copy of its
Property Group Holdings Ltd and others v securities register simultaneously when
Cobbett and another (MandG Centre for filing its annual return.
Investigative Journalism NPC as amicus
It would be speculative to comment
curiae) 2016 (3) All SA 32 (SCA) (Nova)).
on the rationale for the proposed
If a private company fails to provide access amendments to section 26(2) of the
to its securities register pursuant to a Act and the inclusion of the new
request under section 26(2) of the Act, the section 33(1)(aA). It is however arguable
person making the request is entitled to that such amendments will precipitate
an order of court compelling the access increased transparency and strengthen
sought. To paraphrase the Nova judgment, corporate governance accountability.
this is ostensibly a prioritisation by the
Private company security holders
legislature of the public’s right to access
(who comprise not only shareholders but
information over the right to privacy of
also funders that hold preference shares,
private company security holders.
debt instruments and options) may raise
On 21 September 2018 a draft amendment concerns about potential infringements
Bill to the Act (Bill) was published for public on their right to privacy. An argument
comment. As at the date hereof, the Bill on such grounds is inclined to fail. The
has not been passed into law. Constitutional Court (CC) has held that
the establishment of a private company
is not a private matter and noted that
it is a legal fiction that is recognised
4 | CORPORATE & COMMERCIAL ALERT 10 February 2021
CORPORATE & COMMERCIAL
Revisiting the Companies
Amendment Bill 2018 - should CIPC
make details about private company
share structures readily available to
the public?...continued
by society and funded by resources The data collected by CIPC could be
generated in the public sphere. Further, collated in a way that illustrates the
On balance, the the CC stated that a person who conducts interconnected relationships between
business through a private company companies, directors, and holders of
amendments to
enjoys certain rights but is also subject to securities. Without discounting the
section 26(2) of the Act accompanying responsibilities (including practicalities and associated costs of
and the inclusion of the statutory obligations to disclosure of implementing this proposal, the incentives
new section 33(1)(aA) information). Consequently, there cannot for the governmental agencies and the
exist a reasonable expectation of privacy public are numerous and include, among
under the Bill are over such information (see Bernstein and other things:
positive developments. Others v Bester and Others NNO 1996 (2) ∞ improving tax collection;
SA 751 (CC)).
∞ combatting corruption; tender fraud
Considering the above, should CIPC and money laundering;
publish details about private company ∞ verifying broad-based black economic
share structures on its eServices platform? empowerment ownership structures;
Such a move would be consistent with ∞ tracing the ultimate beneficial owners
international practice. Consider Australia of companies; and
and New Zealand which, like South Africa, ∞ facilitating good corporate
are both Commonwealth jurisdictions. governance.
The Australian Securities and Investments
Commission (ASIC) and the New Zealand On balance, the amendments to
Companies Office (NZCO) publish full section 26(2) of the Act and the inclusion
details of private company share structures of the new section 33(1)(aA) under the Bill
(including details about shareholders are positive developments. The question
and ultimate holding companies) on their as to whether CIPC should make private
respective online platforms. Coupled with company share structures readily available
this, regulations require companies to to the public would require more nuanced
notify ASIC and NZCO, within prescribed thought. However, on face value there
periods, if any changes to their share appears to be a robust argument in favour
structures occur. of adopting this approach grounded on
the potential public benefits that would
By emulating the approach of ASIC be derived from greater transparency and
and NZCO, CIPC could reduce the easier access to information.
barriers to accessing information under
section 26(2) of the Act and simultaneously Darryl Jago
reduce the opacity of private company
share structures.
5 | CORPORATE & COMMERCIAL ALERT 10 February 2021
CORPORATE & COMMERCIAL
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