LU 9 - Remedies and Enforcement Flashcards
What is the general principle applicable?
Majority rule
The court will not interfere except…
If-
- Not in accordance with the law, Co Act, MOI or Rules of Co
- Illegal acts
- Fraud on the minority
Why is Foss v Harbottle: Gihwala v Grancy important?
The old rule has two components:
- That a co is a separate legal entity from its shareholders and accordingly, in the ordinary course, any loss caused to the co must be recovered BY THE CO, and not by its shareholders on the basis of the diminution in the value of their shares or the loss they had anticipated.
- The need for EXCEPTIONS to this principle in order to AVOID OPPRESSION and permits a shareholder to recover loss caused to the co by way of what is termed derivative action. In certain circumstances, it also permits recovery of the shareholder’s own loss.
- It precludes the shareholders from suing in their own right where the claim is on iro a wrong done TO THE CO causing it to suffer loss. That is so even where the result is to diminish the value of the shareholder’s shares or deprive them of a dividend. On the other hand, where the is NO WRONG TO THE CO, but only TO THE SH, there is no reason to bar the shareholder from suing.
What is the ‘High Court order’ remedy?
Appropriate order of High Court: to restrain co from doing something inconsistent with Act
What is the ‘claim for damages’ remedy?
Claim for damages: Shareholder against person who intentionally, fraudulently or with gross negligence causes the co to do something inconsistent with the Act (can be instituted by shareholders, directors, prescribed officers, trade union)
What is the ‘section 163 relief’?
- Shareholder or director apply to court against oppressive or prejudicial conduct. It MUST be unfair.
- Court makes interim or final order
- Section 163 is extremely wide
What is the ‘declaratory order’ remedy?
Securities holder apply to court for a declaratory order or appropriate order to protect a right or to rectify any harm done
What is the ‘section 65 derivative action’?
- Demand (notice) to company
- Serve demand on co to protect the legal interests of the co
- Stakeholder granted leave by court
- Co can apply for court to set aside the demand because the demand is frivolous, vexatious, or without merit
What is the ‘personal derivative action’ remedy?
- Apply to court for leave to bring proceedings in the name and obo the co after notice to co
- Court discretion: Grant leave if applicant is bona fide; material consequences to the co; best interest of the co.
What is the ‘section 164 appraisal rights of dissenting shareholders’?
- CLASS RIGHTSof shares are altered, selling of substantially all assets/business, merger or scheme of arrangement;
- Dissenting shareholders give notice of objection to the resolution
- Co must give notice to shareholders who filed the objection and not voted for resolution that resolution hs been adopted
- Shareholders can then claim fair value for the shares
- Ito s164(11) the co must make an offer
- Ito s164(14) shareholders can apply to court for fair value if co fails to make offer
- Court discretion limited ito s164(16) because fair value must be determined on value of co before the resolution
What is the ‘section 163 statutory personal action’?
- Replaces the previous section 252
- However, unlike previous Act, director may now also bring an application
- Requirements not materially different - there must be oppressive or unreasonably prejudicial act or omission
- Court has wide discretion regarding the order it may issue ito section 163(2)
Discuss the main important statements made by the court in Grancy v Manala iro remedies
The court, after reviewing extensive legal authority, held-
- Section 163 must be construed in a manner that will advance the remedy that it provides rather than limit it
- In determining whether the conduct complained of is oppressive, unfairly prejudicial or unfairly disregards the interests of the minority, it is NOT the MOTIVE FOR THE CONDUCT complained of that the court must look at, but THE CONDUCT ITSELF and the EFFECT which the conduct has on other members of the co
- Section 163 offers considerable protection to minority shareholders if they have genuine reason to believe that their rights are being overreached by majority shareholders or directors.
- But, NOT ALL or ANY conduct of the majority might have legally actionable, prejudicial effect on minority members
- Conduct must not only be prejudicial but UNFAIRLY SO.
What is the ‘Derivative Action ito section 165’?
- Does away with common law action ito section 165(1)
- Is prima facie improvement on the previous Act’s provision
- Shareholder (or person entitled to be registered as shareholder), director, registered trade union all have locus standi
- Locus standi of “shareholder” wider than in s163
- Places burden on co to have demand set aside by court within 15 business days
- Otherwise, the co must appoint an independent impartial person to investigate demand and report to Board
- Person must consider the merits of demand, costs, whether in best interest of company
- Co has 60 business days following demand to comply/give notice of refusal to comply
- Enables person who made demand to approach court obo co to comply with demand if co failed to act
- Court must verify whether person bona fide, serious question of material consequence to co, an whether in the best interest of the co
- Enables person to directly approach court without first making demand to co
Discuss Mouritzen v Greystones Enterprises
- Court asked to consider s165
- Before the court can grant leave, the applicant must prove that he was acting in good faith
- Court held that this means that the applicant has good conscience for instituting derivative action and has a sincere belief in the existence of reasonable prospects of success
- Thus, the person should not have an ulterior motive or collateral purpose. It must be established that animosity is not the cause for bringing the application to court.
What are the other 4 statutory remedies?
- Sec 157: Enables commission/panel to make demands
- Sec 159: Protection for whistle-blowers
- Sec 160: Regulates disputes relating to co names
- Sec 161: Protection for securities holders
