In the recent case of Van Der Watt v Schoeman and Others (3393/2022), the Eastern Cape High Court considered the application of section 163 (Relief from Oppressive or Prejudicial Conduct) of the South African Companies Act, 2008, in situations where directors or shareholders face a deadlock, with no reasonable prospect of reconciliation.
The case involved two directors who were equal shareholders in a company, with the understanding that both would participate in its management. However, tensions arose between them, leading one director to exclude the other from managerial decisions, act unilaterally, and conduct unauthorized transactions. The court found this behavior to be oppressive, unfairly prejudicial, and detrimental to the excluded director's interests.
Unlike section 252 of the Companies Act, 1963 the court confirmed that section 163 applies to any shareholder or director, not exclusively to minorities. It affirmed section 163's applicability in deadlock scenarios where the directors and shareholders voting power is evenly split, and reconciliation seems unattainable.
The court also confirmed that a fair offer to buy the other party’s shares may destroy the entire basis of prejudicial conduct, as the offer may cure any prejudice where there is no cogent reason to refuse it. However, in this instance, the applicant raised valid concerns regarding the offer's fairness and reliability, citing inaccuracies and flaws in the supporting reports. The court therefore made an order providing the appropriate relief to the applicant.
This case underscores the importance of protecting shareholder interests and upholding principles of fair corporate governance and including deadlock breaking provisions in a Company’s constitutional documents when warranted.