The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 341. Only company may sue for wrong or ratify irregular conduct
Subject to the provisions of this Act, where an irregularity is made in the course of a company’s affairs or any wrong is done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct.
Section 342. Procedure for major asset transaction
(1) For the purposes of this section, “major asset transaction” means a transaction or related series of transactions which includes the—
(a) purchase or other acquisition outside the usual course of the company’s business ; and
(b) sale or other transfer outside the usual course of the company’s business, of the company’s property or other rights the value of which, on the date of the company’s decision to complete the transaction, is 50% or more of the book value of the company’s assets based on the company’s most recently compiled balance sheet.
(2) In undertaking a major asset transaction—
(a) the board of directors of the company shall recommend the transaction and direct that it be submitted for approval to an annual or extraordinary general meeting of members ;
(b) notice of the transaction, stating that a purpose of the meeting is to consider the transaction and including a summary of the transaction and of the recommendation of the board of directors on the transaction, shall be given to all members entitled to notice of or to attend the meeting or to vote on the transaction ; and
(c) at the meeting the members shall approve the transaction by a special resolution, unless the company’s memorandum of association provides for its approval by an ordinary resolution, in which case it is approved by an ordinary resolution.
Section 343. Protection of minority: injunction and declaration in certain cases
Without prejudice to the rights of members under sections 346-351 and sections 353-355 of this Act or any other provisions of this Act, the Court, on the application of any member, may by injunction or declaration restrain the company or its officers from—
(a) entering into any transaction which is illegal or ultra vires ;
(b) purporting to do by ordinary resolution any act which by its articles or this Act required to be done by special resolution ;
(c) any act or omission affecting the applicant’s individual rights as a member ;
(d) committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done ;
(e) where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders ; (f ) where the directors are likely to derive a profit or benefit, or have profited or benefited from their negligence or from their breach of duty ; and
(g) any other act or omission, where the interest of justice so demands.
Section 344. Personal and representative action
(1) Where a member institutes a personal action to enforce a right due to him personally, or a representative action on behalf of himself and other affected members to enforce any right due to them, he or they are subject to subsection (2), entitled to—
(a) damages for any loss incurred on account of the breach of that right ; or
(b) declaration or injunction to restrain the company or the directors from doing a particular act.
(2) Where, in proceedings brought under this section, the Court finds the directors or any of them liable for any wrongdoing, the erring director is personally liable in damages to the aggrieved member.
(3) Where any member institutes an action under this section, the Court may award costs to him personally whether or not his action succeeds.
(4) In any proceeding by a member under section 343 of this Act, the Court may, if it deems fit, order that the member shall give security for costs.
Section 345. Definition of member
For the purpose of sections 343 and 344 of this Act, “ includes—
(a) the personal representative of a deceased member ; and
(b) any person to whom shares have been transferred or transmitted by operation of law.
Section 346. Commencing derivative action
(1) Subject to the provisions of subsection (2), an applicant may apply to the Court for leave to bring an action in the name or on behalf of a company or a company’s subsidiary, or to intervene in an action to which the company or the company’s subsidiary is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company or the company’s subsidiary.
(2) No action may be brought and no intervention may be made under subsection (1), unless the Court is satisfied that—
(a) a cause of action has arisen from an actual or proposed act or omission involving negligence, default, breach of duty or trust by a director or a former director of the company ;
(b) the applicant has given reasonable notice to the directors of the company of his intention to apply to the Court under subsection (1) ;
(c) the directors of the company do not bring, diligently prosecute, defend or discontinue the action ;
(d) the notice contains a factual basis for the claim and the actual or potential damage caused to the company ;
(e) the applicant is acting in good faith ; and (f ) it appears to be in the best interest of the company that the action be brought, prosecuted, defended or discontinued.
(3) An action under this section may be against the director or any other person (or both).
(4) In any action referred to in this section the plaintiff shall have the right to obtain any relevant documents from the defendant and the witnesses at trial, and may in pursuance of that right request categories of documents from such person without identifying specific documents.
Section 347. Powers of the court to make orders in derivative actions under section 346
(1) In connection with an action brought or intervened under section 346 of this Act, the Court may, at any time, make any such order or orders as it deems fit.
(2) The Court may make an order—
(a) authorising the applicant or any other person to control the conduct of the action ;
(b) giving directions for the conduct of the action ;
(c) directing that any amount adjudged payable by a defendant in the action is paid, in whole or in part, directly to former and present security holders of the company instead of to the company ; and
(d) requiring the company to pay reasonable legal fees incurred by the applicant in connection with the proceedings.
Section 348. Evidence of shareholders’ approval not decisive
An application made or an action brought or intervened in under section 6 shall not be stayed or dismissed by reason only that it is shown that an alleged breach of a right or a duty owed to the company has been or may be approved by the shareholders of such company, but evidence of approval by the shareholders may be taken into account by the Court in making an order under section 347.
Section 349. Court’s approval to discontinue
An application made or an action brought or intervened in under section 346 shall not be stayed, discontinued, settled or dismissed for want of prosecution without the approval of the Court given upon such terms as the Court deems fit and, if the Court determines that the rights of any applicant may be substantially affected by such stay, discontinuance, settlement or dismissal, the Court may order any party to the application or action to give notice to the applicant.
Section 350. No security for costs
An applicant shall not be required to give security for costs in any application made or action brought or intervened in under section 346 of this Act.
Section 351. Interim costs
In an application made or an action brought or intervened in under section 346, the court may at any time order the company to pay to the applicant interim costs before the final disposition of the application or action.
Section 352. Definition
In sections 346-351 of this Act, “applicant” means—
(a) a registered holder or a beneficial owner and a former registered holder or beneficial owner, of a security of a company ;
(b) a director or an officer or a former director or officer of a company ;
(c) the Commission ; or
(d) any other person who in the discretion of the Court, is a proper person to make an application under section 346.
Section 353. Application
(1) An application to the Court by petition for an order under section 354 in relation to a company may be made by—
(a) a member of the company ;
(b) a director or officer, former director or officer of the company ;
(c) a creditor ;
(d) the Commission ; or
(e) any other person who, in the discretion of the Court, is the proper person to make an application under section 354.
(2) In sections 354 and 355 of this Act, “member” includes—
(a) the personal representative of a deceased member ; and
(b) any person to whom shares have been transferred or transmitted by operation of law.
Section 354. Grounds upon which an application may be made
(1) An application for relief on the ground that the affairs of a company are being or have been conducted in an illegal or oppressive manner may be made to the Court by petition.
(2) An application to the Court by petition for an order under this section in relation to a company may be made by—
(a) a member of the company who alleges that—
(i) the affairs of the company are being or have been conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members, or in a manner that is or has been in disregard of the interests of a member or the members as a whole, or
(ii) an act or omission or a proposed act or omission, by or on behalf of the company or a resolution, or a proposed resolution, of a class of members, was, is or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was, is or would be in a manner which is in disregard of the interests of a member or the members as a whole ;
(b) any of the persons mentioned under section 353 (1) (b who alleges that—
(i) the affairs of the company have been or are being conducted in a manner oppressive or unfairly prejudicial to or discriminatory against or in a manner in disregard of the interests of that person, or
(ii) an act or omission, or a proposed act or omission was, is or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, or was or is in disregard of the interests of that person, or
(c) the Commission in a case where it appears to it in the exercise of its powers under the provisions of this Act or any other enactment that—
(i) the affairs of the company were or are being conducted in a manner that was or is oppressive or unfairly prejudicial to, or unfairly discriminatory against a member or members, or was or is in disregard of the public interest, or
(ii) any actual or proposed act or omission of the company, including an act or omission on its behalf which was, is or would be oppressive, or unfairly prejudicial to, or unfairly discriminatory against a member or members in a manner which was or is in disregard of the public interest.
Section 355. Powers of the court to make orders in petitions under sections 353 and 354
(1) If the Court is satisfied that a petition under sections 353 and 354 is well founded, it may make such order or orders as it deems fit for giving relief in respect of the matter complained of.
(2) Without prejudice to the generality of subsection (1), the Court may make an order—
(a) that the company be wound up ;
(b) for regulating the conduct of the affairs of the company in future ;
(c) for the purchase of the shares of any member by other members of the company ;
(d) for the purchase of the shares of any member by the company and for the reduction accordingly of the company’s capital ;
(e) directing the company to institute, prosecute, defend or discontinue specific proceedings, or authorising a member or the company to institute, prosecute, defend or discontinue specific proceedings in the name or on behalf of the company ; (f ) varying or setting aside a transaction or contract to which the company is a party and compensating the company or any other party to the transaction or contract ;
(g) directing an investigation to be made by the Commission ;
(h) appointing a receiver or a receiver and manager of property of the company ;
(i) restraining a person from engaging in specific conduct or from doing a specific act or thing ; or
(j) requiring a person to do a specific act or thing.
(3) Where an order that a company be wound up is made under this section, the provisions of this Act relating to winding-up of companies shall apply, with such modifications as are necessary, as if the order had been made upon an application duly filed in the Court by the company.
(4) Where an order under this section makes any alteration or addition to the memorandum or articles of a company, notwithstanding anything in any other provision of this Act, but subject to the provisions of the order, the company does not have power, without the leave of the Court, to make any further alteration or addition to the memorandum and articles inconsistent with the provisions of the order but, subject to this subsection, the alteration or addition shall have effect as if it had been made by a resolution of the company.
(5) A certified true copy of an order made under this section altering or giving leave to alter a company’s memorandum or articles shall, within 14 days from the making of the order or such longer period as the Court may allow, be delivered by the company to the Commission for registration, and if the company defaults in so complying, the company and each officer of it are liable to a penalty as the Commission shall specify in its regulations.
Section 356. Penalty for failure to comply with order of the court
Any person who contravenes or fails to comply with an order made under section 355 that is applicable to him, commits an offence and is liable to a penalty as the Commission shall specify in its regulations.
What this means
Short answer
Where a wrong is done to a company, only the company can sue (section 341). A member can still ask the court for an injunction against illegal or ultra vires acts (section 343), sue to enforce his own rights (section 344), bring a derivative action in the company’s name with the court’s leave (section 346), or petition for relief where the company’s affairs are run oppressively or unfairly (sections 353 to 355).
The starting rule
Subject to the Act, where an irregularity occurs in a company’s affairs or any wrong is done to the company, only the company can sue to remedy it and only the company can ratify the irregular conduct (section 341). The rest of the chapter sets out the ways a minority shareholder can get round that rule.
Major asset transactions
A major asset transaction is a purchase or sale outside the usual course of business of property or rights worth 50% or more of the book value of the company’s assets, based on its latest balance sheet. The board must recommend the transaction and submit it to an annual or extraordinary general meeting, notice must state that purpose with a summary and the board’s recommendation, and members must approve it by special resolution, or by ordinary resolution if the memorandum so provides (section 342).
Injunctions and personal actions
- Injunction or declaration. On a member’s application, the court can restrain the company or its officers from an illegal or ultra vires transaction, from doing by ordinary resolution what needs a special resolution, from acts affecting the applicant’s individual rights as a member, from committing fraud on the company or the minority where the directors fail to act, where a meeting cannot be called in time, where directors are profiting from their negligence or breach of duty, and in any other case where the interest of justice demands (section 343).
- Personal and representative actions. A member can sue to enforce a right due to him personally, or on behalf of himself and other affected members, for damages or a declaration or injunction. Directors found liable are personally liable in damages. The court can award costs to the member whether or not he wins, and can order security for costs in a section 343 case (section 344).
- “Member” includes the personal representative of a deceased member and anyone to whom shares passed by transfer or by operation of law (section 345).
Derivative actions
An applicant can ask the court for leave to bring an action in the name or on behalf of a company or its subsidiary, or to take over or intervene in one, to prosecute, defend or discontinue it. The court must be satisfied that (section 346(2)):
- a cause of action arises from an actual or proposed act or omission involving negligence, default or breach of duty or trust by a director or former director;
- the applicant gave reasonable notice to the directors of his intention to apply, with a factual basis for the claim and the actual or potential damage;
- the directors do not bring, diligently prosecute, defend or discontinue the action;
- the applicant is acting in good faith; and
- it appears to be in the company’s best interest that the action goes ahead.
The action can be against the director or any other person, and the plaintiff has the right to request categories of documents from the defendant without naming specific ones. The court can control how the action runs, order that damages be paid directly to current and former security holders instead of the company, and order the company to pay the applicant’s reasonable legal fees (section 347). Other rules:
- Shareholder approval of the alleged breach does not stop or defeat the action, though the court can take it into account (section 348).
- The action cannot be stayed, discontinued, settled or dismissed for want of prosecution without the court’s approval (section 349).
- The applicant need not give security for costs, and the court can order the company to pay interim costs (sections 350 and 351).
- An applicant can be a registered or beneficial holder or former holder of a security, a director or officer or former one, the Commission, or anyone the court considers a proper person (section 352).
Petitions for unfair prejudice and oppression
A member, a director, officer or former one, a creditor, the Commission, or any other proper person can petition the court (section 353). The ground is that the company’s affairs are or have been conducted illegally or in a manner that is oppressive, unfairly prejudicial to or discriminatory against members, or in disregard of their interests, or that an actual or proposed act or resolution would be. The Commission can petition where it finds this, or disregard of the public interest (section 354).
If the petition is well founded, the court can make any order it considers fit, including orders (section 355):
- winding up the company;
- regulating how its affairs are run in future;
- requiring other members or the company itself to buy a member’s shares, with a corresponding reduction of capital;
- directing or authorising proceedings in the company’s name;
- varying or setting aside a transaction or contract and compensating those affected;
- directing an investigation by the Commission or appointing a receiver or manager; and
- restraining a person from, or requiring him to do, a specific act.
If an order alters the memorandum or articles, the company cannot make inconsistent alterations without leave of the court, and must deliver a certified copy of the order to the Commission within 14 days. Failing to comply with an order is an offence (sections 355(4) and (5), and 356).
Questions and answers
Can a shareholder sue on behalf of the company?
Yes, but only with the court’s leave. Under section 346 the applicant must give notice, show a cause of action against a director, and show the directors are not acting and that he is acting in good faith.
Can a shareholder ask the court to stop the company doing something illegal?
Yes. Section 343 lets the court restrain illegal or ultra vires transactions, acts needing a special resolution done by ordinary resolution, and fraud on the minority, among other things.
What can the court do about oppression of minority shareholders?
It can wind up the company, regulate its affairs, order a share buy-out, set aside a contract, appoint a receiver or order an investigation, among other orders (section 355).
Must a member in a derivative action give security for costs?
No. Section 350 says the applicant is not required to give security for costs.
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