Evolution of the derivative action as an enforcement of rights mechanism under the Companies Act 71 of 2008

Abstract

The purpose of this dissertation a focus on derivative actions as a method a minority shareholder can employ as an enforcement of rights mechanism. In so doing I will be examining the derivative action procedure from its inception in the common law through to the current dispensation. This dissertation describes and explains the rights, interests and obligations of shareholders and will explore the pitfalls for shareholders in the implementation of the derivative action as a protective measure. I submit that the derivative action found under the common law and the previous statutory regime provided the stepping stone in molding the statutory derivative action evidenced by section 165 of the Companies Act. In Chapter 1, I explore the derivative action under the common law as a conceptual framework and as a movement that initially arose in the renowned case of Foss v Harbottle. Whose core principles were subsequently embraced by the South African judiciary. In Chapter 2 I discuss the availability of the statutory derivative action and the limitations of section 266. Further, I make a comparative study between the common law and the statutory derivative action. The comparison is essential in an attempt to portray that the statutory derivative action refined the common law to a certain extent in its attempts to provide a minority shareholder protective measure. In chapter 3 I examine section 165 of the Companies Act to evaluate to what degree the derivative action has transformed against the backdrop of its statutory predecessor and the common law. This chapter breaks down the constituent principles of section 165 and examines the requirements necessary to implement the measure. Finally, in Chapter 4 I make a comparative study with foreign jurisdictions to determine the extent, if any, section 165 relates to the principles laid down in other jurisdictions.