One of the direct consequences of incorporation of a company is that a registered company is conferred with the privileges of corporate personality. A fundamental attribute of corporate personality is that the company is a legal entity distinct from its members. However, since the company is an “artificial person”, it can only be run and managed by “natural persons”. Although, majority shareholders will habitually get what they want due to “majority rule”, it is essential that minority shareholders are given an audience prior to any major decision relating to the company. In this article, we will examine the safeguards put in place to protect minority shareholders in Cameroon.
The rule in the case of Foss v Harbottle states that where an irregularity has been committed in the course of a company’s affairs or any wrong has been done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct. This rule has been consolidated by various statutes and an abundance of case law over the years. The ramifications of this rule are twofold
- The company will ultimately be the plaintiff to sue in respect of wrong done to the company
- The Court will not intervene in the management of company, where the irregularity being complained about is within the scope of powers of the majority shareholders to remedy or ratify by means of an ordinary resolution.
There are however exceptions to the aforementioned rule in Cameroon where the company is prohibited from committing certain acts namely:
- Entering into a transaction which is illegal or ultra vires;
- Purporting to do by ordinary resolution any act which is required to be done by special resolution.
- Any act or omission affecting a shareholder’s personal rights as a member;
- Committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done.
- Impracticable to call a company meeting in time to redress the wrong done to the company or to the minority shareholders; and
- Where the directors are likely to derive a profit or benefit, or have profited or benefited from their negligence or from their breach of a fiduciary duty.
RELIEFS TO MINORITY SHAREHOLDERS
The Cameroon law stipulates certain actions that can be brought to protect minority shareholders against the company in the event that any of the above scenarios occur namely:
- Personal Action
- Representative Action
- Derivative Action
The remedies available to personal and representative actions are either injunction or declaration however the remedies for bringing a derivative action are more thorough. In a derivative action, an applicant can apply to the court for leave to bring an action in the name or on behalf of a company, or to intervene in an action to which the company is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.
The remedies available in the event that the court is satisfied with the application include:
- Court orders directing that the applicant or a third party control the conduct of the action;
- Giving directions for the conduct of the action;
- Directing any amount adjudged to be paid by the individual or company; or
- Requiring the company to pay reasonable legal fees incurred by the applicant in connection with the proceedings.
Another option to protect minority shareholder is to bring a petition to the court on the grounds that:
- The affairs of the company are being 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 in disregard of the interests of a member or members as a whole
- That an act or omission was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory to a member or members.
Accordingly, if the courts in Cameroon are satisfied that the petition is well founded, the court may make one of the following orders amongst others:
- That the company be wound up
- Regulating the conduct of the affairs of the company
- Directing an investigation be made by the Corporate Affairs Commission
- Appointing a receiver or a receiver and manager of property of the company
- Restraining a person from engaging in specific conduct or from doing a specific act or thing.
Conclusively, although it is customary in Cameroon that the majority will always make the bulk of the decision making of a company, there exist certain statutory safeguards to protect minority shareholders of companies. In addition, the foregoing, it is germane that key provisions of the Shareholders Agreement of the company are negotiated by counsel in a manner that would grant minority shareholders some forms of protection. Such provisions include but are not limited to voting rights, right to first refusal, pre-emptive rights, share transfer restrictions, rights of first offer, tag-along rights.
Article by Barr. Mafany Victor Ngando
Kinsmen Advocates Law Firm“The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance”