SECTION 165 OF THE COMPANIES ACT 71 OF 2008: A COMPARATIVE DISCUSSION OF THE CONCEPTS OF RATIFICATION, ACCESS TO INFORMATION AND ALTERNATIVE REMEDIES

Abstract

The lack of access to company files, company information and other company documents has historically been an obstacle to applicants attempting to institute derivative proceedings on behalf of a company. The information contained in these documents is critical in order to prove wrongful conduct. Section 165(14) of the Companies Act 71 of 2008 provides that the court is the final authority on whether to grant leave to institute proceedings: ratification is merely a factor for the court to consider. The subsection does away with the common-law rule that illegal acts or frauds on the minority (previously commonly known as the exceptions to the rule in Foss v Harbottle) are not ratifiable by the company. The availability of an alternative remedy is an important factor to consider when determining whether the derivative action will be in the best interests of the company, especially if the proposed derivative action may result in lengthy and time-consuming litigation. However, the availability of another remedy should not be a deterrent to applicants who wish to institute derivative proceedings.