Section 163 of the Companies Act 71 of 2008 provides directors and shareholders with a legal pathway to challenge conduct that unfairly disregards or prejudices their rights. Traditionally, this provision has been understood as a shield for minority shareholders, offering them recourse against abusive majority control. But the decision in Van der Watt v Schoeman and Others [2024] 91 SA 531 (ECGq) tested its application in an unusual context: a company owned and controlled in equal halves.
The Background
Drs Van der Watt and Schoeman created a private company to house their medical practice, each owning 50% of the shares and serving as its only directors. Their initial partnership gave them equal control at both board and shareholder level. Over time, however, Van der Watt distanced herself from the daily operations, though she retained her shares and directorship.
This shift gave rise to conflict. Schoeman began managing the company as though she were the sole decision-maker, acting without board authority and ignoring repeated requests from Van der Watt for formal board meetings. Feeling sidelined and effectively excluded from the company’s affairs, Van der Watt sought to exit by selling her shares and loan account. Schoeman’s offer to purchase was unsatisfactory, prompting Van der Watt to seek judicial relief under section 163.
Can Section 163 Assist a 50/50 Shareholder?
A central issue was whether an equal shareholder, rather than a minority, could invoke section 163. Schoeman contended that because Van der Watt was not a minority, the remedy was unavailable to her.
The court disagreed. It held that section 163 is not restricted to majority-versus-minority disputes. Unlike its predecessor, section 252 of the 1973 Companies Act, the current provision references oppressive conduct by “a company or a related person.” Interpreted together with the “related person” definitions in section 2, this wording, the court reasoned, could extend protection to cases of deadlock or equal-shareholder oppression.
Relying on this interpretation, the court ordered Schoeman to acquire Van der Watt’s shares and loan account at a fair value determined by an independent expert.
Concerns with the Court’s Reasoning
Although the outcome provided relief to Van der Watt, the reasoning raises difficult questions.
First, it is debatable whether Schoeman qualified as a “related person” to the company. The Companies Act requires control, through majority voting rights, board dominance, or decisive policy influence, for such a designation. In a 50/50 arrangement, neither party has outright control, which is precisely why deadlocks occur. This weakens the court’s justification for using section 163 to resolve the dispute.
Second, Schoeman’s actions were taken without proper authorisation from the board. It is questionable whether her conduct could legally be equated with the company’s conduct or with the exercise of her powers as a director. The court’s expansive interpretation arguably blurred this distinction.
Finally, while section 163’s remedies are broad, other provisions, such as section 81(1)(d), which permits winding up a company in cases of shareholder deadlock, may be better suited to these situations. Section 163 may remain more effective in contexts where an imbalance of power genuinely exists, rather than where two shareholders stand on equal footing.
Conclusion
The Van der Watt judgment demonstrates that section 163 can, in certain circumstances, be used by equal shareholders who find themselves oppressed in practice. Yet its reasoning leaves open significant interpretative challenges. Shareholders in deadlock situations should therefore tread carefully: although section 163 relief is possible, it may not be the most reliable or predictable remedy. Alternative statutory avenues, such as winding up for deadlock, may offer a more secure legal route.
