Company Law

6th January, 2023 - 11:54 am Categories: Company Law 0 Comments

Introduction

The article that has been chosen for review is “Shareholders and the Oppression remedy”[1]. The author of this article is A. K. Fiadjoe and it was published in the year 1975 in Ghana Law Review. The article focuses on the different aspects of Section 218 of the Companies Code [2]( hereinafter referred to as “Code”) of Ghana which addresses the issue of oppression against shareholders. The word oppression is not defined in the Code anywhere but based on the precedents it has been gathered that oppression refers to a situation where the directors are misusing their powers against the interests of shareholders or any resolution is passed that threatened the rights of shareholders.

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This review focuses on analyzing the different aspects of Article 218 that have been illustrated in the article. An attempt has been made to analyze the literature of Section 218 of the Code in comparison with the Indian Companies Act, 2013 (hereinafter referred to as “Act”) [3]and the English Companies Act, 1948[4]. The author has tried to set out the merits and demerits of the provision of the Code in light of recent times and the changes that can be incorporated to improve the framework.

ARTICLE OVERVIEW

A MINORITY REMEDY

Under the English Companies Act, 1948[1], the remedy against oppression is known as a “minority remedy” which is a misnomer since, in the case of Benjamin v. Elysium Investments Pty Ltd.[2], it was observed that a shareholder with 50% of the shares can also seek this remedy. On the contrary Section 218 of the Code does not make things complicated like the English Act, it does not use the word minority and instead, adds the phrase “one or more of the members or debenture holders” and has no mention of the minority altogether.

Though one part of section 218 does avoid such confusion, on the other hand, it is contradictory because the language of the section signifies that the majority shareholders can use it to their advantage which will be ultimately discriminatory toward minority shareholders.

OPPRESSION AGAINST SHAREHOLDERS

Section 218 of the (Ghana) Companies Code, 1963 provides a remedy in case of oppression when any member or debenture holder of the company applies to the court because:

1. a) “The affairs of the company are being conducted in an oppressive manner or disregard to the interest of members or debenture holders;” or
2. b) “Any act or some resolution of the company has been passed by members, debenture holders or any class of them which unfairly discriminates or is otherwise prejudicial to one or more than one members or debenture holders.”

Therefore, the Court can direct or cancel any resolution passed by the company or any other affairs that act as oppression against shareholders. Justice Benjamin in the case of Okudjeto v. Irani Brothers [3]mentioned that to prove oppression against a shareholder or a debenture holder, the applicant must establish that some act has been done by the directors that are prejudicial to the interest of the shareholder. If the Court is satisfied that such an act has taken place then it can grant remedy against oppression under section 218 (2).

A COMPARISON OF LITERATURE

GHANA AND INDIA

• Section 218 of the Code addresses oppression against shareholders in Ghana whereas in India Section 241 to 245 of the Companies Act, 2013 addresses oppression against shareholders. Section 218 is wider in scope than Section 241 of the Companies Act, 2013 [4]when it comes to expanding the domain of “oppression”. Section 218 of the Code includes the phrase “unfairly discriminates against” which means an act that may not be directly against the interest of shareholders but if an act gives undue advantage to one shareholder that also would amount to oppression which is absent in Section 241 of the Act.
• The Companies Act, 2013 being the act of the modern times has evolved with the time and made its provision flexible which is absent in the Companies Code of Ghana. Section 241 (b) of the Act includes the term “material act” that may affect the interest of shareholders while Section 218 of the Code is still quite rigid in its approach as it includes definite words like “resolution”, and “threatening” act. The Companies Act includes the possibility of all indirect acts that can be classified as oppression while Section 218 is still restricted in its approach.
• Section 218 of the Code is better than Section 244 [5]of the Act concerning the rights of shareholders in filing a complaint. Section 244 of the Act which on one hand put a limitation on this right as it says that the shareholders filing complaints should have a minimum of one-tenth of the total issued share capital whereas Section 218 of the Code does not put any such limitation on shareholders.

GHANA AND ENGLAND

• In England, there has been rigid interpretation followed concerning oppression against shareholders. The interpretation laid down in the famous English case of Re Antigen Laboratories Ltd. [6]was that the consequential relief concerning oppression can only be given in the favor of the applicant which limits the power of the Court. On the other hand, the High Court of Ghana in the case of Re Jermyn Street Turkish Baths Ltd.[7], Hayfron Benjamin J observed that-

“There is no limitation on the powers of the court. There is nothing in the Act stating that the     court is restricted to considering and remedying only the complaints of the applicants and ignoring the complaints of the respondents.”

Hence increasing the discretionary power of the Court.

• Furthermore, Section 218 of the Code does not make things complicated like the English Act, it does not use the word minority and instead, adds the phrase “one or more of the members or debenture holders” which widens the scope of the remedy against oppression.
• One major point of difference between the Code and the English Act is that the remedy against the oppression is available to debenture holders under the Code which is lacking in the case of the English Act which shows the restrictive ambit of the English Act.
• The English Act follows the subjective test in determining the oppression against the shareholder while the Code in Ghana follows the objective test of determination. The Code envisages a provision that mentions “disregard of proper interest” also amounts to oppression which supports the objective test followed in Ghana and places it above the subjective test.

CONCLUSION AND SUGGESTIONS

Thus, with this, it can be said that the article has addressed Section 218 in a befitting manner but it does lack the view of criticism. It has shown a comparison that put Ghana’s Company law superior to the other law but has failed to put forward a competitive comparison. Nonetheless, one thing that cannot be contested is that Section 218 of the Code is one interesting section. Despite being incorporated in the year 1963, times when the law was so different, at that time only it has incorporated in its structure the provisions of the future.

Firstly, the Code needs to be more flexible in its approach because the fact of importance here is that changes in the law are fundamental to it, therefore more flexible the approach the easier it is to adapt to the external environment. Secondly, there is a need for giving a more expansive and specific definition of “oppression” in the Code to minimize the discrepancies in the judgment Hence, the Code needs to be more specific and wider in its scope to ensure consistency in judgments. Most importantly, the Code needs to learn to evolve with time otherwise it will not be long enough when it becomes obsolete and useless.

Author : Alok Dubey, a student at Symbiosis Law School, Pune in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com  at Khurana & Khurana, Advocates and IP Attorney.

[1] English Companies Act, 1948.Section 210.

[2] Benjamin v. Elysium Investments Pty Ltd. (1960) 3 S.A. 467 discussed fully by McPherson in (1961) 24 M.L.R. 368.

[3] Okudjeto v. Irani Brothers, [1974] 1 G.L.R. 374.

[4] Companies Act, 2013, Section 241.

[5] Companies Act, 2013, Section 244.

[6] Re Antigen Laboratories Ltd., [1951] 1 All E.R. lion.

[7] At p. 391. See also Pennycuick J. in Re Jermyn Street Turkish Baths Ltd. [1970] 1 W.L, R. 1194 at 1208.

[1] A. K. Fiadjoe, Shareholders and the Oppression Remedy, 7 REV. GHANA L. 136 (1975).

[2] Companies Code, 1963.Section 218.

[3] Companies Act, 2013.

[4] English Companies Act, 1948.