A discussion of the requirements of a trial of a serious question of consequence and the best interests of the company as contemplated in section 165(5)(b) of the Companies Act 71 of 2008

Authors Darren Subramanien

ISSN: 2521-2575
Affiliations: Lecturer School of Law (PMB), University of KwaZulu Natal
Source: Journal of Corporate and Commercial Law & Practice, Volume 6 Issue 1, 2020, p. 1 – 23

Abstract

The requirements for judicial discretion to grant leave for a derivative  action are located in s 165(5)(b) of the Companies Act 71 of 2008. The  discretion of the court must be exercised to prevent time-consuming  and costly actions that are deemed to be frivolous, vexatious or  without merit. In terms of s 165(5)(b) the court must be satisfied that  the applicant is acting in good faith, that the proceedings involve the  trial of a serious question of material consequence to the company,  and that it is in the best interests of the company that the applicant  be granted leave. It would therefore be open to the courts to provide  an interpretation of the words in s 165(5)(b) regarding the good faith  requirement, to find that the proceedings involve a serious question  of material consequence to the company, and to find that it is in the  best interests of the company that the applicant be granted leave.  This article discusses the requirements of ‘a trial of a serious question  of consequence’ and the ‘best interests of the company’ in s 165(5)(b)  of the Act. The interpretation of these words and phrases in s 165(5)(b)  will ultimately determine the success or failure of the new statutory  derivative action as an adequate remedy for aggrieved applicants  who seek redress on the company’s behalf if the company or those in  control of it improperly fail or refuse to do so. This article will refer  to the relevant sections in the law of the United Kingdom to provide further clarity about the interpretation of the relevant provisions in  s 165(5)(b) of the Companies Act 71 of 2008.