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
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
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.