Legal Standing In Corporate Misconduct

'162(2) A company, a shareholder, director, company secretary or prescribed officer of a company, a registered trade union that represents employees of the company or another representative of the employees of a company may apply to a court for an order declaring a person delinquent or under probation if -...'⁸

From the interpretation of the abovementioned section, on the face of it, OUTA appeared to have fallen outside of the ambit of persons with locus standi to bring a delinquency application under the section. As a consequence, OUTA sought leave from the court to bring an action under section 157(1)(d) of the Act which provides for an extension of locus standi to institute legal proceedings to a party acting in the public interest. The aforementioned section gives any person or entity the right to bring an application before a court, with leave from the court, granted that the person is acting in the public interest.⁹

LOCUS STANDI UNDER COMMON-LAW

Under the common-law, the shareholder dominance theory was commonly applied. This theory established the traditional philosophy of corporate objectives which entrenched company ownership concepts.¹⁰ It is noteworthy to reiterate that the main objective of the theories and approaches under common-law was to stress the importance of protecting the interests of shareholders and not that of other stakeholders.¹¹ Furthermore, under common-law, the approach was that the directors only owed duties to the shareholders and such duties were exercised for the benefit of the company with the exclusion of non-shareholder stakeholders.¹²

Various other theories and approaches under common-law did not assist stakeholders, other than shareholders to establish locus standi in legal proceedings. This led to non-shareholder stakeholders being prejudiced in not being able to enforce their rights. It is evident that to establish locus standi for all non-shareholder stakeholders, the theories and approaches applied under common-law needed reform. Such reform was partially addressed through the Act.

LOCUS STANDI UNDER THE ACT

When determining locus standi, a court will have to consider whether provisions of the Act provide limitations for a party to institute legal proceedings. As a point of departure, the provisions of section 20(4) of the Act extends the parties which may have locus standi from those under the common-law in that 'one or more shareholders, directors or prescribed officers of a company, or a trade union representing employees of the company, may apply to the [h]igh [c]ourt for an appropriate order to restrain the company from doing anything inconsistent with [the] Act'.¹³ This section seems to promote the sentiments enshrined in section 7(b)(iii) of the Act, for example, to ensure that their interests in a company are protected, the persons listed in section 20(4) of the Act can approach a court seeking appropriate relief should a director who has responsibilities to promote a high standard of corporate governance, contravenes the provisions of the Act.

The extension of locus standi is further displayed under section 162(2) as well as section 165(2) of the Act. The aforementioned sections which deal with remedies and enforcements under the Act confers locus standi upon the following persons:

• A company – which is defined as a juristic person incorporated in terms of the Act¹⁴ can have locus standi in that it is a juristic entity separate from its shareholders.¹⁵ Indubitably, a company is a separate legal juristic entity and may institute proceedings against a director in its own right as it has a vested interest in how its affairs are managed. Furthermore, a company will have locus standi granted that it is a shareholder of another company or a related company such as a subsidiary.¹⁶ Such company would have a vested interest in the financial well-being as well as the daily operations of such company. An example of how the lack of the proper management of company which can affect another company which is a shareholder is when directors of a company do not fulfil their fiduciary duties which undeniably would result in a ripple effect on the employees, shareholders and other interested parties. As such, section 162(2) of the Act confers locus standi upon company to launch an application to declare a director delinquent.¹⁷

• A shareholder –is defined as 'the holder of a share issued by a company and who is entered as such in the certificated or uncertificated securities register, as the case may be'.¹⁸ Section 162(2) of the Act confers locus standi upon a shareholder to launch an application to declare a director delinquent.¹⁹ It is noteworthy to mention that shareholders have a right to good corporate governance of a company because shareholders have a vested financial interest in a company. In addition, the provisions of the Act as set out in section 165(2)(a), stipulate that any person who 'is a shareholder or is entitled to be registered as a shareholder, of a company or of a related company', may institute legal proceedings to protect such company's legal interests.²⁰ Shareholders also have a vested interest in the financial wellbeing of a company, the assets and liabilities of a company as well as the daily operations of a company. Shareholders have an interest in the acquisition as well as the disposal of the assets of a company which is of importance and would need to be done with the consent and knowledge of the shareholders.

• A director – which is defined as 'an individual who has been appointed as director, and one who may not be so appointed but nonetheless occupies the position or fulfils the role of a director'.²¹ Section 162(2) of the Act confers locus standi upon a shareholder to institute legal proceedings to declare a director delinquent.²² Furthermore, section 165(2(b) of the Act, confers locus standi upon directors to institute legal proceedings to protects the legal interests of the company.²³ Although directors have extended powers bestowed upon them under the Act, the Act seems to have opened directors up for a lot of exposure.

• A company secretary – which is not expressly defined in the Act, however, is deemed to be 'an officer of a company' who has been tasked to oversee the efficient administration of a company as set out in set Section 88(1) – (2) of the Act and, to ensure that the company complies with provisions of Section 33(3) of the Act.²⁴ Section 162(2) of the Act confers locus standi upon company secretaries to institute legal proceedings to declare a director delinquent.²⁵

• A prescribed officer of a company – which is defined under the Companies regulations in GN R351 in GG 342393 of 26 April 2011 ('Regulations'), as a person who is not a director of a company but is seen to extensively participate in the exercise of the general executive control and management over the whole, or a significant portion, of the business operations and activities of a company, or to a large extent, regularly participates in the exercise of the general executive control and management over the whole, or a significant portion, of the business operations and activities of a company.²⁶ Under section 162(2) of the Act locus standi is conferred upon prescribed officers to institute legal proceedings to declare a director delinquent.²⁷ Likewise, under section 165(2)(b) of the Act, prescribed officers have locus standi to bring a derivative action to protects the legal interests of the company.²⁸

• A registered trade union that represents employees of a company –is defined under the Labour Relations Act 66 of 1995 as 'an association of employees whose principal purpose is to regulate relations between employees and employers, including employers' organisations'.²⁹ The development of the Act alludes that employees do indeed have a vested interest in the good governance of a company; however, employees cannot represent themselves under the Act. Section 20(4) of the Act confers locus standi upon trade unions to institute legal proceedings to restrain a company from doing anything inconsistent with the Act.³⁰ In parallel, section 162(2) as well as section 165(2)(b) of the Act extends the locus standi of trade unions to be able to bring a derivative action and declare a director of a company delinquent.³¹

AN EXTENSION OF LOCUS STANDI UNDER SECTION 157(1)(d) OF THE ACT

Section 38(d) of the Constitution of the Republic of South Africa, 1996 allows for any person acting in the public interest to seek relief from a court arising from an infringement or a perceived infringement of a right in the Bill of Rights.³² The objective of Section 157(1)(d) is to remedy the shortcomings of the common-law in that it serves to extend the scope of the locus standi to individuals who wish institute legal proceedings acting in public interest. As seen in the Myeni judgment,³³ the Act provides for an extension of locus standi to parties acting in public interest. Section 157(1)(d) reads as follows:

'157 Extending standing to apply for remedies

(1)When, in terms of this Act, an application can be made to, or a matter can be brought before, a court, the Companies Tribunal, the Panel or the Commission, the right to make the application or bring the matter may be exercised by a person-

(a)...;

(b)...;

(c)...;

(d) acting in the public interest, with leave of the court.'³⁴

As a starting point, one must determine what constitutes public interest in the company law context. As seen in the Myeni Case, in its particulars of claim, OUTA inferred that it had locus standi to pursue the action, in that, it was acting in the public interest. OUTA further mentioned that their right to act in the public interest arose 'from its primary objectives, which include, a) the protection and advancement of the Constitution, as well as the promotion of effective, protocol and enforceable taxation policies, which are free from corruption and, b) the proper management of all major public entities'.³⁵ The factors determining public interest were mentioned in Ferreira v Levin No & Others; Vryenhoek & Others v Powell No & Others³⁶ per Ackerman J, as follows: