Good news for shareholders in new Companies Act

It is not uncommon for some companies to act in total disregard of shareholders’ interests, sparking sometimes long-running wrangles. But this kind of corporate impunity may become a thing of the past once the new Companies Act, 2015, becomes operational.

According to the new law, an aggrieved shareholder will now be able to take an issue straight to court without seeking approval from company directors.

The new law, which received the President’s assent in September, will become operational on a date to be set by the Attorney General through a gazette notice. However, if he fails to do so within nine months from September, the Act automatically comes into effect.

“In the past, shareholders had to go through a board of directors to get permission to file a suit against the company in the name of the company,” said Winnie Jumba, an associate director at audit firm Deloitte.

But this will change with the new legislation. According to Ms Jumba, as a shareholder is already member of a company, he or she will not need board approval.

“This is a new landscape that we need to watch very closely,” she said.

Companies are expected to be spurred by this clause to improve their governance, as failure to do so could expose them to a floodgate of litigation, according to Jumba.

“We are talking about transparency, we are talking about accountability taking a major role in these companies. Because a lot of time, grievances come out of these factors, where a member feels that there is no transparency or accountability on certain aspects, or there are interest within the board that could be causing a company to lose out,” she said.

Under the current law, shareholders have largely been frustrated by the bureaucratic processes involved in filing a legal complaint. Moreover, it has been difficult for board directors to grant shareholders the permission to make a filing against a company, as this could incriminate them.

Still, the provision could be misused. Jumba said it will become very easy for a shareholder who feels aggrieved — for whatever reason — to file a suit in the name of a company.

“Mischief can creep in, so what a company needs to ensure is that it creates structures that will limit suits on questionable grounds, and allow real, credible ones to go through.”