ZIMBABWE Trends and Developments Contributed by: Norman Chimuka and Tonderai Sena, ChimukaMafunga Commercial Attorneys
The Rights of Minority Shareholders The old Companies Act [Chapter 24:03] did not contain adequate provisions protecting the minority shareholders. Instead, such matters were governed by the common law. The recourse for aggrieved minor- ity shareholders was to initiate legal proceedings, either personal or derivative actions, depending on the circumstances. The personal action offered suf- ficient protection to shareholders who had suffered harm individually due to actions or omissions by the company. The derivative action, on the other hand, permitted shareholders to bring legal proceedings on behalf of the company, but only in specific circum- stances and subject to certain limitations. The Companies and Other Business Entities Act [Chapter 24:31] (“COBE Act”) was enacted in 2019 and it repealed the Companies Act [Chapter 24:03]. The COBE Act codified and broadened the scope of shareholder remedies, which indirectly enhances the protection of minority shareholders. The remedies available to minority shareholders are summarised below: • direct personal action by a shareholder for dam- ages caused to him/her/it (Section 60 of the COBE Act); • derivative action by a shareholder for damages caused to the company (Section 61 of the COBE Act); • application for piercing of the corporate veil in deadlock, fraud, oppression and other situations (Section 62 of the COBE Act); • application for an appropriate order against anoth- er shareholder on the grounds that the company’s affairs are being or have been conducted in a man- ner which is oppressive or unfairly prejudicial to the interests of some parts of members (Section 223 as read with Section 225 of the COBE Act); and • minority shareholder appraisal rights which provide an exit remedy to minority shareholders who may be against some major corporate actions (Section 233 of the COBE Act). In addition to the above remedies provided by the COBE Act, shareholders may also utilise the following
remedies to voice their concerns and enforce compli- ance with corporate governance requirements: • enforcement of the Zimbabwe Stock Exchange and Victoria Falls Stock Exchange disclosure and transparency requirements; and • instituting criminal proceedings against the com- pany or its directors and officers. Shareholder Apathy Over the years, shareholder apathy has been a topical issue. It refers to a lack of engagement and interest from shareholders in the affairs of a company, particu- larly, the management of the company. We highlight below some of the reasons behind shareholder apathy in various corporates. It is worth noting that traditional company law allo- cates a relatively minor role to shareholders of a com- pany. The authority of and balance of power between the board and shareholders in general meetings are determined by the COBE Act, the constitutive docu- ments of the company, or in the absence of direction in any of the former, by common law. As a general rule, the authority conferred on either the shareholders or the board in terms of the company’s constitutive documents or the COBE Act is conferred exclusively, and shareholders cannot exercise powers collaterally with the board or vice versa. Shareholders are legally restricted to only act through resolutions passed at a general meeting of shareholders. Traditionally, companies’ legislation does not provide detailed prescriptions on how meetings of the board of directors are to be convened and how they should conduct their business in those meetings. The COBE Act largely continues with this tradition. However, unlike its predecessor statute, it makes a few basic and default prescriptions concerning quorum and vot- ing at board meetings and the structure and contents of the minutes of board and board committee meet- ings. By comparison, the COBE Act provides very detailed prescriptions on how shareholder meetings should be convened and how the proceedings of these meetings are to be conducted. As a result, directors can meet more frequently with minimum legal hurdles and pass
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