An Analysis of the Effectiveness of Shareholder remedies under the Companies Act, 2008 in combating BEE fronting

Abstract

Section 76 of the Companies Act 2008 provides for fiduciary duties of directors in a company. This section confers very important functions on directors and what is expected of them in exercising their functions and powers as directors. On the other hand, section 77 of the Companies Act 2008 imposes liability on directors of a company who breach their fiduciary duties. The Act also provides company shareholders and other stakeholders with statutory shareholder remedies which protect their rights as shareholders in cases where directors are in breach of duties owed to them and the company. This remedies confer a pivotal function on the courts as gatekeepers, ensuring that shareholder’s rights are protected and liability is imposed on directors. South Africa was ranked the most unequal in the economy in 1994. Black participation was limited and an inferior set of skills restricted access to technological and professional jobs until the advent of democracy. The government adopted the Black Economic Empowerment policy which emerged as one of a myriad initiatives and strategic interventions to redress the imbalances of the past in relation to the distribution of wealth and access to the economy. As a consequence of this empowerment initiative, BEE fronting has emerged as a key challenge to the implementation of the BEE policy. Fronting circumvents empowerment by taking away rightfully deserved opportunities from companies that comply with the B-BBEE scorecards in favour of companies that exploit transformative ideals and manipulate B-BBEE scorecards. This study makes a contribution to knowledge of several aspects, namely, directors’ fiduciary duties and liability thereof; statutory shareholder remedies; BEE policy and BEE fronting and how such remedies could be utilised to combat fronting.

Shareholders and other stakeholders use statutory shareholder remedies to combat BEE fronting. The courts and Commission must protect the rights of shareholders and combat BEE fronting by exercising their wide discretion.