Posted: March 22nd, 2022

Company Law Minority Shareholders Rights

Company Law Minority Shareholders Rights
Under the Omani Commercial Companies Law of 2019, minority shareholders’ rights come in two forms. They are either conferred under Oman’s statutory laws or manifest under contractual obligation enshrined within the company’s association article. The statutory laws provide limited protection to the minority shareholders. They require that certain key aspects and corporate decisions require a unanimous vote unless its article of association or charter allows it. Unanimous votes pass a resolution in favor of the minority. This is because they limit actions from being taken unless it favors all parties. The Omani Commercial Companies Law of 2019 (Royal Decree 18/2019) (CCL) identifies that unless expressively barred under the company’s charter or articles of association, a unanimous shareholder’s vote is required before the presence of a company’s manager (Malkawi, 2019). This is a measure of transparency also in favor of the shareholders. The vote, among other things, allows the sales, mortgage of the company’s asset to finance its shareholders or secure a debt.
The act by MCBS majority shareholders to auction the company assets without consulting the minority shareholders requires limited minority approval in the circumstances that it is expressively allowed by the contractual terms specified under the company’s charter. Suppose the company’s article of association provides that the majority of shareholders can perform the company’s assets without the need to consult the minority stakeholder and agreed to these terms. In that case, their actions are considered lawful. If the company’s article of association does not offer such a provision, the CCL becomes the preemptive force and provides guidelines under which the company should act (Malkawi, 2019). In this case, it reinstates the previously outlined terms of unanimous votes. If the assets’ sales required unanimous approval and the majority shareholders disregard it, the company would be acting in ultra vires. The doctrine of Ultra Vires outlines the powers of the corporation.
The doctrine of Ultra Vires defines a company’s conduct that occurs out of bound of its articles of association or charter. The principle comes into effect by specifically barring the company from acting in any manner not specified in its association’s memorandum. The charter, article of association or memorandum of association is a contractual document that is considered legally binding document. It provides the basis of the association between all stakeholders of a company. In Foss v Harbottle (1843) 67 ER 189, the court identifies that indeed, shareholders could unlawfully convert the company’s resources for their gain. Here the actions may seem unjust to the minority since they do not control the company, and their position is regarded as weak (Arato, Claussen, Lee, & Zarra, 2019). In the case of Foss, ‘the proper plaintiff rule’ is established. Proper plaintiff rule limits minority shareholders’ actions before the court and defines the company as its legal person. It defines that the company can take action against majority shareholders. This may not always work in favor of minority shareholders. It outlines that only the company can take action to wrongdoing done and not the shareholders. This comes with a variety of exceptions for the benefit of the minority stakeholders.
If the sales of assets was in ultra vires, then the proper plaintiff rule established under the Foss case will not apply. This was established in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2). In the case, the court declared that an act is ultra vires to the company’s article of association, provoked an exception to the proper plaintiff’s rule, and compelled the matter to be resolved within the company’s guidelines article of association (Kleitman, 2016). If the wrong has done can be resolved under the company’s resolution meetings, then the minority shareholders of MCBS will not be required to sue. The wrongful act could be undone within the company’s general meeting through a vote. In the case of MCBS, if the majority acted in ultra vires, yet they do not seek to obtain a resolution through the article of association, courts could intervene. in the case of Edwards v Halliwell, [1950] 2 All ER 1064, the court allows minority members to take action to establish the possibility of “fraud on the minority” (Kleitman, 2016). Here any individual member can take action to stop the conduct of the majority members pending court approval into their actions.
Minority shareholder’s can cite unfair prejudice in the event that the action of the majority shareholders was in ultra vires. By breaking company code there are two ways in which the issue can be settled in favor of minorities. They could either advocate the resolution through unanimous vote to resolve the issue citing unfair prejudice. Failure to achieve unanimous vote, minority shareholders could advocate for action of winding up the company (dissolve the company) or cite for more ownership into company right either by election of their own director/ manager or being given greater share values. Muzdalifa as a minority shareholder is generally weaker and at the peril of the majority shareholders. Majority shareholders do not require a unanimous vote to pass a resolution in the event that the issue at hand does not touch on company policy. In the event that her dismissal by the majority shareholders is in ultra vires Muzdalifa can apply to company’s court citing unfairly prejudice by their majority shareholders. The courts have a rights to halt the voting process or dismiss the decision by the shareholders. It also can invoke a need for unanimous vote to decide Muzdalifa’s fate.

References
Malkawi, B. H. (2019). Derivatives Law and Practice in the Middle East.
Kleitman, Y. (2016). Reflective loss: company law. Without Prejudice, 16(4), 8-9.
Arato, J., Claussen, K., Lee, J., & Zarra, G. (2019, July). Reforming Shareholder Claims in ISDS. In Academic Forum on ISDS Concept Paper (Vol. 9).

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