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A derivative action is when the shareholders sue a third party (such as a director or officer) on behalf of the company.

A class action is when a group of people take a person (such as a director or officer) to court. The new South African Companies Act
under s157 properly introduces the concept of a class action into South African law. Any of the following persons may apply for a
class action:

Any person considered in the Act or any person acting on behalf thereof

Any class a affected persons

Any person acting in the public interest


The application can be made to a Court, the Companies Ombud, the Take-Over Panel, or the Commission. The application for a
class action has been simplified, in that one is no longer required to act through a liquidator.

Section 157 of the Act, may be another avenue that could be used to compel a
company to comply with "its stakeholder and/or community engagement
obligations." Section 157 provides for a potential "class action" suit pursuant to
contraventions of the Act. When, in terms of the Act, an application can be made to
or a matter can be brought before a court, the Companies Tribunal or the
Commission, the right to make the application or bring the matter may be exercised
by a person: directly contemplated in the particular provision of the Act acting
on behalf of a person contemplated in above, who cannot act in their own name;
acting as a member of, or in the interest of, a group or class of affected persons, or
an association acting in the interest of its members; or acting in the public
interest, with leave of the court. The directors may also be in breach of their
fiduciary duties to the company as it is in the best interests of the company that it
complies with applicable laws, including laws obliging a company to have a
Committee. If such breach of fiduciary duties results in loss or damage to the
company, directors would be liable in terms of s77 of the Act, dealing with directors
liability. Further, the action by the company against the board could be enforced by
shareholders, any director or prescribed officer, registered trade unions or any other
person with leave of court, in terms of the derivative action under s165 of the Act.
It is therefore possible that shareholders or other stakeholders could, for example,
have standing in terms of s 165 of the 2008 Act to apply for a court order declaring
a contract between the company and a third party to be void, in spite of the fact
that they were technically never parties to the agreement in question. This seems
to be in line with recent tentative developments in South African case law.60 It is
however worth keeping in mind that, should the purported action be against a third
party, ancillary provisions found in s 165 create further safeguards or monitoring
devices.61 Australian law prevents abuses in this context by insisting that the
applicant must show a serious question to be tried,62 and in theAmerican context
the business judgement rule will provide the needed balance.63 The demand
required by the 2008 Act can be made by various stakeholders including
shareholders, directors or prescribed officers and trade union representatives, as
well as persons entitled to be registered as shareholders.64 The relief in s 165 is

also available to the directors, shareholders and prescribed officers of related


companies.65 Finally, the court may grant any person leave to serve a demand if it
is satisfied that it is necessary or expedient

The 2008 Act abolishes all rights to litigate on the companys behalf under common
law and introduces a statutory derivative action in substitution thereof.57 The Act
makes use of a demand process in an attempt to attain a sought after balance
between managements autonomy and the shareholders need to approach the
court where appropriate. (a) Standing Section 165 of the 2008 Act requires a
derivative litigant to serve a demand on the company calling for it to commence or
continue legal proceedings to protect the legal interests of the company. As far as
the grounds upon which a demand may be served are concerned, the 2008 Act
deviates notably from its 1973 predecessor. Section 266 of the 1973 Act only
allowed proceedings to be instituted for damages or losses as a result of a wrong,
breach of trust or breach of faith committed by a director or officer of the
company.58 The scope of s 165 is much wider however, and corresponds with the
Australian and American models that are phrased to accommodate the enforcement
of any legal rights that the company may have. Section 165 of the Act thus differs
from the UK model, which is much more restrictive in that it only allows breaches of
directors duties to form the basis for the application.59
The Children Resource Centre Trust case did, however, confirm that class actions are
to be initiated by way of the Certification Procedure

The part on reckless and fraudulent trading leaves much to be desired (at 586592).
The discussion of section 22 is made part and parcel of a discussion of section 424
of the Companies Act 61 of 1973, when these provisions differ materially. No
mention is made of the fact that the main attraction of section 424, namely to
exclude the common law necessity of proving causality between the wrong
committed and the loss suffered by the plaintiff, is removed by the statutory
scheme in terms of the new Act where a third party wants to keep directors or
others liable for a contravention of section 22(1). This is because

section 218(2) expressly requires causality to be proved. Contrary to section 424, it


is the company which is prohibited from dealing in the manner described by section
22, not all persons as the text professes (588). Directors are only brought into the
fold, and then only for liability towards the company, by the provisions of section
77(3)(b). Other persons have to be held accountable via the offence set out in
section 214(1)(c) and then only for fraudulent trading. If a third party wants to keep
a person other than a director liable for fraudulent trading, he or she will have to

prove the elements of the offence in section 214(1)(c) for purposes of a civil action,
while relying on section 218(2). While the burden of proof will differ for the civil
action, these provisions cannot be described as elegant in any sense and really
takes on the look of that jalopy It is objectionable that the authors do not offer a
view on some of the more problematic provisions of the Act. For instance, the
interpretation of section 218(2) of the Act is not discussed in any depth, but only in
passing when some of the other remedies in the Act is considered. In most cases
the bare wording of the section is simply repeated. It is mentioned that the section
imposes strict liability for contraventions of the Act (821, 832), but this is too
simplistically put. Strict liability will only follow if the section of the Act contravened
does not impose a form of culpability. A third party who wants to hold directors
liable for reckless or fraudulent trading, which is prohibited in terms of section 22(1)
read with section 77(3)(b), will still have to prove the reckless or fraudulent nature
of the directors conduct despite reliance on section 218(2). The question of the
ambit of the section, namely whether it applies to all provisions of the Act or only to
those which may lead to criminal liability (see s 214), is not considered at all

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