🚀 go-pugleaf

The reason that a minority shareholder in a small company may
potentially receive zero value for her shares is that the majority 
may legally vote themselves as directors and extract all profit as 
remuneration and directors' fees.  And that the Courts cannot 
provide relief for an unwise minority investor. 

Under English commercial law which is subststantialy followed in other
English language jurisdictions, there is a principle that in a family (Pty) 
company, fiducary duty between shareholders applies. Hence looting
the minority's value by mechanisms variously known as 'hiding behind 
the corporate veil' is not allowed as is possible in a bigger company.

*THE* precedent is argueably, 
     Ebrahimi v Westbourne Galleries Ltd 1973; 
where Lord Wilberforce said:
"...that there is room in company law for recognition of the fact...
that behind it, or amongst it, there are individuals, with rights,
expectations and obligations inter se which are not necessarily 
submerged in the company structure."

A locally [S. African] reported case,
    HULETT AND OTHERS v HULETT 1992,
cited the above UK 1973 case, and added:
"In the instant case the picture which emerges from the evidence reveals
that, within the external structure of the company, the relationship
between the shareholders which existed internally was one which may 
be loosely described as a `quasi-partnership'. ...."

My matter is that I inherited three sixteenths, whereas my half sister 
and her children got the remaining 82% shares; and they have used 
harassment tactics to try to force me to sell my shares to them at the 
probate price [analagous to the Foss v Harbottle exception:
  'Daniels v. Daniels 1978'].

The first attorney took me to his advocate who said I had no chance
to get relief.  I knew that SA commercial law, lagged English law
by decade[s] and that the UK s459 relief was not available.

My later research uncovered the HULETT 1992, supreme appeal court
case, above; and a recent case also acknowledged the "fiducary duty 
of partnership" principle, by the 2 shareholders having specifically 
contracted out of such a relationship.  I guess, the one knew ?

Now when I visited [accompanied by a dummy lawer, because I can't
directly approach an advocate] the second advocate, who I had selected 
since he had done a case which cited the HULETT 1992 case, he failed to
grasp that shares of a small Pty company are potentially valueless, since 
they may legally yield zero dividends.

Since the accompanying lawer, who turned out to be very bright, is 
never contactable [he seems to be dodging the 'mafia'], I faxed a
laboured explanation to the advocate; who when I phoned him said:
"yes your argument about the fiducary duty of partnerships principle 
applying for a family bussines is valid, but it's nothing new".

On the other hand 2 further reported cases failed, which I believe
could have had relief, if they had evoked the [presumably valid]
effective partnership principle:
1. father and 2 sons, where the 'fallen out son' couldn't even get
 access the the company records to determine a 'fair price' evaluation
  for selling his shares;
2. a married couple, where the wife was contesting the divorce 
 at the time of the commercial litigation. The couple owned 50% each
 in a web of companies, where a preferential 'creditor' voted with the
 husband against her.

My ignorant lay-person's view of the above 2 cases is that the victim's
legal representatives took the wrong approach, *IF* the 'effective 
partnership principle' is in fact available. Which would imply that it's
not well known.

Q - how well established is the principle that a Pty company held
by a few friends and/or family, is effectively a partnership, and that
therefore fiducary duty applies inter-se ?

BTW I'm looking for a concise definition of 'fraud on the minority'.

Thanks for any input.

== Tea-anon