The applicant and first respondent were business partners and equal shareholders (50% each) in the sixth and seventh respondents (CSM companies) engaged in community scheme management. They met in 2018 and agreed to venture into business together, with the applicant providing community scheme management expertise and recruiting clients, while the first respondent would be sole director and provide office environment and financial administration. Both contributed equally to start-up capital and received equal drawings and dividends. No written shareholders' agreement was concluded. The business was successful, managing 32 community schemes (29 recruited by the applicant). In April 2024, friction arose when the first respondent proposed channeling business through the eighth respondent (in which the applicant had no shareholding) to avoid VAT registration, despite the applicant's opposition. By mid-2024, the relationship broke down completely. In August 2024, the first respondent unilaterally excluded the applicant from banking accounts, removed her from WhatsApp groups and emails, suspended monthly drawings, removed her name from letterhead, and initiated disciplinary proceedings against her. Attempts to agree on an exit strategy failed.
1. The applicant or her designated representatives granted full and unrestricted access to financial and administrative records of the sixth, seventh and eighth respondents for investigations and valuations. 2. All monies paid by the sixth or seventh respondents to the eighth respondent to be repaid or credited to loan accounts. 3. Either the Karoo Trust or the applicant shall cease to be a member of the sixth and seventh respondents through a Texas auction sale mechanism: (a) The Sale Agreement is binding on both parties; (b) The Karoo Trust acts as 'Purchaser' and applicant as 'Seller' in the first round; (c) The Karoo Trust has 60 days to fulfill suspensive conditions; (d) If conditions not fulfilled, roles reverse with applicant as 'Purchaser' and Karoo Trust as 'Seller'; (e) The applicant then has 60 days to fulfill suspensive conditions. 4. First to fifth respondents ordered to pay costs jointly and severally on party and party scale, including counsel's costs at Scale C.
In determining whether unfair prejudice exists under section 163 of the Companies Act, courts must look beyond the formal corporate structure to the actual arrangements and understandings between shareholders. Where a quasi-partnership exists—characterized by equal shareholding, mutual contribution, shared management expectations, and personal confidence—a shareholder has legitimate expectations to participate in management beyond their formal legal rights. Conduct that unilaterally excludes a shareholder from participation in management contrary to such legitimate expectations constitutes oppression and unfairly disregards the shareholder's interests under section 163(1)(a), even where one party is formally designated as sole director. The concept of unfairness is central to section 163 and must be evaluated objectively in light of fundamental corporate law principles and the nature of the relationship between the parties. Where parties have conducted their affairs on the basis of a quasi-partnership and that relationship has irretrievably broken down, with parties unable to agree on fair exit terms, it is just and equitable under section 163(2) to order a 'Texas auction' mechanism allowing either party to purchase the other's shares on equal terms.
The court noted that the mere fact a minority shareholder wishes to exit and is 'locked in' due to inability to dispose of shares does not alone constitute unfair prejudice under section 163, citing Technology Corporate Management (Pty) Ltd v De Souza. However, the court distinguished this principle by emphasizing that in the present case, there was actual oppressive conduct by the first respondent, not merely a desire to exit. The court observed that the first respondent's insistence on a restraint of trade as a condition for purchasing the applicant's shares lacked any legally cognizable basis and would unfairly deprive the applicant of the benefit of her contributions while preventing her from competing. The court commented that the disciplinary proceedings initiated by the first respondent appeared to be 'a deliberate ploy to exclude [the applicant] from the affairs of the companies' and was engineered without cause. The court noted approvingly the applicant's 'Texas auction' proposal as 'a sensible and practical solution which would ensure a fair exit by either of them from their shareholding.'
This case provides important guidance on the application of section 163 of the Companies Act 71 of 2008 in the context of quasi-partnerships. It clarifies that: (1) A quasi-partnership can exist even without formal partnership agreement or written shareholders' agreement, based on the actual conduct and arrangements between parties; (2) The existence of a formal corporate structure (with designated sole director) does not preclude finding a quasi-partnership where the parties' actual conduct demonstrates mutual participation in management; (3) Conduct that violates the legitimate expectations arising from a quasi-partnership relationship can constitute oppression or unfair prejudice under section 163, even if it does not violate formal legal rights; (4) Section 163 must be construed broadly to advance the remedy it provides; (5) The 'Texas auction' or 'shoot-out' mechanism is an appropriate remedy where a quasi-partnership has irretrievably broken down and parties cannot agree on exit terms. The judgment emphasizes that in quasi-partnerships, parties have reasonable expectations beyond strict legal rights, and courts will look to the substance of the relationship rather than merely its form. It demonstrates the courts' willingness to use section 163 flexibly to provide equitable solutions in deadlocked close corporations.