THE EXTENT OF MINORITY SHAREHOLDERS’ PROTECTION IN TAKEOVERS: RIGHT ACTIONS

Abstract

One of the characteristics of takeover in company restructuring is the protection of minority shareholders. There are limits on minority shareholders’ rights to initiate proceedings against the controlling shareholders (directors or major shareholders or combination of both) of the company. Traditionally, minority shareholders only had rights of action to exercise on grounds of fraud perpetrated on the minority shareholders, illegal acts of directors, ultra vires acts etc. However, minority shareholders’ rights to ventilate their grievances in takeover situations were generally suppressed by the courts; a situation that has lowered the threshold of accountability of the controlling shareholders. Other alternative paradigm of control and accountability such as the internal control model, the market control model, and the regulatory model etc. do not provide sufficient water-tight protection to minority shareholders’ legitimate expectations in takeover situations. Nigerian courts have so far shown some degree of reluctance in recognising that the directors of company owe a fiduciary duty to the minority shareholders where it borders on change of corporate control. Although the provision of the Companies and Allied Matters Act (CAMA), 2004 was put in place in order to remedy the inadequate protection of minority shareholders, the judicial interpretation of this piece of legislation imposes restrictions on the rights of minority shareholders to initiate court actions. The remedies available to minority shareholdersare limited to the buy-out remedy often combined with a conservative approach in share valuation. Experience in other jurisdictions shows how shareholders are entitled to a broader range of remedies in takeover situations. In Nigeria, however, neither theChapter IV of the 1999 Constitution as (Amended) nor the provisions of CAMA on takeover bids are likely to bring about significant changes in the range and scope of the judicial remedies available to minority shareholders.This work therefore, argues for the development of a private action model in Nigerian jurisprudence and concludes that unless the courts provide sufficient locus standi (standing) for minority shareholders in litigation, the position of the minority shareholders in takeovers would still remain in quandary. The seminar makes recommendations for the introduction of a pre-action protocol for shareholders disputes and the relaxation of the law that inhibits minority shareholders’ action.