Living Corporate Contract

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The Living Corporate Contract, Hypothetical Bargaining and Minority Shareholder Remedies under English and South African Law Article

The Living Corporate Contract, Hypothetical Bargaining and Minority Shareholder Remedies under English and South African Law

Charl Herman - LLM International Tax Law Student

Published in Issue 2, December 2018

The statutory contract – also known as the corporate contract – under the United Kingdom Companies Act 2006, is the foundation upon which the corporate relationship between the minority shareholders vis-à-vis the controllers of the company is governed. However, the statutory contract is unable to provide minority shareholders vis-à-vis the controllers of the company, with appropriate remedies in order to protect their underlying interests. This is because it fails to include the legitimate expectations and/or equitable considerations between the two parties, i.e., the minority shareholders and the controllers of the company. In this context, this article refers to the statutory contract as “the living corporate contract” whereby the relationship of the minority shareholders vis-à-vis the controllers of the company, is infused with the element of fairness.  This is evident, for example, in the problem of tunnelling, where the Companies Act 2006 does not adequately recognise and/or include within its ambit, the detrimental conduct that may be undertaken by majority shareholders in procuring an illicit benefit, at the expense of the company. Therefore, the Companies Act 2006 is in need of urgent reform, in order to more effectively prevent the controlling shareholder from avoiding the underlying obligations under the living corporate contract.

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