Section 165(5)(b) of the Companies Act 71 of 2008: A discussion of the requirement of good faith

Abstract

In terms of s 165(5)(b) of the Companies Act 71 of 2008, ‘the court must be satisfied that the applicant is acting in good faith’; that ‘the proceedings involve the trial of a serious question of material consequence to the company’; and that it is ‘in the best interests of the company’ that the applicant(s) be granted leave. The legislature has chosen to provide guiding criteria that are vague and general rather than detailed legal steps for the exercising of judicial discretion. It would therefore be open to the courts to provide an interpretation of the words found in s 165(5)(b) especially regarding the good faith requirement. This article discusses the requirement of good faith. The interpretation and application of the good faith requirement found in s 165(5)(b) will ultimately determine the success or failure of the new statutory derivative action as an adequate remedy for aggrieved applicants who may seek redress on the company’s behalf, if the company or those in control of it improperly fail or refuse to do so. The comparable sections in the law of the United Kingdom will be evaluated in order to determine whether it is feasible to transplant selected rules and principles into South African law.