n South African Law Journal - The derivative action provisions in the Companies Act 71 of 2008

Volume 129, Issue 3
  • ISSN : 0258-2503
  • E-ISSN: 1996-2177



A derivative action is one brought by an individual on a company's behalf. It aims to enforce the rights of the company and as such is an exception to the common law rule which dictates that the company is the proper plaintiff in any proceedings affecting it. Section 165 of the Companies Act 71 of 2008 abolishes the common law derivative action and introduces a new statutory version. The latest statutory derivative action introduces various novel concepts to South African company law and draws on the company laws of other jurisdictions, such as Australia and America, in order to facilitate the right of stakeholders to commence or pursue legal action in the name of the company. This article highlights these new concepts and considers how best to implement and interpret them by analysing the approaches taken by foreign courts in dealing with similar provisions. The article also debates the merits and potential shortcomings of the statutory derivative action, paying particular attention, amongst other things, to the possible impact that the newly introduced 'business judgement rule' might have on its application.

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