Protecting minority shareholders in Zimbabwe: fundamental corporate-law concepts versus investor confidence

Abstract

The advent of the new millennium saw the downfall of the Zimbabwean Economy. Many Companies closed down. The rate of formation and advancement to operationalize of new companies was lower than that of companies ceasing operations and closing down. This resulted in the Country heavily relying on imports with the tax revenue base having been withered. After the promulgation of the 2013, Constitution, the Law Development Commission realized that the revival of the economy was to a large extent reliant upon reforms in the Corporate law. This saw the Commission initiate the reform of the Statutes governing Corporate Law in Zimbabwe. In 2019, the Companies and Other Business Entities Act [Chapter 24:31] was promulgated repealing the Companies Act [Chapter 24:03]. Among the problems that the new Act sought to address was the ease of doing business and improvement of investor confidence. As a means to achieve these goals among other reforms, the Act reviewed the Minority Shareholder Protection provisions. The changes in Minority Shareholder protection saw the introduction of the Statutory derivative action, modification of the relief from oppressive or unfairly prejudicial conduct in the administration of the affairs of the company and the introduction of the dissenting shareholder appraisal rights. This research was aimed at evaluating whether, the Minority Shareholder Protection regime introduced by the Companies and Other Business Entities Act [Chapter 24:31] was appropriate to sufficiently contribute towards the realization of the objectives of the reforms. The research sought to interrogate the convergence between the regime and fundamental Corporate Law principles that ensure smooth and efficient administration of Companies. The fundamental principles interrogated are, the separate legal entity, majority rule and the limited liability. The qualitative research method was used because of its expediency in assessing the impact of the new Minority Shareholder Protection regime by capturing past experiences and opinions of experts directly involved with Minority Shareholder Protection. Interview and secondary data analysis (literature review) were used. The research revealed that the regime was an appropriate means to achieve the intended objectives. It balanced the interests of the company and those of minority shareholders. It also covered most problematic scenarios that had been experienced in the past. However, it was also discovered that there were shortcomings in the substantive and procedural aspects of the regime, which rendered the protection either inaccessible or extremely difficult to access. It was also established that there were grey areas that were left resulting in uncertainty or ambiguity of certain provisions. Lastly, it was established that the Registrar of company did not have the capacity to enforce or implement the provisions and that there were no effective anti-corruption strategies in place. Therefore, implementation or enforcement of the Minority shareholder protection regime was found to be a major problem hence several recommendations were made to overcome the challenge.