The issue addressed before the Court of Appeal was whether there can be a claim under section 178, prejudice suffered in the capacity of minority shareholder, of the Companies Act (The Act) under the following circumstances:

after a Scheme of Arrangement has been sanctioned by the Bankruptcy Division;
where the Scheme has not been objected to within specified delay as set out in a Court Order; and
where the Scheme has been approved at a special meeting of shareholders convened for that purpose.

The Court of Appeal recognised that the Bankruptcy Division does have wide powers under section 178 of Act and that the appellant did show prima facie case of the prejudice suffered in their capacity as minority shareholders. However, Section 178 should not be adopted by minority shareholders as a blanket mechanism to challenge the validity of company restructuring strategies by seeking the Court’s intervention in the management of private entities, which are matters reserved to the approval of the Board and/or shareholders, as provided for by the Act and the constitution of the company.

A minority shareholder cannot opt not to mitigate its prejudice by failing to oppose a Scheme of Arrangement and instead claim compensation under section 178 by invoking nullity of the said Scheme at a late stage after the said Scheme has been approved by the Court, thus defeating the approval and ratification mechanism imposed by law.

The main issue in this case was whether a restrictive covenant, in its former contract of employment, prohibiting an ex-employee from now working with a direct competitor was contrary to law and hence unenforceable. The applicants expressed their fears that the respondent (ex-employee) will jeopardise their interests and even poach their clients and hence invoked the need to enforce the restrictive covenant. On the other hand, the respondent claimed that this would deprive him of earning his livelihood in his field of experience.

The Court found that the following guidelines shall be used to ascertain whether a restrictive covenant is enforceable:

“The mainstream of our case law seems to suggest that our courts, following French case law, have always considered such a restrictive covenant to be valid so long as –

(a) it is restricted in time and space;

(b) it is not too wide in scope as to prevent the employee from earning a living; and

(c) its maintenance is fundamental to protect the legitimate interest of the business of the employer.”

The court held that the interlocutory order was denied because the respondent’s need to earn his livelihood far outweighed the applicant’s concerns, as the latter could not adduce any evidence of any act of the respondent that may constitute in any manner “concurrence déloyale”.

The main issue was whether the applicant was entitled to move for an order under section 281 of the Insolvency Act declaring that the appointment of respondent No. 2 by respondent No.1 as administrator of the applicant is invalid.

The application was set aside with costs on the following grounds:

It was wrongly inspired by respondent No.1 to instigate an action against the guarantor and not against the debtor(s). This was considered devoid of merits as no such objection was raised by the applicant in its affidavits and pursuant to article 2011 of the Civil Code: “Celui qui se rend caution d’une obligation, se soumet envers le créancier à satisfaire à cette obligation, si le débiteur n’y satisfait pas lui-même”
Although the applicant claimed that he had not been notified of any merger, it was obvious that he had received sufficient notice various Communiqués and the application it made before the Judge in Chambers.

(Note: Dushyant Ramdhur, Partner, appeared for the applicant)

All first published in Appleby’s Mauritius Newsletter, August 2019.