LEGAL ISSUES Company law and investor confidence: Analysing Zimbabwe’s new Companies and Other Business Entities Act Professor Patrick Osode and Dr Friedrich Hamadziripi or many, company law is of are unable or unwilling to do so. action. concern only to commercial The term ‘derivative’ arises because For Professor Osode and Dr lawyers or students doing a an individual, usually a minority F degree in commerce. However, shareholder, steps into the shoes of Hamadziripi, the design of a system as Professor Patrick Osode and Dr the company to seek redress on its for derivative action needs to balance Friedrich Hamadziripi, his former behalf. The individual will not receive the need for directors of a company doctoral student who is now a post- direct benefit from the court order to be able to exercise authority and, at doctoral fellow at the North-West being sought. Rather it is the company the same time, be accountable. They University, argue, company law that will receive the benefit although also identify the need for the interests can have implications for anyone shareholders may eventually derive of the company to be balanced concerned about everyday things like some benefit if the wrong identified in alongside those of its shareholders. the cost of living and employment the action is addressed. A system for derivative action that as sound law can increase investor The primary function of derivative favours shareholders is open to confidence at a national level and so abuse and can result in interference lead to economic development. proceedings is to ensure accountability on the part of directors in the management of the company. Professor Osode and Dr Friedrich of a company. The possibility of It may also discourage directors Hamadziripi’s interest is in the derivative action therefore functions from entrepreneurial risk-taking and derivative action, a type of lawsuit that as a kind of ‘watchdog’ on the actions undermine efficiency of the business. allows an individual or stakeholder of directors and is seen as part of On the other hand, an ineffective to institute legal action on behalf of good corporate governance which is system for derivative action has the a company to protect the interests attractive to investors. potential to protect errant directors of that company. As a company is a and decrease investor confidence. legal entity in its own right, it is usually In Zimbabwe, the new Companies Professor Osode and Dr Hamadziripi’s the company that must institute legal and Other Business Entities (COBE) analysis is that, in developing actions to address any wrongs against Act introduces the derivative action the COBE Act, the Zimbabwean it. However, in certain circumstances, into Zimbabwean company law. A legislature borrowed freely from the some countries allow individuals recent article written by Professor contemporaneous ownership rule in to bring a derivative action lawsuit Osode and Dr Hamadziripi in the the United States of America. This rule provided they are shareholders in the Journal of African Law, published by is not part of the system for derivative company at the time of the incident the University of Cambridge Press action in the United Kingdom (UK) or that gave rise to the concern leading on behalf of the School of Oriental South Africa (SA). In Zimbabwe, this to the suit itself. A derivative action and African Studies (SOAS) of the means that the only stakeholders is usually brought before the court University of London, assesses some who can institute derivative litigation when the directors of a company major weaknesses in the way the are those who hold at least 10% of COBE Act allows for the derivative 63 | University of Fort Hare