What is meant by the term “Fraud on the minority”.

Fraud on Minority
• It has been asserted that the term fraud denotes an abuse of power or misuse of a fiduciary position.

• The majority rule cannot apply if the conduct complained for amounts for fraud on minority e.g.
1. Expropriation of corporate assets.
2. Breach of duty by directors.
3. Unfair use of majority voting power.

• A representative action may be instituted to remedy the wrong. The plaintiff must establish Interalia that those perpetrating the fraud are in legal or factual control of the company‟s affairs and hence cannot permit the company to sue.

• A majority shareholder is deemed to be in legal control of the company.
• Factual control was explained by Vinelott. J. in Prudential Assurance Company
V. Newman Industries, “De facto control arises where members though not holding a majority of the shares in the company, are able by manipulating their position to ensure that the majority will not allow such a claim to be brought by the company for the alleged wrong doers are in factual control of the company.

• This exception was developed to ensure that wrongs committed against the minority found their way ,to the court where the majority are in control.

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