Towards a new solution of minority shareholder protection in Libya : letting the minority shareholders have a voice

• Main Author: Abdou, Majdi A.
• Published: University of Glasgow 2015
• Subjects: 346; K Law (General)
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.650368

The study develops a framework for improving corporate governance mechanisms in Libya that takes into account its specific environment of weak formal enforcement and its corporate ownership structure, which is based on concentrated state ownership. The central goal of the research is to establish an adequate protection system for minority shareholders that can contribute to the development of an efficient and healthy commercial environment in Libya. To do so, the study examines the current solution for dealing with the conflict of interests between shareholders adopted by Libyan law under art 159 of Libyan Economic Activity Act (LEAA 2010): the minority shareholders’ actions. Using a social and economic analysis and a black letter approach, this study presents a novel analytical framework that formulates an appropriate solution for controlling conflict of interests between shareholders in Libya. To that end, the study addresses the following questions: how effective is the current mechanism for dealing with the conflict of interest between shareholders in Libya? What are the economic and social implications of the different proposed approaches? What elements determine which approach is preferable in Libya? And, finally, what are the challenges that the proposed law reform may face? To answer these questions, firstly, it is necessary to consider the general framework of corporate governance in Libya, examine the country’s current position as an economy in the early stages of transformation and analyse the potential impact of this transformation on corporate governance. Following this, I locate the dimensions of the conflict of interest problem between the minority and majority shareholders in Libya through analysing literature of corporate governance with regard to the minority-majority shareholder problem and applying it to the case of Libya. After that, I examine the efficacy of the current mechanism available in Libyan law (minority shareholders actions) as a solution for dealing with the conflict of interests between the minority shareholders and the majority shareholders in Libyan companies. However, the current approach is not appropriate for Libya for several reasons that relate to either the efficiency of the approach itself or its application and enforcement in Libya. After examining other possible solutions (e.g. a prohibition strategy), I propose the self-enforcing model as the most appropriate solution since it contributes to companies being able raise capital from investors, and it also lowers the number of conflict of interest transactions and makes a company’s transactions more efficient. Finally, the self-enforcing model does away with the need for external monitoring. However, this is not the end of the story; adopting such a model will inevitably lead to some potential risks (such as the risk that the minority shareholders may abuse their rights), which will require the formulation and adoption of new and specific strategies of corporate governance that are appropriate to Libya.