Webber Wentzel
 

March 2010
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Governance (Part 7) - Resolutions

In this snapshot we focus on the new provisions of the Companies Act, 2008 ("the 2008 Act") and the draft Companies Regulations, 2010 ("the Draft Regulations") relating to resolutions. This is the last of our snapshots on corporate governance dealing with shareholder communications.

Shareholder resolutions

  • The 2008 Act explicitly states that shareholders' resolutions are either special or ordinary resolutions.

  • A special resolution is only required for 12 specified decisions in the 2008 Act. An incomplete list is provided in section 65(11). The number of required special resolutions has been substantially reduced from those required in the Companies Act, 1973 ("the 1973 Act"). This having been said, it should be borne in mind that under the 2008 Act, the Memorandum of Incorporation ("MOI") of a company may require a special resolution to approve any matter which is not required by the 2008 Act to be determined by special resolution.

  • The board of directors of a company can propose any shareholders' resolution and decide whether it is to be considered at a meeting or by a "round robin" resolution in terms of section 60 of the 2008 Act.

  • Any two shareholders who are entitled to vote on a resolution, can propose it and require whether it is to be decided:

    • at a meeting demanded by them if they hold 10% of the votes exercisable in respect of the proposed resolution;

    • if they do not hold the required percentage of votes, at the next shareholders' meeting called in terms of the 2008 Act; or

    • by way of a "round robin" resolution.

    Note that the right to propose resolutions could be open to abuse by vexatious shareholders.

  • Proposed resolutions (both ordinary and special) must be sufficiently clear and specific and be accompanied by sufficient information or explanation to enable a shareholder entitled to vote, to determine whether or not to participate in the meeting. This requirement takes the place of the 1973 Act requirement for special resolutions, that the "reasons for and effect of" the resolution be set out in the notice of resolution.

  • If insufficient clarity, information or explanation regarding a proposed resolution has been provided, a shareholder or director may, before the start of the meeting, “seek leave to apply” to court (note that the Act does not stipulate from whom leave must be sought) for an order restraining the company from putting the matter to the vote and requiring the company to amend the proposed resolution to comply with the requirements. In addition, a successful applicant may apply to court for compensation for his or her legal costs.

  • Once a resolution has been approved, it cannot be challenged on these grounds.

  • Ordinary resolutions are passed by the majority of voting rights exercised but the MOI can increase the "50% plus" margin for all or any particular ordinary resolutions other than one to remove a director, provided a 10% margin between the special resolution percentage and the ordinary resolution percentage on any matter, is maintained.

  • Special resolutions are passed by a margin of 75% or more of the voting rights exercised. The MOI can decrease (but not increase) that percentage for all or any specific special resolutions, provided a 10% margin between the special resolution percentage and the ordinary resolution percentage on any matter, is maintained.

  • Special resolutions no longer need to be filed with the Registrar (or anyone else). If, however, the MOI is changed by special resolution, that amendment needs to be filed by way of a Notice of Amendment.

Written "round-robin" resolution

  • Section 60 of the 2008 Act allows for resolutions to be validly adopted by a written resolution and not at a meeting of shareholders, if this "round robin" resolution is supported by the same number of voting rights as would have been required at a shareholders meeting. Directors can also make use of substantially similar written round-robin resolutions for decision-making.

  • The election of directors may also take place by "round robin" resolution involving all shareholders holding voting rights in relation to the appointment. However, matters that must, in terms of the 2008 Act or the MOI, be decided at an annual general meeting, may not be decided in this manner, subject to the following - a special resolution which has been discussed at an AGM may be taken either at the meeting, or by a subsequent "round-robin" resolution, unless the MOI specifies that such a decision must be taken at the AGM.

  • The requirements for "round robin" resolutions are that:

    • the resolution must be submitted to all shareholders with voting rights on that resolution (on Form CoR 42.2 according to Draft Regulation 42, but for which a specimen is not yet available) in accordance with section 6; and

    • the shareholders must vote in writing within 20 business days after submission. On our interpretation, this is within 20 business days of despatch of the resolution. Reference should also be had to Draft Regulation 8 and Table CR3 in the Draft Regulations which sets out deemed delivery dates and times for different methods of delivery. The calculation method for business days is set out in section 5(3) of the 2008 Act.

  • If the resolution is adopted, the company must deliver a statement describing the results of the vote to each shareholder who was entitled to vote, within 10 business days after adoption or after a director is elected.

  • A drawback of "round robin" resolutions is that there is no, or only a limited, opportunity for debate on the matter. There is no specific indication as to whether a shareholder could object to the method of decision-making and insist on a meeting being held. However such a shareholder could exercise his rights under to relief from oppressive or prejudicial conduct under section 163 of the 2008 Act.

[See sections 1, 5(3), 6, 60, 65 and 163 of the 2008 Act]

Contact us:

Should you have any queries or require advice on the Companies Act 2008, please get in touch with your usual contact at Webber Wentzel, or one of the contacts listed below.

Madelein Burger-van der Walt | Partner
Tel: +27 11 530 5278 | madelein.burger-vanderwalt@webberwentzel.com

Trudie Broekmann | Senior Associate
Tel: +27 21 431 7375 |  trudie.broekmann@webberwentzel.com



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