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Shareholders resolutions. What's so special?

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Every resolution (decision) of shareholders is either an ordinary resolution or a special resolution.  Resolutions may be passed at meetings or in certain instances by written consent without a physical meeting being held in terms of section 60 of the Companies Act.

In terms of section 65(7) of the Companies Act 71 of 2008 (Companies Act), an ordinary resolution must be supported by more than 50% of the voting rights exercised by shareholders on that resolution, and a special resolution must be supported by at least 75% of the voting rights of shareholders exercised on that resolution.  These thresholds may, however, be altered by a company’s memorandum of incorporation subject to there being at least a 10% margin between the ordinary and special resolution thresholds.

Aside from the board proposing resolutions for shareholders to consider, the Companies Act gives wide powers to shareholders to propose resolutions.  Any two shareholders (other than where there is only one single shareholder) of a company may propose a resolution concerning any matter in respect of which they are each entitled to exercise voting rights.  When proposing a resolution, the shareholders may require the resolution to be submitted to shareholders for consideration at a shareholders’ meeting convened by written demand in terms of section 61(3) of the Companies Act, or at the next shareholders’ meeting, or by written consent.

A resolution proposed by the shareholders must be expressed with sufficient clarity and specificity and must be accompanied by sufficient information or explanatory material to enable a shareholder who is entitled to vote on the resolution to determine whether to participate in the meeting and to seek to influence the outcome of the vote on the resolution.

Shareholder resolutions may be used  strategically in business as can be seen from the Business Day Live’s article (http://www.businesslive.co.za/bd/companies/industrials/2018-07-09-aton-acquires-stake-in-aveng/) which reported that on 6 July 2018, German Industrial Group, Aton, launched a hostile bid for control of Murray and Roberts (M&R), and acquired a 25.4% stake in Aveng in a move that would likely threaten the proposed transaction of acquisition between Aveng and M&R.  The 75% special resolution needed by Aveng shareholders to transact with M&R would more than likely be unfulfilled by what has been as a “frustrating move” from Aton.

The Companies Act prescribes when special resolutions are required.  Section 65 (11) of the Companies Act provides that special resolutions are required in the following instances:
  • amending the company’s memorandum of incorporation to the extent required by section 16(1)(c) of the Companies Act;
  • ratifying a consolidated revision of a company’s memorandum of incorporation;
  • ratifying actions by the company or directors in excess of their authority, as contemplated in section 20(2) of the Companies Act;
  • approving an issue of shares or granting of rights in the circumstances contemplated in section 41(1) of the Companies Act being rights issued to a director, prescribed officer, future director, or future prescribed officer of the company; rights issued to a person related or inter-related to the company, or to a director or prescribed officer of the company; or rights issued to a nominee of a person mentioned herein;
  • approving an issue of shares or securities as contemplated in section 41(3) of the Companies Act which states that a special resolution will be required for an issue of shares, securities convertible into shares, or rights exercisable for shares in a transaction or series of integrated transactions if the voting power of the class of shares that are issued or issuable as a result of the transaction or series of transactions will be equal to or exceed 30% of the voting power of all the shares of that class held by the shareholders immediately before the transaction or series of transactions;
  • authorising the board to grant financial assistance in terms of section 44 by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company;
  • approving a decision of the board for re-acquisition of shares in the circumstances contemplated in section 48(8) of the Companies Act;
  • authorising the basis for compensation to directors for their services in terms of section 66(9) of the Companies Act;
  • approving the voluntary winding up of a solvent company in terms of section 80(1) whereby a solvent company may only be wound up voluntarily if the company has adopted a special resolution to do so, which may provide for the winding up by the company or by its creditors;
  • approving an application to transfer the registration of the company to a foreign jurisdiction;
  • approving any proposed fundamental transaction to the extent required by Part A of Chapter 5;
  • revoking a special resolution which triggers appraisal rights under section 164 of the Companies Act.; and
  • in terms of section 36(2)(a) of the Companies Act, the authorisation and classification of shares, the number of authorised shares of each class, and the preferences, rights, limitations and other terms associated with each class of shares as set out in the company’s memorandum of incorporation, may be changed only by an amendment of the memorandum of incorporation by special resolution of the shareholders, or the board in certain circumstances provided for in the Companies Act.
In addition to the above, the company’s memorandum of incorporation may require a special resolution to approve any other matter. Should the shareholders of a company unanimously assent to a certain transaction, the absence of a special resolution may not necessarily void the transaction except for matters that require a special resolution to be filed at the CIPC. However, until there is confirmation from the Supreme Court of Appeal on this matter, passing a special resolution is a mandatory requirement which cannot, without a doubt, be fulfilled through unanimous assent and is very much dependent on the fact of the matter.

The requirement of obtaining shareholders’ assent to the passing of a special resolution could hamper or obstruct certain business transactions.  We advise that companies should err on the side of caution, ensure that shareholder resolutions, in particular special resolutions, are passed and implemented with legal technical compliance, whether or not they are used strategically, and whether or not they are passed at physical meetings, in order to avoid transactions being set aside or shareholders claiming prejudice.

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