The Companies Act No.69 of 1973 (“the current Act”) is the current Act used to regulate special resolutions and requirements thereto. The new Companies Act 71 of 2008 (“the new Act”) once introduced will result in a number of changes and new concepts.
The objective of this article will be to shed light on all changes regarding resolutions and specifically special resolutions from the current Act in terms of the new Act.
The current Act regulates that a resolution shall be a special resolution in terms of section 199 whereby a general meeting being called with due notice given of 21 (twenty one) days to all members and in terms of: members holding in the aggregate not less than one-fourth of the total votes of all the members entitled to vote thereat, are present in person or by proxy; in the case of a company limited by guarantee, not less than one-fourth of the members entitled to vote thereat are present in person or by proxy.
The current Act still governs special resolutions; however, the commentary below clarifies how special resolutions may be implemented in the new Act. The new Act however requires that the board of directors may propose any resolution to be considered by the shareholders in terms of section 60 that could be voted on at a shareholders meeting may instead be: submitted for consideration to the shareholders entitled to exercise voting rights in relation to the resolution; and voted on in writing by shareholders entitled to exercise voting rights in relation to the resolution within 20 business days after the resolution was submitted to them.
Section 65(11)(a-c) stipulates that special resolutions are required for and to : Amend the company’s Memorandum of Incorporation; Approve voluntary winding-up of the company; and Approve fundamental transactions or any matter that is stipulated as requiring a special resolution in the Memorandum of Incorporation of a company, such fundamental transactions are regulated by Part A of Chapter 5 and comprises of: proposals to dispose of all or the greater part of assets or undertakings; an amalgamation or merger; and schemes of arrangements. An ordinary resolution requires approval by more than 50% (fifty percent) of the voting rights exercised on the resolution and a special resolution requires approval by at least 75% (seventy five percent) of the voting rights exercised on the resolution. The new Act under section 65 still takes cognisance of 2.4 above, as the voting rights percentage remains the same, however; the new Act permits a company to adjust the number of voting rights required for the passing of ordinary resolutions and special resolutions in limited circumstances.
The new Act provides that, with the exception of an ordinary resolution for the removal of a director under section 71, a company’s Memorandum of Incorporation may require a higher percentage of voting rights to approve ordinary resolutions in general or one or more higher percentages of voting rights to approve ordinary resolutions concerning one or more particular matters respectively, provided that there must at all times be a margin of at least 10% (ten percent) between the requirement for approval of an ordinary resolution and the requirement for approval of a special resolution on a particular matter. Special resolutions in terms of section 65(10) the new Act provides that a company’s Memorandum of Incorporation may permit a lower percentage of voting rights to approve any special resolution or one or more lower percentages of voting rights to approve special resolutions concerning one or more particular matters, respectively, provided that there must at all times be a margin of at least 10% (ten percent) between the requirements for approval of an ordinary resolution and a special resolution on any matter.
Companies may as a consequence be called upon to adjust the position as retained in the current Act by consideration and implementation of the threshold and/or margin as mentioned above in adopting an ordinary resolution or a special resolution, whether for purposes of a general meeting or a meeting called for the specific purpose of obtaining a special resolution.Time periods for registration of special resolutions play an important role in the effective implementation of such special resolutions and it consequently places much emphasis on corporate governance and proper disclosure in companies.The current Act requires in section 200 that company has one month in which to register a special resolution to be lodged with the Registrar, the new Act does not alter this provisions and companies may take note thereof.
Companies must take note that compliance with the new Act and all regulations remains important and non-compliance may carry unexpected consequences, companies must be cognisant of section 171 of the new Act as the Commission may issue a Compliance Notice that causes the person and/or company to cease, reverse or correct any action taken, an administrative fine may further be imposed, however, such a fine may not exceed 10% (ten percent) of the company’s annual turnover or R1,000,000.00 (one million rand) respectively.
The new Act holds many changes that improves and regulates the legal regime concerning company law, companies must verse themselves in the new Act and ensure that compliance is at all times a crucial consideration. Special resolutions and the workings thereof in law and in practice seems not to have been affected by many changes, however, it will remain important to implement changes and to do so by amending the company’s Memorandum of Incorporation.
07 September 2010