Ann Crotty
The new Companies Act gives minority shareholders significantly more rights and remedies against an abusive majority shareholder or an antagonistic board of directors than the old 1973 Companies Act.
However, according to a leading corporate lawyer and author of “a practical guide” to the new act, it will require more active participation by shareholders if the law’s full benefits are to be realised.
At present, the relative quiet from the corporate world belies the enormous fundamental changes that have been put in place by the new act.
But, in what could be the first public signs of the new act coming into force, next week’s KWV annual general meeting is set to make corporate history as two shareholders take advantage of the new act to put a resolution to shareholders attending the meeting.
Carl Stein, a partner with law firm Bowman Gilfillan and author of The new Companies Act unlocked, said the new act allowed any two shareholders to propose a resolution for consideration by shareholders. There was no longer a requirement that minority shareholders hold a minimum percentage of voting rights before submitting a proposal. Stein described this as a “powerful new right” for minority shareholders.
The old act required that shareholders needed to hold 5 percent of a company’s voting rights if they wished to propose a resolution for voting at an annual meeting.
Stein, whose book provides an invaluable and easy-to-use guide to the new act, said that over the coming months the corporate community would come to realise the full implications of the changes.
In particular, they would become aware of the considerable work involved in aligning existing memorandums of incorporation and shareholder agreements with the requirements of the new act.
Stein contended that this process of alignment was the only aspect of the act that would involve considerable amounts of work and was likely to require input from a legal adviser.
On the issue of shareholder rights, Stein told Business Report that while the new act gave directors more power, it also gave minority shareholders much greater authority to restrain that power.
Stein’s book, which is likely to become an essential tool to understanding the new act, states that the new approach to the rights of minority shareholders reflects the fact that “the government has recognised the economic necessity to create and foster investor confidence in South African companies by introducing some significant new rights and remedies for minority shareholders”.
It goes on to state that while many of these new rights do exist in similar or modified forms in the corporate legislation of most First World nations, “the act gives greater powers and enforcement rights to minority shareholders in some respects than they have in the US and the UK”.
Another high profile transaction that is likely to be considerably affected by the new act is ArcelorMittal South Africa’s proposed broad-based black economic empowerment deal.
The initial deal, which faced opposition from some of the steel maker’s institutional shareholders, was withdrawn last month and ArcelorMittal SA’s management said that another arrangement “will be announced in due course”.
At the time, a number of analysts said that the decision to withdraw the proposed deal was likely to have been influenced by the greater powers enjoyed by minority shareholders under the new act.
Of the new remedies available to minority shareholders, Stein states in his book: “The class action is probably the most significant and, when combined with the derivative action, the most lethal of them.
“In line with the enlightened shareholder value approach, the act also gives other stakeholders, particularly employees, rights and remedies they never had before.”
Stein’s book, which is published by Siber Ink, not only explains the technical application of the act but also provides a useful analysis of the thinking behind the major changes to our company law.