Although cumbersome and time-consuming, the new procedures are obligatory to ensure that transactions are not set aside.

Until recently, company directors wanting to dispose of the whole or greater part of the business of a company or its assets followed a relatively simple, straightforward process to gain shareholder approval. All that was required was an ordinary resolution passed at a general meeting by a simple majority of shareholders.

That changed on 14 December 2007, when the Corporate Laws Amendment Act came into effect and amended, amongst others, Section 228 of the Companies Act, which deals with the authority required by company directors to dispose of certain company assets.

The new procedures, which are intended to afford protection to minority shareholders whose rights might be adversely affected, are considerably more onerous than before. Company directors must now obtain the approval of 75 percent of shareholders present and voting at the meeting through a special resolution, as opposed to 51 percent through an ordinary resolution. They must also follow a rigorously defined procedure to achieve this.

The first step is to arrange a shareholders meeting, giving shareholders not less than 21 clear days’ notice. In notifying the shareholders, the company directors are obliged to clearly state the purpose of the meeting, being to pass a special resolution authorising or ratifying* the disposal of the major part of a business or its assets, and the effect of the resolution.

Readers may be momentarily relieved to learn that the 21-day notice period can be waived – but only if the correct waiver procedure is followed. This procedure has two components. Firstly, all shareholders must formally consent to the waiver of the notice period. Secondly, their authority for this must be given in writing on a prescribed form.

Once the meeting has taken place and a special resolution has been duly passed, authorising or ratifying the disposal, company directors face a further hurdle. Within one month of the passing of the special resolution, it must be lodged with the Registrar of Companies who, on receipt of the prescribed fee, will register it. Furthermore, if a special resolution is not registered within six months of being passed, it shall lapse and be void unless otherwise directed by the Court.

Judging from the low-key response in the marketplace to date, it would seem that the procedural changes for gaining shareholder authority have yet to fully sink in. However, the sooner buyers and sellers of company-owned properties familiarise themselves with the changes, the smoother the path towards trouble-free transactions is likely to be.

* A special resolution may authorise a planned disposal or ratify a contract already entered into. In other words, company directors need not necessarily seek shareholder authority before entering into a contract, but should ensure that the contract is made subject to such approval being obtained by means of a special resolution.

By Vivienne Hosiosky
Director
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