BE PRESENT AND BE COUNTED?
The exercise of voting rights at shareholder meetings is frequently not as straightforward as is generally believed.
Shareholders and, especially, company secretaries, are advised to peruse the outcome of Quintessence Opportunities Ltd and Another v BLRT Investments Ltd (QLtd v BLRT); BLRT Investments Ltd v Grand Parade Investments Ltd and Others (BLRT v GPI) 2007 (6) SA 523 CPD.
Here the court, per the Honourable Blignault J, simultaneously considered two separate but interlinked applications. Q Ltd and BLRT were both shareholders in GPI. Q Ltd and one of its directors (the respondents) successfully interdicted BLRT (the applicant) from voting at a GPI shareholders’ meeting at which a special resolution abrogating the articles of the company was passed.
The case deals with the subsequent application by the applicant to have the special resolution set aside.
The actual number of votes cast for and against the special resolution at the meeting was common cause. The point of contention was whether the votes of members who are present and entitled to vote but do not do so at a meeting where a special resolution is to be passed should be taken into account in calculating the 75% threshold required to pass a special resolution.
The respondents argued that the computation of votes should be conducted on the same basis as when a poll is demanded as provided under s 199(5) of the Companies Act. They argued that only a majority of three-fourths of the votes cast for and against would be required to pass the special resolution and the votes of those present but did not vote at the meeting were not to be taken into account in calculating whether the 75% requirement had been reached.
The applicant, on the other hand, contended that the computation of votes should be conducted on the basis set out in s 199(1) of the Companies Act, in terms of which a majority of three-fourths of the votes of all those present and entitled to vote at the meeting is required in order to pass a special resolution.
If the respondent’s contention was correct, a majority of 75,09% would have been attained if the applicant had been allowed to vote, but had nonetheless voted against the special resolution. If the basis advocated by the Applicant was to be applied, then a majority of only 74,31% would have been attained, which is less than three-fourths.
The court observed that, at face value, the relevant “voting on a poll” provisions of ss 199(1) were in conflict with those of ss 199(5). In attempting to reconcile these two seemingly contradictory provisions the court traced the history of section 199 of the Companies Act and compared it to its kindred English legislation.
Blignaut J concluded:
- The provisions of s199(1) were more dominant in character than those of s199(5), as s199(1) purported to define the criteria for the requisite majority in clear language and without any qualification;
- S199(5), like its predecessors and its related legislation in England had a more adjunctive character; that the predecessors to and counterparts of s199(1) had always purported to clarify the application of the majority criteria in the event of a poll and had never purported to amend or qualify the basic definition of the majority criteria considered in that section; and
- The wording of the 1952 version of ss64(5) of the 1926 South African Companies Act, the predecessor to s199(5) of the current Act, came about as a result of an oversight.
Leaning more towards the dominant intention approach to statutory interpretation, and on the basis of the above deductions, the court held that to the extent that s199(5) was in conflict with s199(1), precedence had to be given to the provisions of s199(1).
The court concluded that it was a majority of three-fourths of the votes of all those present and entitled to vote at the meeting as required under s199(1) that would have been required to pass the special resolution.
It was held, therefore, that if the applicant had been permitted to exercise its own voting rights at the meeting, the special resolution would not have been passed as only 74,31% of the required votes would have been obtained. The special resolution was accordingly set aside.
It is worth noting that this matter would, of necessity, be decided differently under the Companies Bill.
Section 65(9) of the Bill provides that, for a special resolution to be approved by the shareholders, it must be supported by at least 75% of the voting rights exercised on the resolution. The Bill, unlike the Companies Act, does not make reference to “members entitled to vote, and who are present at the meeting”. The presence of a member at a meeting will therefore have no effect on the tallying of votes under the Bill. It is only those votes that are eventually exercised which are taken into account.
The respondents’ argument that it is only a majority of three-fourths of the votes cast for and against a resolution that is required to pass a special resolution would therefore hold water under the Bill.
- Under the current Companies Act, the 75% majority required to pass a special resolution takes into account the votes of members present and entitled to vote at a meeting so convened. This will, however, not be the case once the Bill is promulgated.
- In terms of the Bill, only the voting rights actually exercised will be considered and the presence and entitlement of voters who do not vote will be of no consequence. Such nuances in the future of our company law make for interesting developments.
Rorisang Mongoato is an associate at commercial law firm Bowman Gilfillan