While the lock down in South Africa is scheduled to end on Thursday, 16 April at 23h59, the possibility remains that restrictions on movement and the gathering of large numbers of people may remain in place for longer, either as a matter of law or as a matter of best practice, until the COVID-19 pandemic is contained.
Companies may find themselves facing logistical challenges in holding physical shareholders meetings, in particular this year’s Annual General Meeting (“AGM”), within the company’s set regulatory framework.
The purpose of shareholders’ meetings is to provide the shareholders of a company with an opportunity to debate and vote on matters affecting that company.
An AGM is a critical process for a company, as at that meeting shareholders are required to approve the annual financial statements of the company. This is a requirement of the Companies Act, 71 of 2008 (“the Act”). In addition, the company would also seek approvals from shareholders to allow it to carry out certain aspects of its business, such as the re-election of directors and auditors and the approval of remuneration policies.
What options are available should shareholders wish to convene a meeting during this unique time?
The Act does permit companies to convene and hold shareholders’ meetings through electronic means and communications (i.e. virtual meetings).
Section 63 of the Act provides as follows:
“(2) Unless prohibited by its Memorandum of Incorporation (“MOI”), a company may provide for –
- a shareholders meeting to be conducted entirely by electronic communication; or
- one or more shareholders, or proxies for shareholders, to participate by electronic communication in all or part of a shareholders meeting that is being held in person, as long as the electronic communication employed ordinarily enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate reasonably effectively in the meeting.
(3) If a company provides for participation in a meeting by electronic communication, as contemplated in subsection (2) –
- the notice of that meeting must inform shareholders of the availability of that form of participation, and provide any necessary information to enable shareholders or their proxies to access the available medium or means of electronic communication; and
- access to the medium or means of electronic communication is at the expense of the shareholder or proxy, except to the extent that the company determines otherwise.”
The starting point is to check the company’s MOI to determine if it indeed contains a prohibition on electronic shareholders’ meetings. Although this prohibition is not something commonly seen, look for an article in the MOI that references section 63(2) of the Act and consider whether the MOI alters the position under the Act that allows for electronic shareholder meetings. In the absence of any specific change by the MOI to these provisions of the Act, the company will be allowed to conduct shareholders’ meetings electronically, in whole or in part.
If a company has already sent out a notice for a conventional shareholders meeting which is to be held during the lockdown period, I would suggest that this notice should be recalled and replaced by a new notice giving details of the electronic meeting. The notice period for the shareholders’ meeting will have to start to run again and so the meeting will need to be postponed to a later date, unless the necessary waivers are obtained and noted on the resolutions passed at the electronically convened meeting.
Section 62(2A) of the Act sets out the requirements for calling a shareholders’ meeting on less than the usual notice period required under the Act:
“A company may call a meeting with less notice than required by subsection (1) or by its Memorandum of Incorporation, but such a meeting may proceed only if every person who is entitled to exercise voting rights in respect of any item on the meeting agenda –
(a) is present at the meeting; and
(b) votes to waive the required minimum notice of the meeting.”
Where the Act requires a document to be signed or initialled, the person may sign or initial by using an electronic signature as provided for in the Electronic Communications and Transactions Act, 25 of 2002 (“ECT Act”). For example, a MOI adopted at a virtual meeting can now be signed electronically with an electronic signature.
A resolution can also be signed electronically. It is no longer necessary to circulate resolutions by posting them or printing, signing and scanning them. Once financials have been approved by the company’s board of directors, an authorised director may sign the financials with an electronic signature.
This begs the question whether you can use any kind of electronic signature or whether you must use an advanced electronic signature?
In the ECT Act, an electronic signature is defined as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”.
An advanced electronic signature is defined in the ECT Act as an “electronic signature which results from a process which has been accredited”.
The Act allows you to use an electronic signature “in any manner provided for in the ECT Act”.
Effectively, the Act requires a signature and specifies the type of signature to be any electronic signature. This means that you can use any electronic signature which does not have to be an advanced electronic signature. No authentication is therefore required.
While you can use any electronic signature, we recommend that you use a good electronic signature or ideally, an advanced electronic signature, if possible, which assists in identifying the signatory.
BLC Attorneys is ready to support you with COVID-19 related challenges. We are able to assist your company in ensuring that it has everything in place to implement effective and compliant virtual shareholders’ meetings. We have the resources available to call a shareholders’ meeting on your behalf, to prepare appropriate resolutions in accordance with the requirements of sections 62 and 63 of the Act and to facilitate the signing of the resolutions passed, ensuring that a digitised signature is properly authenticated through one or more mediums like e-mail, a password or biometrics.
Author: Laurika von Allemann