By Pieter Strydom
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The Gauteng High Court’s decision in Oasas Consultants (Pty) Ltd v ARWYP Medical Centre (Pty) Ltd and Others provides useful judicial guidance on when a written shareholder resolution, commonly referred to as a round robin resolution, is adopted under section 60 of the Companies Act 71 of 2008 (the “Act”).
The dispute arose after a scheduled shareholders’ meeting to elect two directors was abandoned and written resolutions were circulated instead. Shortly after circulation, the majority shareholder (78.6% of the voting rights) voted in favour of both nominees. The timing of the resolutions became important because the company consequently treated the directors as having been elected, notwithstanding that the prescribed 20-business-day period had not expired.
The Court’s interpretation of section 60
The central question before the Court was whether the 20-business-day period prescribed by section 60(1)(b) constitutes a compulsory waiting period that must expire before the result may be declared, or merely the maximum period within which shareholders are entitled to vote.
The Court held that the 20-business-day period merely prescribes the maximum period within which shareholders may vote on a written resolution. It does not constitute a compulsory waiting period. A round robin resolution is therefore capable of being adopted once it receives the requisite voting support, without the company having to wait for the full period to expire.
The Court emphasised that section 60 requires shareholders to be afforded an opportunity to vote, rather than requiring every shareholder to exercise that right. Once the requisite voting threshold has been achieved, the resolution may be declared adopted even if certain shareholders have not voted. Whether the resolution may immediately be implemented will, however, depend on its terms and any other applicable legal requirements.
An important aspect of the case was that the resolutions had apparently not been delivered to a minority shareholder holding 1% of the voting rights. The Court declined to invalidate the resolutions because Oasas Consultants lacked standing to rely on that shareholder’s procedural rights and the omission could not have affected the result. This finding should not, however, be interpreted as permitting companies to exclude shareholders from the written polling process. Companies should continue to ensure that written resolutions are delivered to every shareholder entitled to vote.
Significance of the decision
The decision provides companies with greater certainty regarding the use of round robin resolutions under section 60 of the Act. Subject to its Memorandum of Incorporation, a company may regard a written resolution as having been adopted once the requisite voting support has been obtained, without waiting for the full 20-business-day period to expire or for every shareholder to vote.
The Court did not, however, finally determine how ‘sufficient voting rights’ must be calculated under section 60(2)(a). It was unnecessary to decide this issue because the supporting shareholder in ARWYP Medical Centre held an outright majority. Pending further judicial guidance, companies should adopt the conservative approach of ensuring that a written resolution is approved by shareholders holding the requisite voting percentage entitled to be exercised on it. Companies must also consider any additional or altered requirements contained in their Memorandum of Incorporation.
Conclusion
The decision reiterates that round robin resolutions provide an efficient mechanism for shareholder decision-making and are adopted once the requisite voting support is obtained. Companies should nevertheless ensure strict procedural compliance by delivering the resolution to all shareholders entitled to vote and satisfying the applicable voting threshold under the Act and the company’s constitutional documents.