In these tough economic times, numerous companies are challenged with restructuring their business. Companies restructure for various reasons including but not limited to downsizing and for business growth. Restructuring may result in the disposal of company assets and it is important that the disposal of company assets is carried out in compliance with the applicable laws.
In terms of section 112(2) of the Act, a company may not dispose of all or the greater part of its assets unless: -
1. The disposal is approved by a special resolution of shareholders in accordance with
section 115 of the Act; and
2. The company has satisfied all other requirements set out in section 115 of the Act,
where applicable.
In terms of section 112(3) of the Act, a notice of a shareholders’ meeting to consider the
special resolution to approve the disposal must: -
(a) Be delivered within the prescribed time and in the prescribed manner to each
shareholder of the company (subject to section 62); and
(b) Include or be accompanied by a written summary of the “precise terms” of the
transaction(s) to be considered at the meeting.
The Act further provides that the proposed disposal must be approved by a special
resolution adopted by persons entitled to exercise voting rights on such a matter, or at a shareholders’ meeting called for the purpose and at which an adequate number of persons are present to exercise at least 25% of all the voting rights that are entitled to be exercised.
The percentage of the voting rights can be as high as 75% as may be required by a
company’s memorandum of incorporation. However, the special resolution must be adopted with the support of at least 75% of the voting rights that are exercised on the resolution. If a company does not comply with the necessary requirements when disposing of all or the greater part of its assets, the disposal can be declared invalid.
There are a number of case authorities which have ruled on these types of transactions, such as Moraitis Investments (Pty) Ltd v Montic Dairy (Pty) Ltd (799/2016) [2017] ZASCA 54; Farren v Sun Service SA Photo Trip Management (Pty) Limited [2003] 2 All SA 406 (C); Aerternao Investments 215 (Pty) Ltd v Galaxy Minerals (Pty) Ltd & others [2011] ZAKZPHC 38 (KZP); Potgieter v Trade – Off 149 (Pty) Ltd [2014] JDR 2088 (GP).
Section 115(4) of the Act cautions against (i) an acquiring party, (ii) a person related to an
acquiring party, (iii) a person acting together with either of the persons in (i) or (ii) from voting in favour of, or against the special resolution giving effect to the section 112 disposal.
A company should take cognisance of the prescribed requirements in terms of the
Companies Act to ensure the necessary compliance and for the prevention of transaction(s) being declared invalid and rendered non-compliant.
This article is written to create an awareness to readers of the provisions of section 112 of the Act and should be not in any way, be construed as advice to any reader. In the event that you require legal advice, you may contact us using the details on the website.
Written by Yolanda Silindane, legal practitioner and associate in the firm.
