Round Robin Resolution



The Companies Act specifically addresses the issue of resolutions. It also allows the Memorandum of Incorporation (MOI) to have a substantial impact on resolutions.

Resolutions of shareholders of companies may be passed in one of three ways:

1. at a meeting under s61 of the Companies Act, No 71 of 2008 (Act);
2. by way of a 'round-robin' written resolution under s60 of the Act1; and
3. if there is a sole shareholder it may pass the resolution summarily and without procedural formalities under s57 of the Act.
Round-robins are now statutorily regulated by s60 of the Act.
Section 60 of the Act provides as follows:

"(1) A resolution that could be voted on at a shareholders meeting may instead be-
(a) submitted for consideration to the shareholders entitled to exercise voting rights in relation to the resolution; and
(b) voted on in writing by shareholders entitled to exercise voting rights in relation to the resolution within 20 business days after the resolution was submitted to them.

(2) A resolution contemplated in subsection (1)-
(a) will have been adopted if it is supported by persons entitled to exercise sufficient voting rights for it to have been adopted as an ordinary or special resolution, as the case may be, at a properly constituted shareholders meeting; and

(b) if adopted, has the same effect as if it had been approved by voting at a meeting."

Although this is an alternative method for directors and shareholders meetings, it cannot replace AGMs that are mandatory, as prescribed by the Act and or the companies MOI (s60(5) of the Companies Act).

The requirements for “round robin” resolutions are:

• The resolution must have been submitted for consideration to the shareholders beforehand, and the matter is voted on in writing within 20 business days after the resolution was submitted to them; and
• Within 10 business days after adopting the resolution, in terms of a round robin, the company must deliver a statement describing the results of the vote, consent process, or election to every shareholder who was entitled to vote on, or consent to the resolution.

Round robin resolutions are conducted by correspondence, usually by email. Formal notice needs to be given and needs to adequately inform shareholders of the purpose of the resolution. Voting is to take place within 20 business days of the resolution being sent and shareholders are to be informed of the result of the resolution within 10 business days of the resolution being finalised.

The curious aspect of round robin resolutions is that the Act is not clear as to the number of voting rights needed to carry a resolution. In terms of other meetings, there must always be a quorum present, the Act speaks of a quorum as 25% of the voting rights.

With round robin resolutions, there is no such certainty, and a number of contrasting views as to what will suffice. One view (possibly the majority view) is that a 25% voting response is needed.

Another is that a majority of those who vote decide, in which event, in an extreme case if only 1% of the voting rights vote, they would make the decision. Other possibilities are decision by a majority of the voting rights of all issued shares, or a requirement of 100% unanimity.

In companies with only a few shareholders this will probably not be an issue but as the shareholder numbers grow, the potential to manipulate decisions via round robin resolutions exists. It is unclear what stance our courts will adopt in the event of any dispute over the validity of a round robin resolution, so take professional advice if you are in doubt.

In any event, in view of this lack of clarity, one solution would be to remove all doubt by specifying in the MOI the number of voting rights necessary to pass a round robin resolution.

For a number of matters and transactions a special resolution of shareholders is required. A special resolution entails a 75% majority vote, however this position can be altered in a company's MOI subject to there being at least a 10% margin between ordinary resolutions and special resolutions (s65).

(It should be noted that for listed companies the threshold of 75% for special resolutions cannot be lowered as this is not permitted by the JSE Listings Requirements).

The special resolutions that are required under the Companies Act are set out in s65(11), and may be summarised as follows – a special resolution is required to:

• amend the company's MOI;
• ratify a consolidated revision of a company's MOI;
• ratify actions by the company or directors in excess of their authority, as contemplated in s20(2);
• approve an issue of shares or grant of rights in the circumstances contemplated in s41(1);
• approve an issue of shares or securities as contemplated in s41(3);
• authorise the board to grant financial assistance in the circumstances contemplated in s44 or s45;
• approve a decision of the board for re-acquisition of shares in the circumstances contemplated in s48(8);
• authorise the basis for compensation to directors;
• approve the voluntary winding up of the company;
• approve an application to transfer the registration of the company to a foreign jurisdiction;
• approve any proposed fundamental transaction; and
• revoke a special resolution which triggered appraisal rights under s164.

The parties dealing with a company under the 1973 Act were required to obtain a CIPRO search and to have the auditors countersign the resolutions of shareholders and directors to confirm their identities and authority to act.

Under the 2008 Act:

(a) A director who is appointed or elected (or entitled to act ex officio) is required timeously to deliver to the company a consent to act as director.

(b) The company is obliged to keep a “record” (not a register as in the 1973 Act) of directors and to advise CIPC (via Form CoR39) of changes to directors within 10 business days of the change.

(c) The 2008 Act does not say whether a director’s authority to act ceases if the CoR39 form is not delivered to CIPC timeously. It is submitted that the director’s authority will remain valid.

(d) Failure to file the above forms is no longer a criminal offence: at worst it appears that an administrative fine may be payable.

(e) Companies may no longer entrust these functions to their auditors because it is no longer obligatory for some companies to have auditors: the obligation on a company to be audited will depend on that company's public interest score.