In terms of section 112(2) of the Companies Act, a company may not dispose of all or the greater part of its assets or undertaking (Disposal) unless the Disposal was approved by a special resolution of shareholders, in accordance with section 115 of the Companies Act, and the company has satisfied all other requirements set out in section 115, where applicable.
In terms of section 112(3) of the Companies Act, a notice of a shareholders’ meeting to consider the special resolution to approve the Disposal must:
(1) be delivered within the prescribed time, and in the prescribed manner, to each shareholder of the company (subject to section 62); and
(2) include or be accompanied by a written summary of the “precise terms” of the transaction or series of transactions, to be considered at the meeting, and the provisions of sections 115 and 164.
A special resolution authorising the Disposal is effective only to the extent that it authorises a “specific transaction” (section 112(5) of the Companies Act). In other words, the resolution will need to contain all the material elements of the transaction.
In terms of section 115, the proposed Disposal must be approved by a special resolution adopted by persons entitled to exercise voting rights on such a matter, at a meeting called for the purpose and at which sufficient persons are present to exercise, in aggregate, at least 25% of all the voting rights that are entitled to be exercised on that matter, or any higher percentage as may be required by the company’s memorandum of incorporation (as contemplated in terms of section 64(2) of the Companies Act).
If a company does not comply with the above requirements, when disposing of all or the greater part of its assets or undertaking, the disposal can be declared invalid.
If there are multiple companies that are shareholders in a transaction (“body of shareholders”) which requires a special resolution of shareholders under section 115 of the Companies Act, it may become slightly complicated. Each of the said companies in the body of shareholders will need a majority vote of their board of directors. If the shares held by a company (forming part of the body of the shareholders) constitute the greater part of the assets or undertaking of that(latter) company, then there will be a need for a further special resolution of shareholders required in respect of that company, making it a little more complicated.
It is important to ensure that, when entering into a transaction that involves the sale of all or the greater part of a company’s assets or undertaking, particularly when such assets are shares, you must apply the above provisions of the Companies Act not only to the main transaction, but also to the shareholders down the line, to ensure the validity of the transaction throughout.
Having highlighted the complications that you could encounter in transactions of this nature, you should not be despondent as there are certainly very clever ways to short-circuit the transaction and, at the same time, ensure seamless compliance throughout.
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