#COVID-19: Tough Decisions – Business Management And The Role Of Directors (Part 3)

[Article prepared by Jan-Hendrik Senekal and Michael Vieyra] 

This article is the third part in a series that deals with business management and the role of directors under the restraints of COVID-19 and the various regulations enacted in terms of the National Disaster Act (“the Regulations”) while maintaining compliance with legislation and best practices.

The first and second part of this series examined, inter alia, the duties of directors and directors’ liability in terms of the Companies Act, 71 of 2008 (“the Act”) as well as the principles and recommended practices designed for proper governance contained in the Code to the King IV Report on Corporate Governance for South Africa, 2016.

In this article, we examine the holding of board and shareholder meetings in terms of the Act in light of the Regulations and the applicable restrictions imposed thereby.

Section 73 of the Act provides for and regulates the holding of board meetings and, read together with a company’s Memorandum of Incorporation (“MOI”), stipulates who may call a board meeting as well as what constitutes a quorum in order for such a meeting to be properly constituted.  Sections 60 to 64 of the Act regulates aspects relevant to shareholders meetings.

The Regulations, particularly those dealing with the enhancement of social distancing guidelines could however create difficulties for directors and / or shareholders who wish to convene meetings especially if they envisage meeting in person.

The Act, as read with the Electronic Communications and Transactions Act 25 of 2002 (“ECTA”), provides for the notification, participation and voting for both board and shareholders meetings by means of electronic communication (provided this is not prohibited by the company’s MOI).  Electronic communication is a communication by way of data messaging and therefore includes the use of email and audio-visual conferencing.

While the use of such technology is essential in reducing face – to – face meetings, large gatherings and maintaining social distancing, such use should nonetheless comply with the applicable provisions of the Act.

In respect of shareholders’ meetings, section 63 of the Act states that a company may allow a shareholders’ meeting to be conducted by electronic communication provided that:

• doing so is not prohibited by the company’s MOI; and
• the electronic communication enables all persons participating in the meeting to communicate without the need for an intermediary and participate effectively in the meeting.

If a company provides for participation in a shareholders’ meeting by electronic communication, the notice must:

• advise shareholders of the availability of that form of participation; and
• provide shareholders with the necessary information to enable shareholders to access the available medium or means of electronic communication.

In addition, section 60 of the Act further allows shareholders to adopt resolutions by way of round robin.  This involves the circulation of written resolutions by email which are signed in counterparts and which individual signed resolutions form a composite signed round robin resolution.  In terms of section 60(2), such a resolution will be adopted and be effective if it is signed by persons who together have sufficient voting rights to meet the required voting rights to pass that particular resolution.

Section 73 of the Act in turn provides that board meetings may be convened by electronic communication provided that:

• doing so is not prohibited by the company’s MOI; and
• the electronic communication facility employed enables all persons participating in the meeting to communicate without the need for an intermediary and participate effectively in the meeting.

In other words, the notice should advise directors (or shareholders as above) that they may attend the meeting by means for example of Zoom or Microsoft Teams and provide the relevant meeting password required to access the meeting.

Section 74 of the Act further provides that a decision that could be voted upon by a physical meeting of the board may be adopted by written consent of the majority of directors (which includes electronic writing such as email) or by electronic communication provided that each director received notice of the matter to be decided and using such electronic means is not excluded by the company’s MOI.

The Act thus makes it possible for both board and shareholders’ meetings to be held using electronic means such as Zoom or Microsoft Teams and that resolutions may be adopted via such means or by the round robin circulation of an email resolution.

As a final consideration for directors and shareholders who wish to adopt resolutions by way of round robin resolutions circulated via email, they must ensure compliance with the provisions of ECTA which stipulates that emails:

• must be identifiable as coming from the relevant director or shareholder;
• must be capable of being stored and proven not to be altered with; and
• must be retrievable.

Having regard to the above, directors and shareholders should be able to comfortably fulfil their duties and attend to meetings and take decisions as may be necessary in the ordinary course of business notwithstanding COVID-19 and the restrictions imposed by the Regulations.