DO SHAREHOLDERS HAVE A REMEDY WHERE THEY HAVE NOT BEEN CONSULTED IN REGARD TO THE CONTENTS OF A BUSINESS RESCUE PLAN PUBLISHED IN RESPECT OF A COMPANY?
– By Don Mahon
“Most shareholders have little if any control over the companies in which they own stock, even if they own a million shares.” – Robert Kiyosaki
Section 128(1)(b) of the Companies Act 71 of 2008 (“the Act”) defines an “affected person” as:
- a shareholder or creditor of the company;
- any registered trade union representing employees of the company; and
- if any of the employees of the company are not represented by a registered trade union, each of those employees or their respective representatives.
Shareholders in a company under business rescue have a direct and substantial interest in the manner in which the business rescue practitioners intend to rescue the company and, more particularly, the manner in which they intend to part with any of the assets of the company.
Section 146 of the Act provides that, during a company’s business rescue proceedings, each holder of any issued security of the company is entitled to:
- notice of each court proceeding, decision, meeting or other relevant event concerning the business rescue proceedings;
- participate in any court proceedings arising during the business rescue proceedings;
- formally participate in a company’s business rescue proceedings to the extent provided for in chapter 6 of the Act.
In terms of section 150(1) of the Act, the practitioner is required to consult with affected persons (including shareholders) before preparing a business rescue plan for consideration and possible adoption at a meeting in terms of section 151 of the Act.
In terms of section 150(2) of the Act the business rescue plan must contain all the information reasonably required to facilitate affected persons in deciding whether or not to accept or reject the plan.
The aforesaid provisions of the Act enjoin the business rescue practitioner to provide the shareholders of the company in business rescue with sufficient information (including documentation) so as to enable them to meaningfully participate in the company’s business rescue proceedings, to carry out meaningful and effective consultation with the business rescue practitioners as contemplated in section 150(1) and to enable the shareholders to accept or reject the plan, as contemplated in section 150(2) of the Act.
Of course, section 151 and 152 do not contemplate participation by shareholders in the meeting convened for the purposes of approving the business rescue plan. How then, are the shareholders able to “accept or reject the plan”, as contemplated in section 150(2)?
Due to the fact that the provisions of sections 151 and 152 of the Act do not entitle a shareholder to vote on a proposed business rescue plan, to make representations at a meeting contemplated in section 152 of the Act, or even to participate in such a meeting, the shareholders appear, on a plain reading of these sections, to be rendered powerless to prevent the complete and utter decimation of the value of their shareholding in circumstances where the business rescue practitioners have acted with absolute disregard for the interests of such shareholders.
However, the detrimental effects of these sections upon shareholders are ameliorated by the provisions of section 150(1) and 150(2).
It is submitted that the business rescue practitioners accordingly have a duty to consult with the shareholders prior on the contents of the proposed plan prior to the publication thereof and is enjoined to take into consideration there decision to accept or reject the proposed plan.
In doing so, the practitioner is obviously not entitled to pay mere lip service to the provisions of the act but must deal with the shareholders’ submissions in regard to the plan arbitrio boni viri although he is not necessarily bound to the shareholders views in this regard.
There will, in the circumstances, be a remedy which lies with a shareholder who was not consulted in regard to the contents of a proposed business rescue plan prior to the publication thereof and may, depending on the circumstances, be entitled to interdict the meeting scheduled for the purposes of approving the plan and could be entitled to an order having the publication of the plan set aside.