Pitfalls to avoid in board, shareholders meetings

Meetings constitute an integral part of a company’s governance systems in that they are used to plan, solve problems, exploit opportunities, manage risks and to co-ordinate company business, etc.

This article focusses on board meetings by directors and members or shareholders’ general meetings in the form of an Annual General Meetings (“AGM”) and an Extraordinary General Meeting (“EGM”).

Disputes

Many disputes arise in connect with company meetings with some spilling into the courts. It is imperative to understand the causal pitfalls.

Key governance documents

The Articles of Association (“articles”), the Companies and Other Business Entities Act (Chapter 24:31) (“COBE Act” or “Act”) and if it exists the shareholders agreement are key documents to be juxtaposed and read together.

Pitfalls in company meetings

Some of the pitfalls to avoid are explained below.

People who are entitled to attend meetings

Board meetings

Only directors of the company are entitled to attend the company’s board meetings. People who are not board members, for example some senior executives, may attend at the invitation of the board. Those invited are normally limited to information provision, making proposals or recommendations and receiving direction.

The appointment of directors should be formalised and the company documents such as CR6 (formerly CR14) updated.

Shareholders meetings

Members or shareholders’ meetings are in the form of an AGM or EGM. These meetings are for the shareholders of the company. Directors usually attend to present, account to or seek approvals from the shareholders. It is the members who vote at general meetings, not directors.

Board of directors versus sub-committees

A board of directors may appoint sub-committees such as human resources, finance and audit, risk, assets and liabilities, etc. The board should give specific terms of reference to the committees. It should be understood that a sub- committee is subordinate to the main board and in its meetings may resolve to recommend certain decisions to the board unless the board has empowered the sub-committee to make a final decision on the specific issue and report to the board.

Notice periods

This is by far the most problematic area and results in many legal challenges due to alleged non-compliance.

Board meetings

It is common to find the notice periods required for board meetings in the company’s articles of association. It is necessary to familiarise with and observe them.

Shareholders’ meetings

This can easily be a minefield. The notice periods are strict and the Company Secretary needs to know the specifics. This article will focus on the requirements of the COBE Act.

According to section 169 (1) of the COBE Act a company’s AGM may be called by 21 days notice in writing, and a meeting, other than an AGM or a meeting for the passing of a special resolution, may be called by 14 days notice in writing, or in the case of a private company, by seven days notice in writing, and any provision of a company’s articles shall be void so far as it provides for the calling of a meeting of the company, other than an adjourned meeting, by shorter notice .Section 169(2) goes on to add that a meeting of a company shall, notwithstanding (despite) that it is called by shorter notice be deemed to have been duly called if it is so agreed:

(a) in the case of an AGM, by all members entitled to vote,

(b) in the case of any other meeting (EGM) by the majority of members holding at least 95 percent of the votes.

Resolutions requiring special notice

Section 177 of the Act provides for resolutions requiring special notice, for example where the proposed resolution will affect the status of a person in relation to the company, and what needs to be complied with.

Agenda

The agenda for a board meeting is usually set before the meeting and circulated together with the board papers. Problems may arise at the confirmation of the agenda at the meeting where an agenda item is to be removed or added.

AGM

The agenda for an AGM is usually per section 167(5) of the COBE Act with further items as per the company’s articles.

EGM

Any matter not covered in section 167 of the Act or a company’s articles may be dealt with in an EGM.

Quorum

This is the minimum number of participants required for a meeting to be properly constituted.

Board meeting

This is normally covered in a company’s articles. However, section 204 of the Act also refers to a company’s articles.

Shareholders meetings

According to section 170(1) of the Act a majority of the total number of votes entitled to vote on a matter shall constitute a quorum unless the company’s memorandum of association provides for a greater quorum. Quorum shall not be less than one-third of the votes.

Convening of an EGM on requisition

In terms of section 168(1) members holding at least five percent (5 percent) voting rights may requisition an EGM.

Directors will be required to give notice of the meeting within 28 days of the requisition and the meeting to be held within 14-28 days of the notice by the directors.

Proxies and voting on voting on poll

This part is very important. Section 171 provides that:

Any member entitled to attend and vote at a meeting shall be entitled to appoint a proxy to represent him / her, -herald