Major assets and minority shareholders: how the Companies Act protects their interests

2011-06-14 00:00

IT often happens that a company sells its major asset or even its entire business for profit. Are minority shareholders protected? Yes, in three respects:

Firstly, before the sale the company must obtain a special resolution from its shareholders authorising the transaction.

To arrange this a meeting must be called and the precise terms of the intended resolution must be included in the notice of meeting. This notice must be given 10 business days ahead of the meeting and the meeting must be attended by persons entitled to exercise at least 25% of the voting rights.

At the meeting the resolution must be supported by at least 75% of the voting rights present.

The new Companies Act also provides for such a resolution to be taken by round robin or by consent.

Secondly, if persons entitled to exercise at least 15% of the voting rights oppose the resolution at the meeting, any person who voted against the resolution may, within five business days after the meeting, require the company to obtain the approval of the court to the proposed sale. If the transaction is found to be manifestly unfair to any class of shareholder or tainted by a conflict of interest, the resolution may be set aside.

Thirdly, before the meeting any shareholder may give notice to the company objecting to the intended resolution.

If the resolution is adopted the company is obliged to give notice of the adoption of the resolution to that shareholder.

That shareholder, if he also voted against the resolution, may thereafter demand that the company offers to buy all his shares in the company at a fair value. Thereafter he ceases to be part of the company.

The procedures above are designed to ensure that minority shareholders receive proper notice of the disposal of the major part of a company’s assets and have the option of either resisting the sale or withdrawing from the company.

When buying an asset that appears to be a company’s major asset, do seek professional advice. Failure to comply with all the details could result in an invalid sale, delays or, as often happens, the purchaser’s bank declining the loan because of the seller’s non-compliance with the formalities prescribed in the Act.

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