Background

In Oasas, the dispute arose after the first respondent (company) abandoned a scheduled shareholders meeting convened to elect two directors to the board of the company, and instead circulated written resolutions to shareholders for the election of those directors in terms of section 60 of the Companies Act. Within approximately 90 minutes of circulation, the majority shareholder holding 78.6% of the voting rights of the company had voted in favour of the resolutions, and the company informed the two minority shareholders, holding 20.4% and 1% of the voting rights, respectively, that the director elections had been approved by shareholders and the scheduled shareholders meeting would not be required.

The 20.4% minority shareholder, being the applicant in the Oasas proceedings (applicant), challenged the validity of the director elections, arguing that the company had acted prematurely and failed to comply with the procedures prescribed in section 60 of the Companies Act.

The applicant’s principal argument was that the company (i) failed to observe the prescribed 20-business day ‘waiting’ period before adopting the resolutions; and (ii) adopted the resolutions before affording every shareholder the opportunity to vote on the applicable resolutions.

Legal framework

The pertinent provisions of section 60 of the Companies Act read as follows:

“60. Shareholders acting other than at meeting:

(1) A resolution that could be voted on at a shareholders meeting may instead be:

(a) submitted for consideration to the shareholders entitled to exercise voting rights in relation to the resolution; and

(b) voted on in writing by shareholders entitled to exercise voting rights in relation to the resolution within 20 business days after the resolution was submitted to them.

(2) A resolution contemplated in subsection (1):

(a) will have been adopted if it is supported by persons entitled to exercise sufficient voting rights for it to have been adopted as an ordinary or special resolution, as the case may be, at a properly constituted shareholders meeting; and

(b) if adopted, has the same effect as if it had been approved by voting at a meeting.

(3) An election of a director that could be conducted at a shareholders meeting may instead be conducted by written polling of all of the shareholders entitled to exercise voting rights in relation to the election of that director.” [sub-sections (4) and (5) omitted]

The court’s interpretation of section 60

The principal issue before the court concerned the proper interpretation of section 60(1)(b), which provides that shareholders may vote on a written resolution “within 20 business days after the resolution was submitted to them”. The question was whether a written resolution is deemed to have been adopted immediately once shareholders holding sufficient voting rights approve it, or only upon the expiry of the 20 business day voting period. 

The court held that the phrase “within 20 business days” merely prescribes the maximum period during which shareholders may vote and does not impose a mandatory waiting period before a written resolution may become effective. Accordingly, once shareholders holding sufficient voting rights have approved the resolution, it is immediately adopted from the moment the resolution obtains the requisite support, irrespective of whether the 20 business day period has expired. The court reasoned that interpreting section 60 as imposing a compulsory waiting period would undermine the provision’s principal purpose of providing an efficient alternative to convening a shareholders meeting.

In reaching this conclusion, the court rejected the applicant’s argument that section 60 imports and mirrors the procedural requirements applicable to shareholders meetings in section 61, thereby requiring the opportunity for all shareholders to vote before the resolution could be adopted. While section 60(2)(a) provides that a written resolution must receive sufficient voting support for it to have been adopted at a “properly constituted shareholders meeting”, the court held that this requirement is concerned only with the voting threshold necessary to pass the resolution. It does not require that every shareholder participates in the voting process, nor does it require a company to wait for all responses from minority shareholders once the requisite voting threshold has been achieved.

Similarly, the court rejected the applicant’s argument that section 60(3), which provides that the election of directors may be conducted by a “written polling of all of the shareholders entitled to exercise voting rights”, requires every shareholder entitled to vote on the matter to participate in the written poll before the election could validly take place. The court held that this requirement is satisfied where every shareholder is afforded an opportunity to participate in the written poll, by receiving the written resolution. This provision does not require every shareholder to cast a vote before the resolution may be validly adopted.

Interestingly, the court identified, but did not decide, an important interpretive issue concerning section 60(2)(a). The uncertainty lies in what constitutes “sufficient voting rights” for a resolution to be adopted at a “properly constituted shareholders meeting”. One interpretation is that the resolution need only receive the same level of support that would be required at a shareholders meeting, namely a majority (or special majority, where applicable) of the voting rights present at the meeting, provided a quorum is met (i.e. the supporting votes are expressed as a percentage of the votes actually cast on the resolution, rather than those that are capable of voting on the resolution). The alternative interpretation is that a written resolution requires the support of shareholders holding an outright majority of all voting rights in the company, irrespective of the number of shareholders who participate in the voting process (i.e. supporting votes are expressed as a percentage of all the voting rights capable of voting on the resolution). Although the court observed that Henochsberg on the Companies Act favours the latter interpretation, it found it unnecessary to determine the issue because, on the facts, the resolutions had been approved by shareholders holding an outright majority of the voting rights in the company. While, in our experience, the latter interpretation has generally been adopted in practice, the court’s judgment does not provide any guidance on the correct interpretation, and the position therefore remains uncertain.

Defective notice and invalidation of the resolution

An interesting aspect of the case concerned the apparent failure by the company to send the written resolutions to one of the company’s minority shareholders, who held 1% of the voting rights and allegedly suffered from dementia.

The court nevertheless declined to invalidate the resolutions. It held that the applicant lacked standing to rely on another shareholder’s procedural rights and, in any event, the omission could not have affected the outcome because the majority shareholder already held sufficient voting rights (on either interpretation of the phrase) to pass the resolutions without the support of any other shareholder.

The judgment should not, however, be regarded as authority for the proposition that strict compliance with section 60 is unnecessary or that written resolutions need not be delivered to all shareholders entitled to vote. Rather, it appears that the court’s conclusion was determined by the immaterial nature of the defect and the particular facts before it.

Implications for corporate practice

• First, while the judgment largely confirms what has been accepted generally in practice, companies may now comfortably proceed on the basis that, provided the written resolution has been delivered to all shareholders entitled to vote, the resolution becomes effective immediately once the requisite voting threshold has been achieved and there is no obligation to delay implementation until the expiry of the 20 business day voting period, or to wait for every shareholder to cast a vote.
• Second, companies should continue to ensure that written resolutions are delivered simultaneously to all shareholders entitled to vote. Although the court declined to invalidate the resolutions despite the apparent defective notice, that conclusion appears to have been driven by the immaterial nature of the defect and the particular facts of the case. Procedural compliance with all of the applicable provisions of section 60 therefore remains important.
• Finally, while the court did not determine which of the two competing interpretations of “sufficient voting rights” for the adoption of a written resolution under section 60(2)(a) is correct, companies should continue to adopt the conservative approach by ensuring that written resolutions are approved by shareholders holding an outright majority of all of the voting rights entitled to be exercised on the resolution.