Shareholder Resolutions - Be Careful Of The Round Robin

Shareholders ultimately carry the most power in a company. Decisions are carried out via shareholders' resolutions and it is important that these resolutions are correctly done.

The Companies Act (“the Act”) specifically addresses the issue of resolutions. It also allows the Memorandum of Incorporation (MOI) to have a substantial impact on resolutions. The MOI can set the requisite number of votes to pass an ordinary or special resolution. It can also dictate when ordinary or special resolutions are required.


How to pass resolutions

These can be passed -
  • At a shareholders' meeting or other meeting such as the annual general meeting, or

  • By round robin resolution, or

  • In the case of a sole shareholder, without any of the prescribed formalities.

A voting anomaly with round robin resolutions

Round robin resolutions are conducted by correspondence, usually by email. Formal notice needs to be given and needs to adequately inform shareholders of the purpose of the resolution. Voting is to take place within 20 business days of the resolution being sent and shareholders are to be informed of the result of the resolution within 10 business days of the resolution being finalised.

The curious aspect of round robin resolutions is that the Act is not clear as to the number of voting rights needed to carry a resolution. In terms of other meetings, there must always be a quorum present – the Act speaks of a quorum as 25% of the voting rights. 

With round robin resolutions, there is no such certainty, and a number of contrasting views as to what will suffice.  One view (possibly the majority view) is that a 25% voting response is needed.   Another is that a majority of those who vote decide – in which event, in an extreme case if only 1% of the voting rights vote, they would make the decision. Other possibilities are decision by a majority of the voting rights of all issued shares, or a requirement of 100% unanimity.  

In companies with only a few shareholders this will probably not be an issue but as the shareholder numbers grow, the potential to manipulate decisions via round robin resolutions exists.  It is unclear what stance our courts will adopt in the event of any dispute over the validity of a round robin resolution, so take professional advice if you are in doubt. 


Remove all doubt  

In any event, in view of this lack of clarity, one solution would be to remove all doubt by specifying in the MOI the number of voting rights necessary to pass a round robin resolution.
Disclaimer
The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.