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corporate commercial | 16 Mar 2020
BY Brian Jennings
ENSight

corporate commercial


Update: A pause in corporate governance? The impact of the Coronavirus on gatherings and shareholders’ meetings 

This article is an updated version of the article published on 16 March 2020.

On 15 March 2020, South African President Ramaphosa announced the declaration of a national state of disaster, as a result of the recent events surrounding the rise in Coronavirus infections in South Africa. The declaration of a national disaster was made in terms of the Disaster Management Act, 2002 (the "DMA"). 

In terms of section 27(1) of the DMA, a national disaster may be declared by the responsible minister in the National Executive (being the Minister for Cooperative Governance and Traditional Affairs) by notice in the Government Gazette. The national disaster declaration was duly made by Dr Nkosazana Dlamini Zuma on 15 March 2020, and published in the Government Gazette on 16 March 2020. This article analyses the impact of the interplay between the DMA and the Companies Act, 2008 (as amended) (the "Companies Act"), both from a legal and practical perspective.

In terms of section 27(2) of the DMA, the responsible minister may make regulations or issue directions or authorise the issue of directions concerning, among others, "the regulation of the movement of persons and goods to, from or within the disaster-stricken or threatened area" and "other steps that may be necessary to prevent an escalation of the disaster, or to alleviate, contain and minimise the effects of the disaster". 

The president's aforesaid announcement contained suggestions (such as the discouragement of domestic travel) but also directives (such as the prohibition on gatherings of more than 100 people (the "Gatherings Prohibition")), of which compliance would be compulsory.  A further notice was published by Minister Dlamini Zuma in the Government Gazette on 18 March 2020 (although dated 17 March 2020) containing regulations issued in terms of section 27(2) of the DMA ("Regulations"), intended to give legal force and backing to the president's announcement.  The Regulations set out in detail, amongst other items, the Gatherings Prohibition.  This article does not focus on the Gathering Prohibition insofar as it applies to liquor.

The principal Regulation is 3(1) which simply states "In order to contain the spread of COVID-19, a gathering is prohibited".

The crisp question is therefore, what is the status of the Gatherings Prohibition and what are companies obliged to do if notice has already been given to hold a meeting of the shareholders imminently?  We unpack this issue in the various steps below:

What is a gathering?

A gathering has been defined in Regulation 1 to mean "any assembly, concourse or procession of more than 100 persons, wholly or partially in open air or in a building or premises".  An assembly is defined by Merriam Webster to mean "a company of persons gathered for deliberation and legislation, worship, or entertainment".  "Concourse" is similarly defined to mean "an act or process of coming together and merging" or "a meeting produced by voluntary or spontaneous coming together".  Lastly "procession" is defined as "a group of individuals moving along in an orderly often ceremonial way".

It is clear from the above definition that it is intended to operate widely to include any collection of persons.  It also captures any collection of persons wherever they may be located – such as in a building or in open air.  This definition would include a shareholders' meeting located within South Africa.

How long will the Gatherings Prohibition apply?

No such period of time is prescribed in the Regulations as to the length of the Gatherings Prohibition, whereas the closure of schools in Regulation 6 has a definitive timeline attached to it.  Looking to the DMA, section 27(5) provides that a disaster declaration lapses three months after it has been declared unless either terminated earlier or extended (by one-month intervals at a time) by the minister, in each case by notice in the Government Gazette.

Subject to termination or extension, the Gatherings Prohibition will, on the current facts, endure for a three-month period.  The Gatherings Prohibition will therefore impact all companies seeking to hold a shareholders' meeting at any time in the next three months.

What does the Gatherings Prohibition mean for companies?

Any company holding a shareholders’ meeting in the next three months should be on guard and take active steps to ensure compliance with the Gatherings Prohibition.  This is particularly so because Regulation 11(1)(a) makes it a criminal offence for any person who convenes a gathering.  If convicted, one is liable for a fine or imprisonment for a period not exceeding six months or to both such fine and imprisonment.

If a company is holding a shareholders' meeting in the next three months, or if a public company's annual general meeting is required to be held no more than 15 months from the date of the previous annual general meeting in terms of section 61(7)(b) of the Companies Act, and such date falls within the aforementioned three-month period, then that company ought to (and, is in fact obliged) to take steps to ensure such meeting is held:

  • entirely by electronic participation (together with submission of proxies) as contemplated in section 63(2)(a) of the Companies Act, if permitted by that company's memorandum of incorporation; or
  • on a date after the termination of the Gatherings Prohibition.

If the meeting is to be rescheduled, then such rescheduling would, in all likelihood, require a fresh notice of a meeting to be issued (and the withdrawal of the previous notice) either with the new electronic participation details or the new shareholder meeting dates.  Obviously, if the rescheduling takes that company beyond the time period prescribed by section 61(7)(b) of the Companies Act, then that company ought to apply as soon as possible to the Companies Tribunal for an extension of the applicable time period.  Good cause is required to be shown, and compliance with the Gatherings Prohibition, we strongly believe, would be sufficient.

However, we point out that if the historic participation at a particular company's shareholders' meeting is such that no more than 100 people ordinarily attend, then that company may continue to hold the meeting but again it must be on guard such that it does breach the Gatherings Prohibition as it would be the convener.  Attendance must be monitored and if attendance would subsequently breach the Gatherings Prohibition, then we submit one approach in the circumstances would be for such meeting to be immediately postponed (or cancelled and rescheduled following the principles above). 

Another approach that would require detailed consideration in light of the offence in Regulation 11(1)(a), would be whether a shareholder's right to participate in person at a shareholders' meeting may be limited by reference to the Gatherings Prohibition on a particular basis (e.g. on a first-come-first-served basis, capped at 100).  Any such limitation should be taken following legal advice.

What happens if a State of Emergency is declared?

If a State of Emergency is declared under the State of Emergency Act No.64 of 1997 ("SEA"), then two new aspects that arise, namely the time period and the extent of the restrictions. 

  • In relation to the time period:  If a State of Emergency is declared under the SEA, section 37(2)(b) of the Constitution prescribes that such declaration is effective for no more than twenty one days from the date of declaration.  Only the National Assembly may extend the time period, but again for no more than three months at a time.
  • In relation to the restrictions: we believe it would be prudent to assume that if the Gatherings Prohibition has not stopped the spread of the virus, that the Gatherings Prohibition would be more aggressive than is currently the case.  What that may be is only speculative now.

Conclusion

Any notice to be issued ought not to be specific as to the Gatherings Prohibition as it currently stands, but rather generic so as to capture any further amendments to the Regulations or to take into account any State of Emergency that may subsequently be declared.

One ought to consider including language in the notice, insofar as is permissible taking into account the above and to avoid any contravention of Regulation 11(1)(a) or any future restriction, that the physical venue will be subject to capacity restrictions as they may apply on the date of such meeting (whether pursuant to the DMA or, if applicable, the SEA, and which (at the date of the notice) is currently the Gatherings Prohibition under the DMA).

The notice ought to include language urging shareholders or their proxies not to attend physically in person, but rather that forms of proxies be submitted or electronic participation adopted to ensure compliance with the Gatherings Prohibition.  These forms of proxies could also be made available at the door to the venue – especially if the capacity restriction has been met.

For more information, please contact:

Brian Jennings

Corporate Commercial | Director

bjennings@ENSafrica.com

+27 82 787 9497

Covid-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.

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