The doctrine of unanimous assent April 2018

By CHRISTELLE WOOD AND SHIKARA SINGH, Published in Company Law

At common law, the principle of unanimous assent allows shareholders to approve decisions without requiring a properly constituted meeting or without having to observe any other prescribed formalities. This principle thus permits informal methods of shareholder approval provided that all shareholders are fully aware of what action is being taken and have consented to it (Fourie, J.S.A, "Unanimous Assent and Special Resolutions" (96) South African Law Journal (1979)).

Under the 1926 Companies Act, the court in Gohlke & Schneider and Another v Westies Minerale (Edms) Bpk and Another [1970] 3 All SA 66 (A), said that "the holding of a general meeting is only the formal machinery for securing the assent of members or the required majority of them, and, if the assent of all the members is

otherwise obtained, why should that not be just as effective?". Here, the then Appellate Division endorsed a substantive approach which focused on giving effect to the substance rather than the mere form of the assent.

In the case of Quadrangle Investments (Pty) Ltd v Witind Holdings Ltd [1975] 2 All SA 179 (A), the Appellate Division held that a dividend declared by a company in contravention of a condition of its articles of association could not be validated simply because all the shareholders
had unanimously assented to it. The court drew a distinction between ordinary and special resolutions and stated that the application of the principle did not extend to company actions requiring special resolutions as "the Legislature also bore the wider interests of the general public in mind... a purported alteration by the unanimous assent of the Shareholders, which could occur informally... would therefore not serve these purposes".

It must be noted that both the 1973 Companies Act and its predecessor required all special resolutions to be registered with the Registrar of Companies (now the Companies and Intellectual Property Commission). The rationale for registration being that matters which require a special resolution will generally be a matter of public concern (Beuthin R.C, "The Principle of Unanimous Consent" (91) South African Law Journal 2 (1974)) whereas an ordinary resolution will generally only have a "domestic significance".

More recently, in Moraitis Investments (Pty) Ltd and Others v Montic Dairy and Others [2017] 3 All SA 485 (SCA), the Supreme Court of Appeal considered the principle of unanimous assent in the context of sections 112 and 115 of the 2008 Companies Act. The SCA was tasked with determining, inter alia, whether one of the appellants had the requisite authority to conclude a settlement agreement. The appellants contended that the transactions contemplated by the settlement agreement fell within the ambit of sections 112 and 115 and, as such, could only be effected by way of special resolution. The SCA disagreed, finding that the purpose of the requirements of these sections is to ensure that the interests and views of all shareholders are taken into account prior to the company disposing of the whole or greater part of its assets or the undertaking itself. In terms of s65(9) and (10), for a special resolution to be approved, it must be supported by at least 75% of the voting rights exercised on the resolution (or such other percentage of voting rights permitted by the MoI). The court held that where a company only has a single shareholder, as in the present case, these requirements become a mere formality.

While the findings of the court in Moraitis opened the door for the principle being definitively extended to special resolutions, the burden of proving unanimous consent in a matter involving multiple shareholders may be far too onerous to discharge. The prudent approach would be to ensure that all special resolutions are passed in accordance with the requisite formalities. Unquestionably, for circumstances which require filing of a special resolution at the Companies and Intellectual Property Commission, it must be accepted that unanimous assent is not sufficient.

Wood is an Associate, Corporate and Commercial practice and Singh a Candidate Attorney with Cliffe Dekker Hofmeyr.