Under section 61(2), a company must hold a shareholders’ meeting at any time that the board is required (i) by the Companies Act or the MOI to refer a matter to shareholders for decision, (ii) in terms of section 70(3) to fill a vacancy on the board, and (iii) otherwise, in terms of subsection (3) or (7), or by the company’s MOI. Subsection (7) speaks to public companies and when the board must convene an annual general meeting of its shareholders, and is irrelevant for this discussion.

Under section 61(3), the board of a company “must” call a shareholders’ meeting if one or more written and signed demands for such a meeting are delivered to the company. In order to be in the prescribed form, the demand must describe the specific purpose for which the meeting is proposed and in aggregate, demands for substantially the same purpose must be made and signed by the holders of at least 10% of the voting rights entitled to be exercised in relation to the proposed matter to be discussed at the meeting. The exceptions for when a board is not obligated to call a meeting are contained in subsection (5) and (6). These are (i) when the company or any shareholder applies to a court for an order setting aside a demand on certain grounds or (ii) when a shareholder(s) withdraws a demand.

No time frame

The missing piece in section 61(3) is that the subsection does not prescribe a time period by which a board, which has received a notice in the prescribed form, must call the meeting. In essence, this enables the board, at least for a time, to simply ignore the call for a meeting, and it might be anticipated that the circumstances in which shareholders are requisitioning the board to call a meeting are time-sensitive. In addition, there has been no case law dictating a time by which a board must hold a shareholders’ meeting after receiving a requisition notice in the prescribed form.

However, subsection (12) does provide recourse to shareholders by enabling them to approach a court to order the board to call the meeting, which is the only form of relief available to the shareholders if a board does not respond. Unfortunately for anxious shareholders in such circumstances, recent case law and the general common law trend indicates that shareholders will not easily receive any relief from the courts, as courts are loath to interfere in the running of a company. The case of CDH Invest NV v Petrotank South Africa (Pty) Ltd and Another [2018] 1 All SA 450 (GJ) (confirmed on appeal in the Supreme Court of Appeal – 2019 ZASCA 53 (SCA)), highlights the courts’ most recent views on this subject. Judge van der Linde opined that the power, conferred on the courts in terms of section 61(12), to direct that a board calls a meeting, is company law contra-intuitive, as the courts generally decline to interfere in the management of company affairs. The judge went further to state that it could hardly have been the intention of the legislature for the court to act as a mere “rubber stamp” and direct a meeting in circumstances where the shareholder has only met the basic requirements for the statutory demand for the meeting. Rather, the intention must thus have been to invoke the oversight role of the court. The judge stated that a court would generally, unless special circumstances required otherwise, have to be satisfied that calling a members’ meeting was bona fide intended, with a legitimate purpose, and in the best interests of the company and an applicant for relief would have to put facts before the court that would justify the inference that such thresholds have been met.

A high bar for shareholders

It is obviously problematic for shareholders to go to the effort and cost of engaging in litigation against the board to call a shareholders’ meeting. The case law also leaves the board with counterarguments that the shareholders have not exercised their power to requisition a meeting reasonably, in a bona fide manner or in the best interests of the company. While this makes sense in circumstances where shareholders are invoking the requisitioning power improperly to harass the company, it does create a high bar for shareholders to meet, just to hold a meeting.

Perhaps what we can take from section 61 is that the legislature is actually trying to provide maximum flexibility to the board in order for it to run the company in the way and manner it deems fit. After all, in accordance with section 66(1), the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the MOI provides otherwise. The directors are also subject to strict fiduciary duties to conduct themselves in the best interests of the company. In this context, the board is left with broad discretion regarding the timing of the calling of a shareholders’ meeting and unless the board is acting obviously irrationally, in bad faith or contrary to the best interests of the company in failing to call the meeting, shareholders will be unlikely to receive any support or intervention from the courts.