During the Covid-19 crisis, issuers are facing challenges in holding the general meetings which are required in a number of instances under the Listings Requirements of the JSE Limited (JSE). In particular, the notice period for general meetings adds to transaction timetables and might jeopardise an issuer’s ability to complete critical capital-raising transactions quickly.
To address these challenges and alleviate the time constraints during this difficult period, the Financial Sector Conduct Authority (FSCA) issued a Market Notice on 28 May 2020 granting companies listed on the Main Board of the JSE a temporary exemption from holding a physical general meeting to approve general or specific issues of shares for cash. Issuers will therefore be permitted to approve such transactions by way of a written resolution in terms of section 60 of the Companies Act, 2008 (the Act).
Limited circumstances in which listed companies are allowed to approve corporate actions by written resolution
Listed companies are required to call and hold a general meeting of shareholders "in person" to approve any corporate actions, except for the following:
change of name of the issuer;
increase in authorised shares; and
amendments to the memorandum of incorporation (MOI) of the issuer, which can be passed by way of a written resolution in accordance with section 60.
The FSCA has agreed to extend these exceptions to issues of shares for cash, for a limited time period, to enable issuers to raise capital quickly, effectively and with due regard to the rights of all affected.
It is worth noting that issuers on the Alternative Exchange benefit from a more relaxed regime, as all resolutions required under the Listings Requirements may be proposed as written resolutions, subject to the provisions in their MOIs and the Act.
Conditions of the exemption
Issuers will need to ensure that their MOIs permit them to pass resolutions in writing. If the MOI does not, an issuer will be required to first amend its MOI by way of a special resolution adopted in writing. The Act allows an issuer to amend its MOI and then, if this resolution is approved, authorise an issue of shares for cash in the same notice and written resolution, subject to the passing of the amending resolution.
The exemption granted by the FSCA is temporary. It will be effective until 31 December 2020, subject to any earlier amendments or withdrawal by the FSCA.
Requirements for passing a written resolution to approve an issue of shares for cash
Issues of shares for cash, whether specific or general, require the approval of 75% of the votes cast by shareholders entitled to attend and vote at the meeting. The approval threshold will remain the same if the issue is to be approved by way of a written resolution, unless the MOI provides for a higher threshold.
The resolution on the issue of shares for cash must be submitted to shareholders 20 business days before the vote in writing.
Within 10 business days of adopting the written resolution, the issuer must deliver a statement of outcome, describing the results of the vote to every shareholder who was entitled to vote on the resolution.
Discretionary waiver of issues of shares for cash requirement (accelerated specific issue)
The JSE reminded issuers in a letter dated 17 April 2020 that it may waive the requirements relating to issues of shares for cash in exceptional circumstances, where an issuer in severe financial difficulty has no alternative but to dispose of a substantial part of its business or issue shares for cash within a short timeframe to meet its ongoing working capital requirements or reduce its liabilities. Due to time constraints, it may not be able to prepare a circular and convene a general meeting to obtain prior shareholder approval.
The JSE may modify the Listings Requirements in relation to the preparation of a circular and obtaining shareholder approval, if an issuer:
can demonstrate that it is in severe financial difficulty; and
satisfies the conditions in Schedule 11 of the Listings Requirements, in that the issuer must be able to demonstrate to the JSE that it could not reasonably have entered into negotiations earlier to enable shareholder approval to be sought.