Shareholders’ Appraisal Remedy
KELVIN SABAO
Introduction
The Companies & Other Business Entities Act, also known as the COBE Act, includes Section 233, which outlines the statutory appraisal remedy available to dissenting shareholders.
This remedy is designed to protect minority shareholders when a company is considering changing the rights attached to shares or entering into a merger. This article provides an overview of the appraisal remedy and the steps involved in its implementation.
- Appraisal Procedure
Section 233 of the COBE Act elaborates on the appraisal procedure that dissenting shareholders must follow.
2.1. Written Notice of Objection by Dissenting Shareholder
To initiate the appraisal procedure, a dissenting shareholder must provide written notice to the company, objecting to the proposed resolution. This notice can be given any time before the resolution is put to a shareholder vote.
2.2. Notice of Resolution Adoption by the Company
Once the resolution is adopted, the company must, within ten business days, inform all dissenting shareholders who had submitted written objections that the resolution has been approved.
2.3. Dissenting Shareholder’s Demand for Payment
Before a dissenting shareholder can demand fair value for their shares, they must meet specific requirements:
(a) Submit a notice of objection to the company.
(b) Hold shares that are materially and adversely affected by the resolution.
(c) The resolution must have been adopted.
(d) The shareholder must have voted against the resolution.
If these conditions are met, the dissenting shareholder can demand payment by delivering a written notice to the company within twenty business days of receiving the adoption notice. This notice should include the shareholder’s details, the share information, and the demand for payment of the fair value.
If the shareholder withdraws the demand before the company makes an offer or revokes the resolution, their rights revert to full shareholder status.
2.4. Offer of Fair Value
Once a dissenting shareholder demands payment, the company must, within five business days, send an offer. The offer should include the fair value of the relevant shares, determined by the company’s directors, and an explanation of how this value was calculated. Offers to shareholders of the same class or series must be on identical terms. The dissenting shareholder has thirty business days to accept or reject the offer, after which the offer lapses.
If the shareholder accepts the offer, they must either submit share certificates for shares evidenced by certificates or follow the required steps for uncertificated shares. The company is then obligated to pay the agreed amount within ten business days.
2.5. Court Application by Dissenting Shareholder
If the company fails to make an offer or the shareholder finds the offer inadequate, they can apply to the court to determine the fair value of their shares. This application should be made before the company’s offer lapses, and it requires proof of an offer acceptance.
All dissenting shareholders who haven’t accepted the company’s offer must be notified and can join the court proceedings. The court can determine the fair value of shares, appoint appraisers, set interest rates, and make cost-related orders. The court has two possible orders: withdrawing the demands or requiring the company to pay the fair value for the shares.
2.6. Court Application by the Company
The company can also apply to the court to vary its obligations if compliance would threaten its ability to meet its financial obligations for the next 12 months. The court can make an order to ensure the company’s creditors are paid.
2.7. Payment by the Company Not a Distribution
The process of making a demand, tendering shares, and payment to a shareholder does not constitute a distribution or an acquisition of shares by the company. Therefore, it is not subject to the solvency and liquidity test set out in section 102 of the COBE Act.
- Conclusion
Section 233 of the Companies & Other Business Entities Act provides a detailed and protective mechanism for dissenting shareholders through the appraisal remedy. This remedy grants dissenting shareholders several rights at various stages of the process. However, it’s important to note that the adoption of a resolution does not automatically entitle the dissenting shareholder to payment for their shares; they must follow the appraisal procedure outlined in section 233 to exercise this right. Each step of the appraisal process is essential, and the remedy is only triggered when a resolution regarding share rights or a merger is approved by the company.
Disclaimer:
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.
Kelvin Sabao is a duly registered Legal Practitioner practising law at Titan Law. He writes in his personal capacity. He is a co-author of a book titled ‘The Directors’ Handbook in Zimbabwe’. This publication underscores his expertise and dedication to advancing the knowledge and understanding of corporate law and corporate governance in the Zimbabwean context. For more information, you can contact Kelvin via email at: sabaokelvin@gmail.com
