When ‘good cause’ is not good enough: An analysis of the Companies Tribunal’s approach to AGM extensions

November 1st, 2024
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Transparency and shareholder engagement are two of the cornerstones of proper corporate governance. It is crucial that a company’s affairs are managed in a manner that provides for transparency, accountability and active shareholder engagement. The annual general meetings (AGMs) of a company play a vital role, as they provide shareholders with a platform to engage with the board of directors on the governance of the company.

The legislation

For public companies, AGMs are especially important as they enable the large numbers of shareholders to voice their opinions or raise any concerns they may have. To this end, the Companies Act 71 of 2008 (the Companies Act) obliges public companies to convene AGMs, and also prescribes specific matters to be discussed at these AGMs. These include the presentation of director and audit committee reports, audited annual financial statements, the appointment of auditors and any other matters relating to the governance of the company.

Section 61(7) of the Companies Act states that –

‘(7) A public company must convene an annual general meeting of its shareholders –

(a) initially, no more than 18 months after the company’s date of incorporation; and

(b) thereafter, once in every calendar year, but no more than 15 months after the date of the previous annual general meeting, or within an extended time allowed by the Companies Tribunal, on good cause shown.’

The purpose of s 61(7)(b) is to permit a public company to approach the Companies Tribunal (Tribunal) for an extension if the company anticipates that it will not be able to convene an AGM within the required 15-month period.

Good cause

In an application for an extension, a company must show good cause as to why the Tribunal should grant an extension. But what is ‘good cause’? The Companies Act does not define or explain what good cause is. How, then, should a company know what constitutes good cause?

In answering this question, the Tribunal has consistently referenced the Constitutional Court judgment of Minister of Defence and Military Veterans v Motau and Others 2014 (8) BCLR 930 (CC), where it was stated at para 54 that –

‘Good cause may be defined as a substantial or “legally sufficient reason” for a choice made or action taken. Assessing whether there is good cause for a decision is a factual determination dependent upon the particular circumstances of the case at hand.’

Good cause is determined by the Tribunal on a case-by-case basis. A company making an application must provide adequate reasons – based on its particular circumstances – to support its case.

As a point of departure, an application where a company requests an extension in terms of s 61(7)(b) without providing reasons, is deemed incomplete. This is because no cause – good or otherwise – has been provided. Such an application will be dismissed. Similarly, an application where a company seeks an extension and does not provide a proposed date is considered incomplete. In Ex Parte South African Airways Express SOC Limited (case no CT007DEC2014, 17-4-2015), where the applicant sought an extension and provided no alternative date for the AGM, the Tribunal dismissed the application, and held that –

‘The Applicant seeks relief for the extension of time to convene an Annual General Meeting …  however, does not provide in its papers the required and/or proposed extension date.

The Applicant owed to have mentioned in its papers the required and/or proposed date for the extension to convene an AGM.’

The Tribunal has also previously dismissed applications due to self-created urgency, and repeated or unremedied non-compliance with the requirements of s 61(7). In Ex Parte Ebotse Golf and Country Estate (case no CT01884/ADJ/2024, 22-8-2024), the Tribunal refused to grant an extension. The applicant submitted that it could not convene its AGM because the only facility on its estate large enough to cater for its AGM had been booked to host the applicant’s golf day and prize giving. Unsurprisingly, the Tribunal denied the request for an extension, noting that –

‘It appears from the papers that the Applicant seeks an extension for its AGM due to a Golf Day and prize giving and dinner functions after the golf day. These reasons cannot be said to constitute a “good cause”’.

The Tribunal also stated that there was no justification as to why the AGM could not be held at an earlier date to ensure compliance with the statutory requirements.

In Ex Parte South African Airways Technical Soc Limited (case no CT01517ADJ2023, 7-11-2023), the Tribunal refused to grant an extension. The applicant had already received two previous extensions in respect of convening its AGM. Among the grounds provided in the third application were delays by the board of directors in approving the annual financial statements, changes in the board composition, and the volume of work. In dismissing the application, the Tribunal found that the reasons provided were not measures beyond the company’s control, but governance failures instead. It also lamented the applicant’s failure to take steps to ensure compliance with the Tribunal’s previous two orders, emphasising that –

‘… s 61(7) anticipates the scenario where the board has done everything possible to ensure compliance, but despite such efforts, compliance was unachievable. It is not a remedy that should be taken lightly, hence the requirement for just cause. … It is reserved for deserving circumstances … . The Applicant’s circumstances are not deserving, considering that it had opportunities to ensure that its affairs are in order and legislative compliance is achieved’ and that ‘[g]ranting further extension will not serve to deter the Applicant’s non-compliance tendency.’

Among the reasons that the Tribunal accepts as ‘good cause’ are circumstances beyond the company’s control, which directly impact the company’s ability to convene an AGM. Recent examples include the inability to convene an AGM due to the COVID-19 lockdown, a delay by the Auditor General in the auditing of a state-owned entity’s financial statements, and the resignation of a company’s entire board of directors.

In Ex Parte Aqua Vista Home Owners Association (case no CT00489ADJ2020, 20-11-2020), the applicant applied for an extension of the date to convene its AGM. The applicant cited the COVID-19 lockdown period, and a prohibition of online meetings in its memorandum of incorporation, as reasons why it would not be able to convene its AGM within the required statutory period. The Tribunal, satisfied that good cause had been shown, granted the extension to a later date requested by the applicant.

The applicant in Ex Parte Cricket South Africa NPC (case no CT00607ADJ2021, 29-3-2021) cited the resignation of its entire board of directors, just a few weeks before the scheduled AGM, as its reason for seeking an extension. The Tribunal granted the extension, and agreed that –

‘Due to the governance challenges, it was difficult for the applicant to have an AGM. Its entire board had resigned and [been] replaced by an interim board.’

It is evident from these cases that the Tribunal, when provided with good cause, is sympathetic to the plight of a company seeking a reprieve to remedy non-compliance that is due to bona fide circumstances beyond its control.

Conclusion

While the importance of convening an AGM can never be overemphasised, the Companies Act envisages circumstances where compliance with the requirements to convene one may be unachievable. The purpose of s 61(7) is to assist a company in achieving compliance in circumstances where it is fair and just to give it leeway. It is important that, in seeking to make use of this process, companies ensure that they demonstrate good cause to the Tribunal. To demand any less would open the process to abuse, and render it ineffective in fostering good governance, fairness and shareholder protection.

Siyabonga Nyezi BCom (UCT) LLB (Unisa) is a legal practitioner at Fasken (incorporated in South Africa as Bell Dewar Inc) in Johannesburg.

This article was first published in De Rebus in 2024 (November) DR 20.

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