By virtue of the Companies (Amendment) Act which came into force on 21st March 2017, the Companies Act has abolished share warrants to bearer.
In terms of the Act, these could still be issued by public companies with respect to any fully paid up shares if so authorized by their Memorandum or Articles of Association, though for several years it had already not been possible for private companies to issue share warrants to bearer.
The following have been the principal amendments introduced to the Companies Act:
Definition of shareholder
The words “or the bona fide holder of a share warrant referred to in article 121″ have been deleted. Indeed, all such references in the Act have been deleted.
The General Meaning of a “Share Warrant”
The reference included in such meaning that the “bearer of the warrant is entitled to the shares therein specified” has also been deleted. Notwithstanding this, the concept of share warrants is still present in other instances of the Act, thus leaving the current position unclear and subject to interpretation. In fact, the first proviso to article 123 of the Act outlines the way in which share warrants are to be entered in the company’s register of members:
“Provided that on the issue of a share warrant the company shall strike out of its register of members the name of the member then entered therein as holding the shares specified in the warrant and shall enter in place of the aforesaid requirements the following particulars:
- the fact of the issue of the warrant;
- a statement of the shares included in the warrant, distinguishing each share by its number so long as the share has a number; and
- the date of the issue of the warrant”.
This wording seems to assume the previous definition of the term ‘warrant’ as an instrument signifying ownership in the company as opposed to the usual concept often attributed to “share warrant” in market practice as an “entitlement to acquire ownership”.
The amendments made with respect to share warrants to bearer have also been reflected in the provisions that previously regulated the pledging thereof. Article 122 dealing with pledging of securities has been amended throughout to remove all references to share warrants, except one, which although explicitly stated in the Amending Act, was not transcribed in the Act itself. Share warrants cannot be pledged any longer with immediate effect (i.e. which pledge was constituted by mere delivery of the share warrant to the pledgee and for which no other formalities were required). However, since the transitory provisions are only limited to the surrendering of share warrants, the position is unclear with respect to share warrants that are currently pledged as there are no transitory provisions to cover them.
An Amended Article 121
This specifically prohibits share warrants since it clearly states that “no company may issue a share warrant to bearer notwithstanding anything contained in its memorandum and articles of association.”
A New Article 121A
This is of great significance since it clearly details the transitory provisions applicable to the amendments introduced by the Amending Act. A holder of a share warrant must â€“ prior to the expiration of nine months from 21st March 2017, surrender for cancellation the share warrant to the company issuing such warrant. Once the share warrant is surrendered, the company must:
1. Cancel the share warrant issued by it
- Enter in its register of members the name of the persons requesting that their names and addresses be entered in the register of members in lieu of the share warrants surrendered; in this regard, the provisions of article 123(1) (a) and (b) and (2) which deal with the relevant entries to be made in the register of members apply, namely:
- The names and addresses of the members and a statement of the shares held by each member, distinguishing each share by its number, so long as the share has a number, and of the amount paid or agreed to be considered as paid on the shares of each member; and
- The date at which each person was entered in the register as a member; and
2. Notify the Registry of any changes in the register of members in the above manner.
Failure to surrender a share warrant within the nine (9) month period from the coming into force of the Amending Act would no longer be recognised by the company after the end of this period, and such share warrant would be deemed to be cancelled. This means that the share warrants are no longer enforceable against the company which issued them in the first place.
An Amended Regulation 2 of Part II of the First Schedule to the Act
Since the prohibition of a company to issue share warrants to bearer is now catered for in the law, this need not be clearly stated in its constitutive document. Practitioners may seek to remove this prohibition from their template Memoranda or Articles of Association for private, private exempt and single member companies.
An Amended Article 258(2) – Court Winding Up
The Amending Act includes a list of the general order of priority which the court will consider when the assets of the company are insufficient to satisfy its liabilities and the court makes an order as to the payment out of the assets of the costs, charges and expenses incurred in the dissolution and winding up. Such general order of priority is listed chronologically in the Act.
Part VI of the Companies Act has also been significantly amended by the Amending Act. The principal provision outlining the details of the procedure for company reconstructions (article 329B) has undergone several amendments, such as the appointment of the special controller, his tenure and the payment of his remuneration and disbursements to the adjustment of relevant time periods and notice periods of meetings.
There is now also the possibility for the company or any creditor with the sanction of not less than two-thirds of the creditors or class of creditors, to appoint a mediator in terms of the Mediation Act where a compromise or arrangement is proposed between a company and its creditors, or any class of them, or between the company and its members, or any class of them. Such mediator would be required to organize a meeting to reach such compromise/arrangement. If, as a result of the mediation process, the creditors execute a written agreement, such agreement shall be binding on all creditors, as well as the company, or in the case of a company in the course of being wound up, on the liquidator. Further to the above, a new amendment treats creditors with different interests in separate classes reflecting those interests, for instance, “secured” and “unsecured” creditors are treated separately.