19.3 AUTHORISATION OF A DISTRIBUTION
A distribution must be authorised by a company’s directors. The actual distribution must be in terms of an existing obligation of the company or of a court order – See Section 46.
46. Distributions must be authorised by board.—
(1) A company must not make any proposed
distribution unless—
(a) the distribution—
(i) is pursuant to an existing legal obligation of the company, or a court order; or
(ii) the board of the company, by resolution, has authorised the distribution;
(b) it reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution; and
(c) the board of the company, by resolution, has acknowledged that it has applied the solvency and liquidity test, as set out in section 4, and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.
(2) When the board of a company has adopted a resolution contemplated in subsection (1) (c), the relevant distribution must be fully carried out, subject only to subsection (3).
(3) If the distribution contemplated in a particular board resolution, court order or existing legal obligation has not been completed within 120 business days after the board made the acknowledgment required by subsection (1)(c), or after a fresh acknowledgment being made in terms of this subsection, as the case may be—
(a) the board must reconsider the solvency and liquidity test with respect to the remaining distribution to be made pursuant to the original resolution, order or obligation; and
(b) despite any law, order or agreement to the contrary, the company must not proceed with or continue with any such distribution unless the board adopts a further resolution as contemplated in subsection (1)(c).
It appears that no shareholders’ approval is required for distribution and according to Cassim in Contemporary Company Law it appears that the MOI cannot validly impose any prohibitions, conditions or requirements relating to the distribution. This means that any provisions in the MOI that prohibits certain distributions or acquisitions altogether or permit them only if certain conditions are met are not valid. According to Cassim this is borne out of reading section (15)(2)(a)(ii) of the Act and the definition of alterable provision in s 1 of the Act. If one examines s 46 it appears not to be an alterable provision, there is nothing in s 46 that may negate, restrict, limit, qualify, extend or otherwise alter in substance or in effect anything in a company’s MOI. It is unlikely that the legislature had this intention so it should be amended. There however is an opposing view.
The definition of distribution includes a distribution to “one or more” of the shareholders and s 47 governs the requirements of the value of the distribution and does not require the distribution to be at a uniform rate of all shares of the same class. However, it appears that class rights must be respected at all times and the directors do not have the power to discriminate amongst shareholders of the same class when it comes to the distribution of dividends.