28.6 HOW IT WORKS
In terms of Section 164(2), if a company calls a shareholders meeting to consider adopting a special resolution to enter into any fundamental transaction as contemplated in Section112, 113 or 114 or to amend its MOI by altering the preferences, rights and limitations or other terms of any class of its shares in any manner materially adverse to the rights or interest of holders of that class of shares as contemplated in s 37(8). That notice for the resolution must include a statement informing shareholders of their rights under s 164.
Section 37(8) provides that if a company’s MOI has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder who holds shares of the class effected is entitled to seek relief in terms of Section 164 if that shareholder;
(a) Notifies the company in advance of the intention to oppose the resolution, amending the MOI;
(b) Was present at the meeting and voted against the resolution.
The wording of Section 37 (8) is virtually the same as that of Section 115 (8).
There is no guidance as to what materially and adversely means in this context. Section 163 (the minority oppression action) and its predecessor s 252 of the old act may help because they use similar wording and were also enacted to protect minority shareholders. In fact, both remedies are probably capable of being invoked where s 164(2) read with s 37(8) is applicable.
Under Section 164(2) it is the shareholders rights or interest that must be materially and adversely affected, not the preferences, rights, limitations or other terms of the shares themselves. The wording of Section 37(8) is however to the opposite effect!
S37(8) If the Memorandum of Incorporation has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder of those shares is entitled to seek relief in terms of section 164 if that shareholder-
(a) notified the company in advance of the intention to oppose the resolution to amend the Memorandum of Incorporation; and
(b) was present at the meeting and voted against that resolution.