KWV ‘plays legal points’ against shareholder proposal

KWV ‘plays legal points’ against shareholder proposal

FMCG SUPPLIER NEWS

IOL Business - Oct 7th 2011, 08:55

A legal battle is brewing between wine and spirits group KWV and some of its minority shareholders, led by activist Chris Logan, following moves by the minority shareholders to present a resolution to shareholders at the company’s upcoming annual general meeting (AGM). 

The brouhaha, which concerns an attempt by Logan to require the company to buy back its shares under specific circumstances, raises concerns about the rights of shareholders who use nominee accounts.

Logan, and his co-minority shareholder, use Peregrine to hold their shares in KWV. This means that Logan does not appear on KWV’s share register as a shareholder. KWV’s company secretary claims that this means he cannot propose a resolution to the AGM.

One source has speculated that the dispute about Logan’s rights in this situation is attributable to the controversial nature of the resolution Logan is proposing. The resolution states: “That the KWV Holdings board is instructed to repurchase KWV Holdings Limited shares on behalf of the company or any of its subsidiaries.”

It sets a limit of R9.60 a share and says no more than 4 million shares should be repurchased.

The narrow and legalistic interpretation being pursued by KWV, whose controlling shareholder is HCI, will deprive its minority shareholders of key rights in the governance of the company.

And although KWV is not listed, legal experts point out that if this interpretation were upheld following a legal battle, it would have serious adverse implications for the rights of shareholders who use nominee accounts to invest in listed companies.

Having initially accepted the resolution and forwarded it to KWV shareholders, Albert Eksteen, the company secretary, subsequently informed Logan that in terms of the new Companies Act they were not entitled to propose a resolution.

Eksteen argues that Logan and the other minority shareholder who submitted the resolution are not in fact shareholders because they are not listed as such in KWV’s shareholder register.

According to section 65(3) of the new Companies Act, any two shareholders of a company can propose a resolution concerning any matter in which they are entitled to exercise voting rights.

However, Eksteen notes that the definition of shareholder in the act, is “the holder of a share issued by a company and who is entered as such” in the register. On the basis of this definition, Eksteen states that Logan is not a shareholder and, therefore, cannot propose a resolution.

A leading expert on the new Companies Act told Business Report yesterday that KWV “is playing legal points”, and said that Logan’s broader interpretation was supported by section 56 and section 57 of the act.

Logan is pushing for the shares to be repurchased because KWV’s over-the-counter price is currently significantly below the company’s net asset value per share, and the company has considerable cash resources with which it could implement the repurchase.