Douglas Skeete (FP)
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OVER THE PAST years it has been observed that a number of companies on the local stock exchange have sought to expand by way of takeover of other companies that has entailed a buyout of the shareholding of the minority interests in the target companies.
As an example of this activity, just recently Goddard Enterprises Limited announced that it had sold its 92 per cent shareholding in The West Indies Rum Distillery Limited (WIRD) to United Caribbean Rum Limited (UCRL) by way of a block trade on the Barbados Stock Exchange.
Apparently, this resulted from a public takeover bid made by UCRL to acquire all of the issued and outstanding common shares of WIRD under the Takeover Bid Regulations 2002 of Barbados.
What this means therefore is that UCRL will be moving very soon to acquire the remaining eight per cent of the issued and common shares owned by the minority shareholders.
The question then becomes – do the minority shareholders have the power to hold on to their shares if they are not interested in selling, thereby denying UCLR a 100 per cent ownership of WIRD? Let us hold the answer to that question and instead consider the rights (powers) of shareholders.
Here are some of the rights of shareholders enshrined in the Companies Act of Barbados:-
• They have the right to attend meetings of shareholders.
• They are entitled to receive payment of a dividend.
• They have the right to vote at meetings of shareholders.
• They are entitled to receive audited or unaudited comparative financial statements of the company.
• They can remove any director from office by ordinary resolution at a special meeting.
• Shareholders of a company, as shareholders, are not liable for any liability, act or default of the company, except for unpaid capital.
In a takeover bid a shareholder who does not accept the bid (i.e. dissenting offeree) may require the offeror to acquire his shares if the offeror has acquired 90 per cent of the issued shares of the target company.
The dissenting offeree can demand the fair value of his shares by applying to the Court to fix the fair value of his shares.
A complainant (i.e. a shareholder) may apply to the Court for an order if the business or affairs of the company has been carried on or conducted in a manner, or the powers of the directors of the company have been exercised in a manner that is oppressive or unfairly prejudicial to or unfairly disregards the interest of any shareholder.
The shareholder is entitled to participate in the liquidation of the company and share in its distribution of any assets remaining after settlement of liabilities.
These rights and to some extent powers are enjoyed by all shareholders whether they are in the majority or in the minority.
However, the real power of shareholders is exercised by those holding a controlling interest in the shares or equally a majority of the votes (i.e. 51 per cent or more).
So in the case of GEL, which prior to the sale of its shares owned 92 per cent of WIRD, it is inconceivable that the eight per cent minority shareholders would have been able to dictate the policies, strategies and financial decisions of WIRD. The above would have been under the control of the 92 per cent owner if and when these matters were discussed or dealt with in meetings of directors and/or shareholders.
Once GEL had made the decision to sell its holdings in WIRD could the minority shareholders have stopped the sale from taking place? Generally, decisions at meetings of directors and/or shareholders are decided by a simple majority. Special or extraordinary meetings tend to require a two-thirds or 75 per cent majority.
Minority shareholders can on occasions exercise power by joining with the majority or other minorities to overturn decisions made or contemplated by the directors or to promote their own points of view.
Consider for a moment three shareholders and each one holds 20 per cent of the shares in a company. The fourth shareholder holds the remaining 40 per cent. Individually, the majority of the shares is held by the fourth shareholder (40 per cent) but the three minority shareholders (60 per cent) could defeat the majority shareholder if they pooled their shares.
The minority shareholders could conceivably not have prevented GEL from selling since it not only owned a majority of the shares in WIRD but it also had a controlling interest. So it is true that in some situations minority shareholders can exercise some power working with other shareholders but this is more the exception.
Generally, therefore, minority shareholders in public companies listed on the Barbados Stock Exchange are very much powerless. For example, they do not get to propose their own slate of directors, they do not have any say in the quantum of dividends declared and hardly ever get to remove directors who, in their opinion, are not working in the interest of the company.
Minority shareholders in Barbadian public companies operate merely to rubber stamp the decisions of the directors who serve as their masters rather than as their servants.
Discussions sometimes centre on directors who might not be acting in the interest of all shareholders but whose behaviour is deemed or could be deemed oppressive by the minority shareholders.
I am not aware of any such cases occurring in any of the public companies in Barbados but the Companies Act does provide some remedy to minority shareholders if this occurs. One such extreme remedy the court could take is to liquidate and dissolve the company or launch an investigation into its operations.
Finally, to answer the question posed whether the minority shareholders of WIRD could seek to prevent UCRL from compulsory acquiring their ten per cent shares, section 186 of the Companies Act of Barbados sides with UCRL.
The section allows UCRL (the offeror company) to acquire, if within 120 days after the date of the take-over bid and the bid is accepted by the holders of not less than 90 per cent of the shares, the shares held by the dissenting offerees or shareholders (i.e. ten per cent).
The reality is that minority shareholders do not, as a rule, have any powers in Barbadian companies that could have a significant impact on their managerial, operational and financial policies.
As a result of this, fundamental and legislative changes are being made in some progressive countries to tilt the balance away from the majority so as to give more meaningful rights and power to minority shareholders.
Douglas Skeete, a chartered accountant, is interim president of the Barbados Association of Corporate Shareholders.