I OVERVIEW OF GOVERNANCE REGIME
German colonial rule was established in Namibia (then South-West Africa) in 1884 and continued until 1915, when South African forces, on instructions of the British government, invaded South-West Africa and took control of the capital, Windhoek. In 1919, South-West Africa became a mandate of South Africa and, in terms of Section 1(1) of Proclamation 21 of 1919, Roman-Dutch law was made applicable in South-West Africa, as in South Africa. South Africa remained in control of South-West Africa until 1990, when Namibia finally gained independence from South Africa.
As a result of the mandate that South Africa had over Namibia for almost a century, the Namibian legal system is closely linked with the South African legal system, and for many years was subject to it. The two countries share a common law (Roman-Dutch law, influenced to some extent by English law), and all pre-independence case law and statutes of South Africa are binding in Namibia unless they have been specifically revoked. Furthermore, post-independence case law and legal scholarship in South Africa is still considered persuasive authority in Namibia.
The Companies Act 61 of 1973, enacted in South Africa while South Africa held a mandate over Namibia, was applicable in Namibia as well. It remained in operation until 1 November 2010, when Namibia's own Companies Act of 20042 (Companies Act) came into operation. The Companies Act of 2004 repeals the Companies Act of 1973 and is the primary legislative instrument that deals with companies in Namibia. On 16 January 2017, the Business and Intellectual Property Act3 also came into operation. This Act establishes the Business and Intellectual Property Authority (BIPA) and sets out its powers and functions. BIPA is responsible for the administration and protection of business and intellectual property in Namibia.
As with the old Companies Act of 1973, the South African Stock Exchanges Control Act4 (SECA) was also made applicable in Namibia and has not been repealed to date. This Act regulates stock exchanges, stockbrokers and loans made against securities. In a drive to establish a more independent economy, however, the Namibian Stock Exchange (NSX) was established in 1992. The Rules of the NSX, together with the SECA, regulate all companies listed on the NSX.
Until recently, the King III corporate governance code of South Africa (King III) was used in Namibia as well. However, in 2014, Namibia introduced the Corporate Governance Code for Namibia (NamCode), which was prepared by the NSX with the support of FNB Namibia Holdings Limited. The NamCode applies to all entities incorporated by statute, under or in terms of the Companies Act or any other legislation applicable in Namibia. Compliance with the NamCode is voluntary.
II CORPORATE LEADERSHIP
In line with international practice, companies in Namibia are represented by two bodies, namely the shareholders, who ultimately own the company, and the board of directors, which is responsible for managing the company. The relationship between the company, its shareholders and the board of directors is determined by common law, the Companies Act and the articles of association of the company. Often, the shareholders of a company will also enter into a shareholders' agreement, which amplifies the roles and responsibilities of shareholders and directors in respect of the company.
i Board structure and practices
In Namibia, companies usually have a one-tier structure. The Companies Act does not make provision for a two-tier structure. Nor does it deal with the powers and functions of the chairperson (even though it refers to a chairperson of the board); these are usually dealt with in the articles of association of each company. The Companies Act does not refer specifically to chief executive officers, although most companies in Namibia have one.
The NamCode recognises what happens in practice and states that each board should elect a chairperson, who should be a non-executive director.5 Furthermore, each board must appoint a CEO and establish a framework for the delegation of authority.6 The CEO may not be the chairperson.7 The NamCode sets out in detail the responsibilities of the chairperson and the CEO,8 and states that the board must consist of a majority of independent, non-executive directors.9
The legal position of directors in relation to the company is not settled under Namibian law. Directors have been referred to as agents of the company, trustees and managing partners.10 The better view, however, is that the directors stand in a unique or sui generis relationship to the company and should not be forced into a specific role or position (although they do reflect various characteristics of each of these roles).11 Each director, as an individual member of the board, has certain rights and responsibilities. These rights and responsibilities are set out in the Companies Act, common law, the articles of association of the company and, where applicable, the shareholders' agreement.
The board of directors acts primarily in the interest of the company and then in the interest of individual shareholders, in keeping with the duty of good faith that each director owes towards the company.12 Although directors are appointed by the shareholders or a class of shareholders, directors should not place the interests of the shareholder or class of shareholders who appointed them above the interests of the company. This is confirmed in the NamCode as well.13
The Companies Act does not provide for delegation of authority to committees established by the board, although the articles of association normally provide for the establishment of committees and delegation of authority to committees. The NamCode also obliges the board to delegate certain functions to well-structured committees without abdicating its own responsibilities.14
Under the NamCode, the board, its committees and individual directors should be subject to annual performance evaluations.15 Induction of directors as well as ongoing training and development must be conducted through formal processes.16
Remuneration of board members is not dealt with in the Companies Act, and often also not under the articles of association. There is no indication in law that a person who acts as a director is entitled to remuneration.17 Remuneration must be provided for in the articles of association or authorised by the shareholders in general meeting. The board of the company cannot authorise payment of remuneration to board members. Typically, the articles of companies will state that board members are entitled to such remuneration as may be authorised by the shareholders in general meeting. The NamCode provides certain guidelines as to the remuneration of board members and senior executives.18 The NamCode also states that companies must disclose the remuneration of each individual director.19 Shareholders must approve the company's remuneration policy.20
Section 1 of the Companies Act defines a director as '[including] any person occupying the position of director or alternate director of a company, by whatever name that person may be designated'. The importance of this definition is that a person will, for purposes of the Companies Act, be a director if, objectively speaking, that person occupies the position of director, regardless of what title he or she has.
In general, two types of director may be distinguished: executive and non-executive directors. Executive directors are employees or members of the management team of a company who are appointed to positions on the board. They therefore come from within the company21 and are involved in the day-to day running of the company. Non-executive directors have no vested interest in the company as they are not involved in the day-to-day running of the company; nor are they employed by the company. They are independent and serve as impartial arbiters.22 A distinction is often also made between non-executive directors and independent non-executive directors: while neither come from within the company or have any vested interest in the company, an independent non-executive director has no existing or prior business, employment, consultancy or other relationship with the company.23
The rights of directors are derived from various sources, including the Companies Act, common law, the company's memorandum and articles of association, and agreements concluded between the company and the director (such as service or employment agreements). Sometimes, the rights of directors are also contained in agreements entered into between shareholders.
Under the Companies Act, every public company must have at least two directors and every private company must have at least one director.24 Until directors are appointed, every subscriber to the memorandum of incorporation of a company is deemed to be a director of the company.25 The majority of the subscribers may, in writing and subject to the articles of association of the company, determine the number of directors and the appointment of the first directors.26 After every change in the board of directors, the company must lodge Form CM29 with the Registrar of Companies. Any person who is appointed as a director or officer of a company at any time after the company has become entitled to commence business must, within 28 days of the date of that appointment or within a further period that the Registrar may allow if a good reason is provided and on payment of the prescribed fee, lodge with the company his or her written consent to that appointment on the prescribed form (Form CM27).27 This does not apply to the reappointment of a retiring director. The acts of a director of a company are valid notwithstanding any defect that may afterwards be discovered in his or her appointment or qualification.28
The Companies Act disqualifies certain persons from being appointed or acting as a director of a company, and no person falling within this category may assume the position of a director within the Republic of Namibia. Furthermore, the Companies Act also provides for the disqualification of directors by an order of the High Court.29 Any person disqualified from being appointed or acting as a director of a company, and who purports to act as a director or directly or indirectly takes part in or is concerned with the management of any company, is committing an offence and is liable to a fine of up to N$8,000 or to be imprisoned for a period not exceeding two years, or both. The statutory disqualifications do not prohibit a company from providing in its articles of association for any further disqualifications for the appointment of, or the retention of office by, any person as a director of that company.30 Furthermore, the High Court of Namibia may make an order directing that, for any period specified in the order, a person, director or officer must not, under certain circumstances, without the leave of the Court be a director of a company or in any way, whether directly or indirectly, be concerned or take part in the management of any company.31
Every company must keep a register of directors, officers and corporate secretaries at its registered office.32 The register must be kept in English and must contain the information prescribed by the Companies Act.33 Except when closed under the Companies Act and subject to any reasonable restrictions that the company may impose in a general meeting, so that not less than two hours in each day is allowed for inspection during business hours, the register of directors of a company must be open to inspection by any person upon payment for each inspection of the prescribed amount or any lesser amount that the company may determine.34 Any company that fails to keep a register is committing an offence, and is liable to a fine of up to N$2,000, and an additional fine that cannot exceed N$40 for every day the offence continues.35
The shareholders of a company may, at a general meeting and notwithstanding anything in its memorandum or articles of association, or in any agreement between it and any director, remove a director by ordinary resolution before the expiry of his or her period of office.36 Special notice must be lodged with the company of any proposed resolution to remove a director under this Section, or to appoint any person in the place of a director so removed at the meeting at which he or she is removed, and, on receipt of notice of the proposed resolution, the company must, as soon as is reasonably possible, deliver a copy of the notice to the director concerned who is, whether or not he or she is a member of the company, entitled to be heard on the proposed resolution at the meeting.37 Special notice means that notice of the intention to move the resolution must be given at least 28 days before the meeting at which it is moved.38 If special notice is given, and the director concerned makes written representations (which should not exceed a reasonable length) to the company and requests their notification to members of the company, the company must, unless the representations are received by it too late for it to do so, in any notice of the resolution given to members of the company state that representations have been made and send a copy of the representations to every member of the company to whom notice of the meeting is sent, whether that notice is sent before or after receipt of the representations by the company.39 If a copy of the representations is not sent because it was received too late or because of the company's failure to do so, the director concerned may, without prejudice to his or her right to be heard orally, require that the representations be read at the meeting.40 A copy of the representations must not be sent out and the representations need not be read out at any meeting if, on the application of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this Section are being abused to secure needless publicity for defamatory matter.41 None of the above, however, is to be construed as depriving a person removed from office of compensation or damages that may be payable to him or her in respect of the termination of his or her appointment as director. For example, if the removal of the person as director amounted to a breach of contract, the person so removed may separately claim damages for the breach. The former director may also claim damages as a result of the termination of any other appointment he or she held that terminated with the appointment as director. Furthermore, none of these provisions should be read as derogating from any power to remove a director that may otherwise exist.42
iii Rights of directors
The rights of directors are derived from various sources. These may include the Companies Act, common law, the company's articles of association and any agreement entered into with the director, such as employment or service agreements.
A director has the right to exercise the powers of his or her office. Each director therefore has the right to be given notice of and attend board meetings, the right to vote at such meetings and the right to take part in the management of the company. Included in the right to be given notice of board meetings is the right to all information required for the director to make an informed decision,43 as well as the right to be given time to consider the information.44 Other directors may not exclude a director from exercising his or her functions (e.g., by holding meetings without notifying a director).45
Every director has, under common law, a personal right to inspect the accounting records of the company. This enables the director to make informed decisions and to act for the benefit of the shareholders.46 The right of a director to inspect the accounting records is also contained in the Companies Act.47 To exercise this right, the director has the right to procure the assistance of an accountant, provided that the company may, if good cause exists, object to the use of an accountant or demand an undertaking from the accountant that he or she will not disclose any information gained in the process.48 A director is not required to give reasons for wanting to exercise his or her right to inspect the records of the company.49 Furthermore, although they have a right to inspect the accounting records, they are not obliged to do so. A managing director, however, is required to examine the correctness of the more important entries in the books of the company.50
Directors are not legally entitled to directors' fees, unless the fees are authorised by the company's articles of association or by the shareholders in general meeting.51 A director's remuneration may take one of two forms. First, it can be consideration for services rendered as a director, in which case it is referred to as a director's fees. Secondly, it can take the form of consideration for services as an employee, in which case it is referred to as a director's salary.52
iv Powers of directors
As with the rights of directors, the powers of directors may be found in various sources, including common law, the Companies Act, the articles of association and any agreement entered into with the director. Certain powers are reserved for the members, who exercise these powers at general meetings of the company. Other powers may be exercised by the members or the board of directors, depending on the division of powers in the company's articles of association and the provisions of the Companies Act. Where powers are vested in the board of directors, the directors alone can exercise these powers.53 A director may not place him or herself in such a position that his or her personal interests conflict or may possibly conflict with his or her duty to act in the best interests of the company.54
Under common law, directors are empowered to do whatever is reasonably incidental to the management of the company's business. This may include the power to enter into contracts, appoint employees and even cease business operations. The articles of association of a company usually provide for the specific powers of the directors. The articles of association may also impose restrictions on the powers of directors. The powers of the board of directors are exercised by means of resolutions passed at meetings of directors.55
Under Section 39 of the Companies Act, where the objects of a company are stated in its memorandum, there must be included in those objects unlimited objects ancillary to those stated objects. For example, the memorandum for a company whose object is investing in property must state 'Investing in property and all objects ancillary thereto'. A company has, unless limited by the Companies Act, plenary powers to enable it to realise its objects and ancillary objects, except those specific powers that are expressly excluded from or qualified in its memorandum.56 These plenary powers are set out in Schedule 2 to the Companies Act.
The Companies Act places various restrictions on the powers of directors. These restrictions apply notwithstanding anything to the contrary contained in the memorandum and articles of association of the company. For example, the directors of a company have no power to allot or issue shares of the company without the prior approval of the company in a general meeting.57 Any director of a company who knowingly takes part in the allotment or issue of any shares in contravention of this Section is liable to compensate the company for any loss, damages or costs that the company may have sustained or incurred thereby, but proceedings to recover any such loss or those damages or costs must be commenced no later than two years from the date of the allotment or issue.58
Another example of where a director's powers are limited relates to share option plans in which the director is interested. An option or a right given directly or indirectly to any director or future director59 of a company in terms of any scheme or plan, to subscribe for any shares of that company or to take up any debentures convertible into shares of that company on any basis, is not valid unless authorised in terms of a special resolution of that company.60 This, however, does not apply where those shares or debentures are allotted or issued in proportion to existing holdings, on the same terms and conditions as have been offered to all the members or debenture holders of the company, or to all the holders of the shares or debentures of the class or classes being allotted or issued.61 An option or right is not invalid in terms of this Section if that director or future director of the company holds salaried employment or office in the company and is given that option or right in his or her capacity as an employee.62
A director of a company who purchases a right to make delivery or call for delivery at a specified price, within a specified time, of a specified number of shares or a specified amount of debentures listed by a stock exchange, is committing an offence and is liable to a fine of up to N$4,000 or imprisonment for up to one year, or both.63 This restriction should not be taken as penalising a person who buys a right to subscribe for shares or debentures of a body corporate or buys debentures of a body corporate that confer on the holder of the right a right to subscribe for shares of that body corporate, or to convert the debentures in whole or in part into shares of that body corporate.64
The directors of a company have no power, save with the approval of a general meeting of the company, to dispose of the whole or substantially the whole of the undertaking of the company or the whole or the greater part of the assets of the company.65 A resolution of the company approving such a disposal has no effect unless it authorises or ratifies the terms of the specific transaction.66
v Personal liability of directors
Section 56 sets out instances where, in respect of company names, a director acting on behalf of the company commits an offence. Where the offence concerns a bill of exchange, promissory note, cheque or order for money or goods and the offence leads to the default of payment in that document, the person who committed the offence is liable for the amount stated on the document.67 The first of these offences involving a company's name is where the director uses or authorises the use of any seal purporting to be the seal of a company where the name of the company is not engraved on that seal in legible characters.68 The second offence is where a director issues or authorises the issue of any notice or other official publication of the company, or signs or authorises the signing on behalf of the company of any bill of exchange, promissory note, endorsement, cheque or order for money or goods where the name of the company and registration number is not in legible character on the document.69 The third offence is where a director issues or authorises the issue of any letter, delivery note, invoice, receipt or letter of credit of the company where the name and registration number of the company is not on these documents in legible characters.70
Under Section 430, if it appears (whether in a winding-up procedure, judicial management procedure or otherwise) that any business of the company was or is being carried on recklessly, or with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court may, on the application of the master, the liquidator, the judicial manager, any creditor or member or contributory of the company, declare that any person who was knowingly a party to the carrying on of the business in that manner is personally responsible, without any limitation of liability, for any or all of the debts or other liabilities of the company as the court may direct.71 Without prejudice to any other criminal liability incurred, where any business of a company is carried on recklessly or with the aforementioned intent, every person who was knowingly a party to the carrying on of the business in that manner is committing an offence and is liable to a fine of up to N$8,000 or imprisonment for up to two years, or both.72
The Companies Act contains numerous provisions in terms whereof directors and auditors are required to make certain disclosures regarding the company, its transactions, its directors and its financial matters. The first disclosure requirements set out by the Act relate to the interests of directors of a company in contracts to which the company is a party.73 In terms of the Companies Act, any director 'who is in any way, whether directly or indirectly, materially interested in a contract or proposed contract', and where this contract or proposed contract is significant to the business of the company and is entered into or to be entered into following a resolution of directors taken at a meeting of the directors, or by one or more directors or officers of that company, in accordance with authorisation by the remaining directors of the company, is required to disclose his or her interests therein to the company.74 The director should disclose the full particulars of his or her interest, regardless of whether that director's interest exists at the time at which the contract was entered into or arises at any time thereafter.75 The disclosure should be made at the meeting of the directors 'at which the question of confirming or entering into the contract is first taken into consideration' or, if this is not possible, at the next directors' meeting, on which date reasons for late disclosure should be provided and, if brought by way of a written notice, should be read out at the meeting or signed by all other directors present to confirm that each of them has read the written notice.76 General notice of a director's interest in another company or business is acceptable for disclosure purposes if compliant with the relevant notice requirements and brought within the prescribed time.77
The failure to disclose as required has consequences for both the director, who will have committed an offence and is liable to a fine not exceeding N$4,000 or imprisonment for up to one year, or both, and for the company, because of the invalidity of all resolutions taken by the company regarding contracts or proposed contracts where the provisions relating to disclosure have not been complied with.78 The disclosed interests should be reflected in the minutes of the directors' meetings, and a register should be kept stipulating all interests of directors and officers as disclosed. The auditor of the company is responsible for ensuring that these minutes and registers are accurately kept.79
Auditors are appointed by the members of a company at the annual general meeting, following the initial appointment of auditors by the members or directors of the company upon incorporation, or as otherwise provided for in the Companies Act.80 The Companies Act stipulates that the duty of an auditor of a company is to 'report to its members in any manner and on any matters which are prescribed by th[e] Act and carry out all other duties imposed on him or her by th[e] Act or any other law'.81 The auditor of a company has a right to access all books, documents and accounting records of a company, and may require directors and officers of the company to provide any information and explanation that the auditor deems necessary for the completion of his or her duties, including all financial information, past and present, of a subsidiary where that company is a holding company.82 The appointed auditors are also permitted to attend general meetings of the company, and should receive all notices and information relating thereto that would usually be provided to members of the company.83 The powers and duties of auditors are dealt with in more detail in the Public Accountants' and Auditors' Act.84 The auditor is not an officer of the company, and indeed officers of the company do not qualify for appointment as auditors.85 An auditor is to maintain independence during the performance of his or her duties, which should be performed without taking instructions from directors, shareholders or creditors.86
The Companies Act provides extensively for financial reporting and accountability, and each company must keep accounting records to fairly present the financial position of the company, its transactions and all other relevant details.87 The directors are responsible for ensuring that annual financial statements, compliant with generally accepted accounting practice and including reports by the directors and auditors, are made out every year and presented at the annual general meeting.88 Specific information must be disclosed in the financial statements, as stipulated by the Companies Act, including loans and securities benefitting directors and managers, and emoluments and pensions of directors.89 The annual financial statements, with the exception of the auditors' report, must be approved and signed by the directors, and thereafter sent to members and the Registrar.90 Members and debenture holders, as well as other individuals as provided for in the Companies Act, must be provided with copies of the annual financial statements without charge and upon demand. Failure to provide them within seven days of a request constitutes an offence, the consequence of which is a fine for each day of non-compliance.91 Details regarding what the annual financial statements should contain and disclose are fully set out in Schedule 4 to the Companies Act.
The NamCode, as discussed above, provides the standards regarding corporate governance, and while companies are not statutorily obligated to comply therewith, the intention is for companies to apply or explain, and that any case of non-compliance with the recommended practices must be explained fully by directors to shareholders and other stakeholders.92
IV CORPORATE RESPONSIBILITY
Namibian law does not have an overall law or policy dealing with corporate responsibility. Until recently, companies have generally relied on the King III or industry self-regulation to promote corporate responsibility. The NamCode, however, contains various provisions relating to corporate responsibility. For example, it states that the board is primarily responsible for the governance of risk.93 The board must ensure that there is an effective risk-based internal audit.94 The board must further be assisted by a risk committee in carrying out its risk responsibilities95 and must delegate to management the responsibility to design, implement and monitor the risk management plan.96 The board must ensure that risk assessments are performed on a continual basis,97 and that frameworks and methodologies are implemented to increase the probability of anticipating predictable risks.98 The board must ensure that management considers and implements appropriate risk responses,99 and must also ensure continual risk monitoring by management.100 The board must receive assurance regarding the effectiveness of the risk management process,101 and must ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders.102 Compliance risk must form an integral part of the company's risk management process,103 and the board must delegate to the management the implementation of an effective compliance framework and processes.104
The board of each company must, in terms of the NamCode, ensure that the company complies with applicable laws, and must consider adherence to non-binding rules, codes and standards.105 This will ensure further social responsibility, and also ensures protection of employees and other interested parties. Other legislation such as the Labour Act No. 11 of 2007, and policies such as the Minerals Policy and Energy White Paper, contain provisions relating to corporate responsibility and, by ensuring that a board is obliged, or at least motivated, to have knowledge of these measures, will promote corporate responsibility.
The NamCode states that a board must appreciate that stakeholders' perceptions affect a company's reputation.106 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence.107 The board must, therefore, instruct management to deal proactively with stakeholder relationships108 and strive to achieve the appropriate balance between its various stakeholder groupings in the best interests of the company.109
i Shareholder rights and powers
According to the Companies Act, every subscriber to the memorandum of association of a company is deemed to be a member on incorporation.110 Members are thus shareholders whose names are included in the register of members. In terms of the Companies Act, there is little distinction between members and shareholders, and the two terms are largely interchangeable.
The Companies Act stipulates that, subject to its provisions, each member holding a share has a voting right in respect of each share held.111 Similarly, members of companies that are limited by guarantee, and thus have no share capital, each have one vote.112 The articles of association of private companies must stipulate the voting rights that attach to shares and various classes thereof,113 and often preference shares are issued without voting rights or with voting rights applicable only in limited circumstances.114
The influence that shareholders can exercise over the board is limited to the appointment of directors115 for a specific term and the right to remove directors. The removal of a director, in terms of the Companies Act, is done by way of ordinary resolution, for which special notice must be given to the company, and the director sought to be removed should be notified thereof and allowed to make representations, as discussed above.116
Certain decisions regarding the company can only be taken with shareholder input, such as the issue and allotment of shares, which require approval by the shareholders at a general meeting.117 The approval can be general approval given to directors, or specific approval, and this requirement cannot be amended or removed by way of the articles of association.118 Further restrictions exist regarding the issue and allotment of shares, or debentures convertible to shares, to directors, their nominees, bodies corporate they are involved in as stipulated or any subsidiaries thereof, in which instances specific approval must be granted at a general meeting, and other requirements must similarly be met.119 The rights of dissenting or minority shareholders are addressed below, where the recourse available to them is discussed.
The varying of rights attached to various classes of shares cannot be done without the consent of three-quarters of the holders of that class of shares, or by the passing of a resolution at a meeting of those shareholders, which is to be regarded as a special resolution, and all necessary provisions are to be complied with accordingly. According to the standard articles of association, a special resolution, and thus shareholder approval, is also required for:
- the conversion of any or all paid-up shares to stock;
- changing the share capital by way of consolidation or division, or by an increase in issued shares without an increase of share capital;
- the subdivision of existing shares;
- the conversion of ordinary or preference par value shares into no par value shares, and vice versa;
- the cancellation of shares not taken up on the date of the resolution;
- a reduction of share capital and stated capital;
- the capital redemption fund of share premium accounts, subject to the necessary consent and authorisation required by law; and
- the conversion of preference shares into redeemable shares.
Other decisions that require a special resolution by the shareholders include:
- changing the name of the company;120
- amending the memorandum and articles of association;121
- converting a public company to a private company;122
- altering the company's share capital;123
- acquisition by a company of its own shares;124
- converting shares into stock;125
- resolving that a company's affairs be investigated by an inspector appointed by the Minister of Trade;
- industrialisation and small and medium-sized enterprise development;126 and
- resolving that the company be wound up by the court.127
An ordinary resolution is required to authorise the disposal of the whole or substantially the whole of the undertaking of the company, or the whole or greater part of the assets of the company.128
ii Shareholders' duties and responsibilities
In terms of the Companies Act, shareholders have no specific duties, either between themselves or regarding the relationship between themselves and the company. Shareholders' agreements – optional agreements concluded between shareholders and the company in which they hold shares, and which govern the relationship between the company and its shareholders and shareholders' relationships with one another – could create duties, which would thus be binding in terms of the agreement. As companies are separate legal entities, shareholders cannot be held liable for any acts or omissions of the company. No code exists in Namibia governing best practices for shareholders.
iii Shareholder activism
As stated above, the standard articles of association stipulate that the remuneration of directors is to be determined from time to time in a general meeting. The consequence of this is that the shareholders must take a vote regarding the remuneration of directors, and a simple majority is required to approve the suggested remuneration. Further provision is made in the articles of association for circumstances where directors are required to perform beyond what is ordinarily required of them in their service for the benefit of the company; for example, by travelling abroad. In such circumstances, the company may remunerate the directors for their extra services by way of a fixed amount or a percentage of the profits, and this remuneration can be in addition to or in place of existing remuneration. The same simple majority at a general meeting would be required for the approval of any additional remuneration.
Provision is made in the Companies Act for shareholders to have recourse in the event of their dissatisfaction with the way in which the business of the company is being conducted, and several remedies are available to shareholders. Where members believe that the conduct of the company, either in a specific situation, or generally, is 'unreasonably prejudicial, unjust or inequitable', the members may approach a court for relief, and in some instances relief must be sought within a stipulated time period.129 The Companies Act provides for various orders that the High Court may make in such instances, including amendment of the memorandum and articles of association, as well as consequences for companies that fail to comply with these orders. Extensive provision is made in the Companies Act for the appointment of inspectors by the Minister of Trade and Industry (Minister), upon application by a stipulated minimum number of members, as well as the inspections conducted by these inspectors.130 The Minister is also entitled to initiate such investigations when they are found to be reasonably necessary,131 and any company to be investigated in this manner should receive prior written notice from the Minister, informing it of the complaint and the pending investigation and allowing a reasonable opportunity for response thereto, unless the Minister is of the opinion that the notice would defeat the object of the intended investigation.132 These investigations can be initiated by other means, including the passing of a special resolution or an order of court.133 Upon finalisation of the inspection, a written report is to be compiled and presented to the Minister, following which the Minister has various options, including approaching a court to start winding-up proceedings, or directing the Registrar to take one or more steps.134
Derivative action is provided for in the Companies Act in circumstances where 'a company has suffered damages or loss or has been deprived of any benefit as a result of any wrong, breach of trust or breach of faith committed by any director or officer of that company or by any past director or officer while a director or officer of that company'.135 Where, in such circumstances, the company has not instituted proceedings against that director or officer, past or present, to recover the resultant damages or loss of benefit, any member may initiate such proceedings on the company's behalf as are provided for in the Companies Act.136 This can be done regardless of any ratification or condonation by the company in respect of the director or officer's actions, but only after notice has been served on the company calling for the initiation of proceedings within one month of the date of service of the notice, failing which legal proceedings will be instituted.137 The member may then apply to the High Court for the appointment of a curator, to act on the company's behalf for the purposes of initiating and bringing to finalisation the necessary proceedings.138 If the High Court grants the application, in light of the specific provisions of the Companies Act, it may make a provisional order allowing for an investigation by the appointed curator into the affairs of the business, and upon submission of the curator's report, the appointment and court order can be confirmed.139
Members are entitled to nominate proxies to serve on their behalf at meetings, and the notices for meetings of companies with a share capital should include a proxy form (an example of which is contained in the standard articles of association) indicating that a proxy may appear for a member, and may also speak and vote as instructed by the member.140 Namibian legislation is silent on proxy battles and shareholder campaigns, but both occur regularly within the course of business of Namibian companies.
iv Takeover defences
Takeover offers are dealt with in terms of the Companies Act. Depending on the value of the takeover and whether it amounts in fact to the acquisition of one entity over the whole or part of the business of another entity, the Namibian Competition Commission would also need to approve the takeover.
Takeovers in Namibia may occur in a number of ways. Where companies have few shareholders, it is possible to approach each shareholder individually and buy out that shareholder. Where a company has one major shareholder, the easiest way to achieve a takeover would be to approach the major shareholder with the intention of buying this shareholder out. This is the most common method of achieving a takeover.141 It is also possible to issue a takeover offer to shareholders in terms of the Companies Act.142 The Companies Act sets out the procedure that must then be followed,143 the content of the takeover statements,144 and liability and offences in respect of takeover offers.145 The Companies Act also sets out the circumstances under which the shares of the minority under a takeover scheme may be acquired.146
There are a certain number of ways in terms whereof a company may reduce the risk of takeovers. Since any potential offeror would need to know who the shareholders are and where to approach them, limiting access to the share register is advisable. However, in Namibia a company's share register is available to the public, and failure to provide access is a criminal offence.147 Another possible deterrent would be to include change in control provisions in loan agreements in terms whereof the loan repayment is accelerated in events of change in control; any entity taking over the company would then be stuck with this accelerated debt.
It is also possible for a company to avoid a takeover by introducing a shareholder rights plan in terms whereof existing shareholders may purchase additional shares at a discount, if a certain trigger event occurs (e.g., one shareholder obtains more than 10 per cent of the shares). The plan would have to comply with the Companies Act, which places various restrictions on the issue of shares at a discount.148 First, the issue must be authorised by a special resolution of the company, which must state the maximum rate of discount at which the shares are to be issued. Secondly, the company must have been in business for more than one year. Thirdly, the issue must be sanctioned by the High Court. Finally, the shares must be issued within one month after sanction by the Court.
A white-knight defence is not common parlance in Namibia, but what it entails (a friendly takeover, usually in cooperation with the target) is generally allowed in Namibia, provided that the provisions of the Companies Act are complied with. If the transaction amounts to a merger and does not fall within the merger thresholds, Competition Commission approval would also need to be obtained.
As with the white-knight defence, the term staggered board (where groups of directors are appointed at different times for multi-year periods) is not a common phrase in Namibia, but boards are often constituted this way. In fact, the NamCode encourages a staggered board and proposes that one-third of the board retires each year.149 The NamCode also discourages terms of longer than nine years.150
v Contact with shareholders
Under the Companies Act, a report may be published following a meeting of the company that sets out the details of that meeting, on the condition that it accurately sets out a summary of all questions and comments regarding any topics that arose at the meeting.151 Anything addressed at the meeting that could be found to be defamatory to any person, or otherwise detrimental to the company, need not be included, and the report may be circulated and advertised at the expense of the company.152 As stated above, reporting by the auditor on the prescribed matters is a requirement of the Companies Act.153 The directors must also compile a report, to be published in the annual financial statements.154 The report should be in respect of the company's state of affairs, including business and profit and loss of the company, along with other topics stipulated in the Companies Act, specifically Schedule 4 thereof, and should be presented to the members at the annual general meeting.155 Failure to comply therewith constitutes an offence, with possible fines or a period of imprisonment, or both.156
Additional reporting is required for public companies, for which interim reports and provisional annual financial statements must be prepared, as set out in the Companies Act.157 Members have a right to a copy of the most recent audited financial statements, and any interim reports and provisional annual financial statements where applicable.158 These copies should be provided on demand and without charge, and may also be requested by debenture holders and judgment creditors, as provided for in the Companies Act.159
Meetings between individual shareholders and directors are not addressed in the Companies Act, and are thus not prohibited, and they are not uncommon within Namibia. Directors are often appointed by a specific group of shareholders with a view to having those shareholders represented at board level. It would thus be expected for that director to meet with the shareholders he or she represents, to report on the affairs of the company and to receive guidance with regards to how to vote or get ideas from the shareholders to be presented to the board. However, insider trading is prohibited, and as such any communication that would amount to insider trading, or is made with a view to bring unlawful benefit to any party, is prohibited.
Secrecy agreements and similar agreements regulating the conduct of shareholders between themselves are not specifically addressed in the Companies Act. Where companies or shareholders, or both, find it necessary to regulate their relationship specifically in this regard, the issue of secrecy and similar issues are typically addressed in shareholders' agreements. A shareholders' agreement binds all existing shareholders and governs the relationships of shareholders between themselves. Such agreements can be prepared to be binding on future shareholders, to ensure that newcomers are similarly required to conduct themselves as stipulated. Alternatively, companies may choose to include specific provisions relating to secrecy or other topics in their articles of association of. This would automatically be binding on shareholders, both current and future, as well as on the company in respect of its dealings with its shareholders.
Notice periods regarding any general meeting to be held can be stipulated in the articles of association of a company, but if not provided for, 14 days' written notice should be given in the case of general meetings, with 21 days' written notice to be given where the meeting is being held to pass a special resolution.160 Provision is made for the waiving of these periods, either by members holding a minimum of 95 per cent of the shares approving the shorter notice period prior to the meeting being held, or by written notice of all members to be given before or at the meeting.161 Notice should be given in the manner prescribed in the articles of association,162 but should set out details of what is to be discussed at the meeting and what votes are to be taken, if any. As stated above, proxy forms are included to allow for the appointment of proxies for purposes of attending the meeting, and these forms stipulate how that member wishes to vote on each issue to be addressed. Proxy solicitation is not addressed in the Companies Act, and it occurs within the ordinary course of business between shareholders in Namibia. The primary concern of large blocks of shareholders typically has to do with the voting rights of whatever class of shares they hold, as discussed above.
The legislative framework dealing with companies has limited provisions promoting good governance. Until recently, the principles of corporate governance applied in Namibia were borrowed from South Africa and international practices. With the introduction of the NamCode and the concomitant support and motivation by the NSX for listed companies to comply with the NamCode, Namibia is fast on its way to establishing a proper, settled framework for the corporate governance of Namibian companies and companies listed on the NSX. What is absent, however, is continuous training and information-sharing sessions to ensure that directors, shareholders, stakeholders and other persons are informed and updated on the development of corporate governance in Namibia.
1 Meyer van den Berg is a partner and Stefan van Zijl is an associate at Koep & Partners.
2 Companies Act 28 of 2004.
3 Business and Intellectual Property Act 8 of 2016.
4 South African Stock Exchanges Control Act 1 of 1985.
5 Principle C2-16 of the NamCode.
6 Principle C2-17 of the NamCode.
7 Principle C2-16 of the NamCode.
8 Principles C2-16 and C2-17 of the NamCode.
9 Principle C2-18 of the NamCode.
10 See Lochoff v. Jewish Daily Press Ltd 1942 WLD 255 at 258; Cohen NO v. Segal 1970 (3) SA 702 (W) at 706.
11 See, for example, S J Naude, Die Regsposisie van die Maatskappydirekteur (Durban: Butterworths, 1970), pp. 42–45.
12 See, for example, Robinson v. Imroth and Others 1917 WLD 159 at 172; R v. Mall and Others 1959 (4) SA 607 (N) at 623.
13 Principle C1-1 of the NamCode.
14 Principle C2-23 of the NamCode.
15 Principle C2-22 of the NamCode.
16 Principle C2-20 of the NamCode.
17 Phillips v. Base Metals Exploration Syndicate, Ltd (in liquidation) 1911 TPD 403 at 406.
18 Principle C2-25 of the NamCode.
19 Principle C2-26 of the NamCode.
20 Principle C2-27 of the NamCode.
21 R Naidoo, Corporate Governance (2nd edition, Durban: LexisNexis, 2009), p. 114.
23 Paragraph 18.6 of Principle C2-18 of the NamCode sets out the following characteristics of an independent non-executive director: an independent non-executive director is a non-executive director who (1) is not a representative of a shareholder who has the ability to control or significantly influence management or the board; (2) does not have a direct or indirect interest in the company (including any parent or subsidiary in a consolidated group with the company) that exceeds 5 per cent of the group's total number of shares in issue; (3) does not have a direct or indirect interest in the company that is less than 5 per cent of the group's total number of shares in issue, but is material to his or her personal wealth; (4) has not been employed by the company or the group of which it currently forms part in any executive capacity, or a partner in the group's external audit firm or a senior legal adviser for the preceding three financial years; (5) is not a member of the immediate family of an individual who is, or has during the preceding three financial years, been employed by the company or the group in an executive capacity; (6) is not a professional adviser to the company or the group, other than as a director; (7) is free from any business or other relationship (contractual or statutory) that could be seen by an objective outsider to interfere materially with the individual's capacity to act in an independent manner, such as being a director of a material customer of or supplier to the company; or (8) does not receive remuneration contingent upon the performance of the company.
24 Section 216(1) of the Companies Act.
25 Section 216(2) of the Companies Act.
26 Section 217 of the Companies Act.
27 Section 219(3) of the Companies Act.
28 Section 222 of the Companies Act.
29 Section 225 of the Companies Act.
30 Section 225(3) of the Companies Act.
31 Section 226(1) of the Companies Act.
32 Section 223(1) of the Companies Act.
34 Section 120 read with Section 223(4) of the Companies Act.
35 Section 223(6) of the Companies Act.
36 Section 228(1) of the Companies Act.
37 Section 228(3) of the Companies Act.
38 Section 194(4) of the Companies Act.
39 Section 228(4) of the Companies Act.
40 Section 228(5) of the Companies Act.
41 Section 228(6) of the Companies Act.
42 Section 228(8) of the Companies Act.
43 J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC,1999), pp. 88–91.
44 Robinson v. Imroth and Others 1917 WLD 159 at 171.
45 Pulbrook v. Richmond Consolidated Mining Co (1878) 9 ChD 610 at 612; Robinson v. Imroth and Others 1917 WLD 159 at 170.
46 Id, pp. 91–94.
47 To this effect, Section 292(3) of the Companies Act states as follows: 'The accounting records must be kept at the registered office of the company or at any other place which the directors consider proper and must, at all times, be open to inspection by the directors and if those records are kept at a place outside Namibia, there must be sent to and kept at a place in Namibia, and be at all times open to inspection by the directors, financial statements and returns with respect to the business dealt with in those records as will disclose with reasonable accuracy the financial position of that business at intervals not exceeding 12 months, subject to Section 293, and will enable the company's annual financial statements to be prepared in accordance with this Act.'
48 Wes-Transvaalse Boeresake (Edms) Bpk and Another v. Pieterse and Another 1955 (2) SA 464 (T) at 467; J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 92.
49 Lochoff v. Jewish Daily Press Ltd 1942 WLD 255 at 259; J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 93.
50 J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 94.
51 Brown v. Nanco (Pty) Ltd 1976 (3) SA 832 (W) at 834.
52 J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 95.
53  2 KB 113 (CA) at 134.
54 J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 238.
55 J L van Dorsten, The Law of Company Directors in South Africa (2nd edition, Sandton: Obiter Publishers CC, 1999), p. 141.
56 Section 39(2) of the Companies Act.
57 Section 229(1) of the Companies Act.
58 Section 229(4) of the Companies Act.
59 'Future director' does not include a person who becomes a director of the company after the lapse of six months from the date on which the option or right is acquired by that person. See Section 231(2) of the Companies Act.
60 Section 231(1) of the Companies Act.
61 Section 231(1) and 230(1)(c) of the Companies Act.
62 Section 231(3) of the Companies Act.
63 Section 232(1) of the Companies Act.
64 Section 232(2) of the Companies Act.
65 Section 236(1) of the Companies Act.
66 Section 236(2) of the Companies Act.
67 Section 56(5) of the Companies Act.
68 Section 56(3)(a) of the Companies Act.
69 Section 56(3)(b) of the Companies Act.
70 Section 56(3)(c) of the Companies Act.
71 Section 430(1) of the Companies Act.
72 Section 430(3) of the Companies Act.
73 Chapter 8, Part 6 of the Companies Act.
74 Sections 242(1) and 242(2) of the Companies Act.
75 Section 242(1) of the Companies Act.
76 Section 243(1) of the Companies Act.
77 Section 242(3) of the Companies Act.
78 Sections 242(5) and 244 of the Companies Act.
79 Sections 247 to 249 of the Companies Act.
80 Section 277 of the Companies Act.
81 Section 290 of the Companies Act.
82 Section 289(a) and (b) of the Companies Act.
83 Section 289(c) of the Companies Act.
84 Public Accountants' and Auditors' Act No. 51 of 1951.
85 Section 283 of the Companies Act, and the definition of officer at Section 1; see also Baker and Others v. McHardy and Others 1957 (4) SA 541 (N) at 545.
86 M S Blackman, 'Companies', in W A Joubert, ed, The Law of South Africa (first reissue, Volume 4, Part 3, Durban: Butterworths, 1996), paragraph 1; see also Lipschitz and Another, NNO v. Wolpert and Abrahams 1977 (2) SA 732 (A) at 741.
87 Section 292 of the Companies Act.
88 Sections 294, 307 and 309 of the Companies Act.
89 Sections 302 to 304 of the Companies Act.
90 Sections 305 and 306 of the Companies Act.
91 Section 316 of the Companies Act.
92 www2.deloitte.com/content/dam/Deloitte/na/Documents/risk/za_Deloitte_NamCode_Brochure.pdf accessed on 1 and 2 February 2015 at p. 3.
93 Principle C2-7 and Principle C4-1 of the NamCode.
94 Principle C2-10 of the NamCode.
95 Principle C4-3 of the NamCode.
96 Principle C4-4 of the NamCode.
97 Principle C4-5 of the NamCode.
98 Principle C4-6 of the NamCode.
99 Principle C4-7 of the NamCode.
100 Principle C4-8 of the NamCode.
101 Principle C4-9 of the NamCode.
102 Principle C4-10 of the NamCode.
103 Principle C6-3 of the NamCode.
104 Principle C6-4 of the NamCode.
105 Principle C6-1 of the NamCode.
106 Principle C8-1 of the NamCode.
107 Principle C8-5 of the NamCode.
108 Principle C8-2 of the NamCode.
109 Principle C8-3 of the NamCode.
110 Section 110 of the Companies Act.
111 Section 201 of the Companies Act.
113 Section 203 of the Companies Act.
114 Section 202 of the Companies Act.
115 Section 218 of the Companies Act.
116 Section 228 of the Companies Act.
117 Section 229 of the Companies Act.
119 Section 230 of the Companies Act.
120 Section 50 of the Companies Act.
121 Section 62 and Section 67 of the Companies Act.
122 Section 24 of the Companies Act.
123 Section 81 of the Companies Act.
124 Section 89 of the Companies Act.
125 Section 106 of the Companies Act.
126 Section 266 of the Companies Act.
127 Section 349 of the Companies Act.
128 Section 236 of the Companies Act.
129 Section 260 of the Companies Act.
130 Sections 262 to 270 of the Companies Act.
131 Section 262 of the Companies Act.
132 Section 265(3) of the Companies Act.
133 Section 266(1) of the Companies Act.
134 Sections 269 and 270 of the Companies Act.
135 Section 274 of the Companies Act.
140 Section 197 of the Companies Act.
141 M F Cassim, 'Takeovers and Offers', in H G J Beukes et al., eds, South African Corporate Business Administration (revision service 23, Claremont: Juta & Co Ltd, 2015), p. 13-1.
142 Section 320(2)(a) of the Companies Act.
143 Section 320 to Section 324 of the Companies Act.
144 Section 321 of the Companies Act.
145 Section 326 of the Companies Act.
146 Section 327 of the Companies Act.
147 Section 120 of the Companies Act.
148 Section 87 of the Companies Act.
149 Principle C2-18 of the NamCode.
150 Principle C2-18 of the NamCode.
151 Section 215 of the Companies Act.
153 Sections 290 and 309 of the Companies Act.
154 Section 294 of the Companies Act.
155 Section 307 of the Companies Act.
156 Section 307(3) of the Companies Act.
157 Sections 310 and 311 of the Companies Act.
158 Section 316 of the Companies Act.
160 Section 194 of the Companies Act.
162 Section 195 of the Companies Act.