(Compulsory sale of shares can be granted under stringent condition under supervision of the court)
One of the vital assets of a limited liability company is her shares. Shares may be paid up or unpaid up. Normally, when shares are paid up, their ownership becomes intact. It is neither the company itself nor any other person other than the court that can deal with these paid up shares.
The 2018 directives issued by the Business Registration and Licensing Agency (BRELA) which require all companies to be updated into an Online Registration System(ORS), have resulted into a lacunae, in our law especially on how to deal with paid up shares when the shareholders’ whereabouts are unknown.
Some of the mandatory credentials that shareholders must submit when updating these companies in the online system, include the Citizen Identity Card issued by the National Identification Authority (NIDA), Passport or Taxpayers Identification Number (TIN). The great challenge arises when the shareholders are untraceable. This has left many companies at a crossway in the whole process of updating their information into the Online Registration System.
Another challenge arises when the company wishes to sale the shares of the untraceable shareholders. So long as the shareholders’ ownership of those shares is intact, any attempt to deal with those shares is likely to prejudice their rights.
There have been various attempts to invoke the doctrine of “Compulsory share sale by court” and in most cases the court has been hesitant to grant such order for a fear that it might open a flood gate of applications thereby abusing the doctrine.
As of recent, the High Court of Tanzania has interestingly addressed some of those challenges vide its decision delivered before His Lordship Mlyambina, J; in Misc. Civil Application No.684 of 2019, between NYANZA MINES (TANGANYIKA) LIMITED versus THE REGISTRAR OF COMPANIES and BRIDGE OF BALGIE LIMITED.
His Lordship Mlyambina, J; set out that, when the shareholders are untraceable, two factors should be considered prior to deciding the manner of dealing with their paid up shares. These factors are;
- Where the shareholders are untraceable and the available shareholders are not willing to continue with business.
- Where the shareholders are untraceable and the available shareholders wish to continue with business
His Lordship MLYAMBINA, J; is of the opinion that, once the shareholders are untraceable and the available shareholders are not willing to continue with business, the best option is to wind up the company. On other hand, if the shareholders are untraceable and the available shareholders wish to continue with the business, winding up will not be a good option rather, the compulsory sale of shares of untraceable shareholders will be more tenable.
However, the court is of the opinion that, compulsory sale of shares of untraceable shareholders, must be exercised under very strictly conditions so as to ensure that this remedy is not misused. The court has set out the following conditions in the course of exercising this remedy thus;
- For any application or petition seeking an order of the court for compulsory sale of shares of untraceable shareholders, the Registrar of Companies must be pleaded as first Respondent followed by the shareholders whose shares are subject of sale on un-traceability ground.
- No petition should be preferred if the shareholder is not traceable for a period of six years, on this ground there must be satisfactory proof thereof.
- The petitioner should furnish to the court the proof that:
- Notice of shareholders meeting being served to the last address of untraceable shareholders,
- Publication on the intention to remove untraceable shareholders was done in the Government Gazette twice in period of 42 days,
- Publication was done through widely circulated newspapers one in English, another in Swahili which are also online in not less than 42 days,
- The publication referred herein under paragraph (iii) should not be less than 1/8 of the page,
- Upon filing the petition, summons must be issued through the Government Gazette three times for the period of not less than 63 days,
- The petitioner must publish summons through widely circulated newspapers one in English and another in Swahili language for the period of not less than 63 days. The advertisement should not be less than 1/8 of the page,
- The court issue an order of sale,
- The order of sale be published for the period of not less than 21 days in both Government Gazette and two circulated newspapers one in English and another in Swahili for not less than 1/8 page,
- Before sale, there must be valuation of shares conducted by certified auditor or accountant
- Sale of shares be conducted by public auction
- The petitioner to clear capital gain tax and stamp duty,
- The petitioners to settle all debts to the Government and other institutions
- The Petitioners to pay all other debts,
- Proceeds remains be transferred to the Administrator General who will keep for the period of not less than 12 years,
- Upon expiry of 12 years, the assets shall be transferred to the account and credit of the Government in terms of section 48 of the Administrator General (Powers and Function) Act Cap 27 (R.E 2019),
- The petitioner shall prepare and furnish a report accounting of the sale of shares whose copy shall be in tripartite to be served to the Administrator General to the Registrar of Companies and one remains in the custody of the petitioner herself.
This is a milestone decision despite the fact that there are other grey areas which need to be addressed such as transfer of unpaid up shares. The is yet a lacuna in law for instance in a case where a shareholder of unpaid up shares wishes to transfer those shares and someone who buys them is willing to buy them with liability of paying for them thereafter.
Selling of shares of untraceable shareholders is very critical and technical tasks which needs expertise and attention. Victory Attorneys & Consultants are experts in this area. They provide guideline to various clients on corporate and shares related issues.