Recusal of CC member from vote where direct financial interest exists

[DaveB]

Hi, my first post, so I hope I have posted in the right forum..

I am a member of a CC where we have a dispute over payments to a member for handling administrative issues regarding renting out a property owned by the CC. We are going to put the dispute to a vote for resolution. My question is, must the member who has the direct financial interest recuse himself from the vote? My feeling is that he must as he cannot vote to pay himself something that is in dispute. What do the forum members think? Thanks guys

[Andromeda]

In short, no. The Act's opinion is what counts and I can't see that you are relying on it.

[DaveB]

In short, no. The Act's opinion is what counts and I can't see that you are relying on it.

Thanks Andromeda, Please excuse my ignorance, but what does the act say about this? I was not relying on anything, just my personal opinion..

[Andromeda]

DaveB, probably section 46, in the absence of an association agreement which may provide otherwise:

Variable rules regarding internal relations
46. The following rules in respect of internal relations in a corporation shall apply in so far as this Act or an association agreement in respect of the corporation does not provide otherwise:
(a) Every member shall be entitled to participate in the carrying on of the business of the corporation;
(b) subject to the provision of section 47, members shall have equal rights in regard to the management of the business of the corporation and in regard to the power to represent the corporation in the carrying on of its business:
Provided that the consent in writing of a member holding a member's interest of at least 75 per cent, or of members holding together at least that percentage of the members' interests, in the corporation, shall be required for-
(i) a change in the principal business carried on by the corporation;
(ii) a disposal of the whole, or substantially the whole, undertaking of the corporation;
(iii) a disposal of all, or the greater portion of, the assets of the corporation; and
(iv) any acquisition or disposal of immovable property by the corporation;
[Para. (b) amended by s. 8 of Act 38 of 1986.]
(c) differences between members as to matters connected with a corporation's business shall be decided by majority vote at a meeting of members of the corporation;
(d) at any meeting of members of a corporation each member shall have the number of votes that corresponds with the percentage of his interest in the corporation;
(e) a corporation shall indemnify every member in respect of expenditure incurred or to be incurred by him-
(i) in the ordinary and proper conduct of the business of the corporation; and
(ii) in regard to anything done or to be done for the preservation of the business or property of the corporation; and
(f) payments by a corporation to its members by reason only of their membership in terms of section 51 (1) shall be of such amounts and be effected at such times as the members may from time to time agree upon, and such payments shall be made to members in proportion to their respective interests in the corporation

[Andromeda]

The next sections are very relevant too:

Unfairly prejudicial conduct
49.(1) Any member of a corporation who alleges that any particular act or omission of the
corporation or of one or more other members is unfairly prejudicial, unjust or inequitable
to him, or to some members including him, or that the affairs of the corporation are being
conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some
members including him, may make an application to a Court for an order under this
section.
(2) If on any such application it appears to the Court that the particular act or omission is
unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the
corporation's affairs are being conducted as so contemplated, and if the Court considers
it just and equitable, the Court may with a view to settling the dispute make such order as
it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for
the purchase of the interest of any member of the corporation by other members thereof
or by the corporation.
(3) When an order under this section makes any alteration or addition to the relevant
founding statement or association agreement, or replaces any association agreement,
the alteration or addition or replacement shall have effect as if it were duly made by
agreement of the members concerned.
(4) A copy of an order made under this section which-
(a) alters or adds to a founding statement shall within 28 days of the making thereof be
lodged by the corporation with the Registrar for registration; or
(b) alters or adds to or replaces any association agreement, shall be kept by the
corporation at its registered office where any member of the corporation may
inspect it.
(5) Any corporation which fails to comply with any provision of subsection (4) shall be guilty
of an offence.
Proceedings against fellow-members on behalf of corporation
50.(1) Where a member or a former member of a corporation is liable to the corporation-
(a) to make an initial contribution or any additional contribution contemplated in
subsections (1) and (2) (a), respectively, of section 24; or
(b) on account of-
(i) the breach of a duty arising from his fiduciary relationship to the corporation
in terms of section 42; or
(ii) negligence in terms of section 43,
any other member of the corporation may institute proceedings in respect of any such
liability on behalf of the corporation against such member or former member after
notifying all other members of the corporation of his intention to do so.
(2) After the institution of such proceedings by a member the leave of the Court concerned
shall be required for a withdrawal of the proceedings or for any settlement of the claim,
and the Court may in connection with such withdrawal or settlement make such orders as
it may deem fit.
24
(3) If a Court in any particular case finds that the proceedings, if unsuccessful, have been
instituted without prima facie grounds, it may order the member who has instituted them
on behalf of the corporation, himself to pay the costs of the corporation and of the
defendant in question in such manner as the Court may determine.

The reason for so much tape is because a members rights are derived from his ownership and when you curtail those then you limit his ownership, compared to say yours.

[DaveB]

The next sections are very relevant too:

Unfairly prejudicial conduct
49.(1) Any member of a corporation who alleges that any particular act or omission of the
corporation or of one or more other members is unfairly prejudicial, unjust or inequitable
to him, or to some members including him, or that the affairs of the corporation are being
conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some
members including him, may make an application to a Court for an order under this
section.
(2) If on any such application it appears to the Court that the particular act or omission is
unfairly prejudicial, unjust or inequitable as contemplated in subsection (1), or that the
corporation's affairs are being conducted as so contemplated, and if the Court considers
it just and equitable, the Court may with a view to settling the dispute make such order as
it thinks fit, whether for regulating the future conduct of the affairs of the corporation or for
the purchase of the interest of any member of the corporation by other members thereof
or by the corporation.
(3) When an order under this section makes any alteration or addition to the relevant
founding statement or association agreement, or replaces any association agreement,
the alteration or addition or replacement shall have effect as if it were duly made by
agreement of the members concerned.
(4) A copy of an order made under this section which-
(a) alters or adds to a founding statement shall within 28 days of the making thereof be
lodged by the corporation with the Registrar for registration; or
(b) alters or adds to or replaces any association agreement, shall be kept by the
corporation at its registered office where any member of the corporation may
inspect it.
(5) Any corporation which fails to comply with any provision of subsection (4) shall be guilty
of an offence.
Proceedings against fellow-members on behalf of corporation
50.(1) Where a member or a former member of a corporation is liable to the corporation-
(a) to make an initial contribution or any additional contribution contemplated in
subsections (1) and (2) (a), respectively, of section 24; or
(b) on account of-
(i) the breach of a duty arising from his fiduciary relationship to the corporation
in terms of section 42; or
(ii) negligence in terms of section 43,
any other member of the corporation may institute proceedings in respect of any such
liability on behalf of the corporation against such member or former member after
notifying all other members of the corporation of his intention to do so.
(2) After the institution of such proceedings by a member the leave of the Court concerned
shall be required for a withdrawal of the proceedings or for any settlement of the claim,
and the Court may in connection with such withdrawal or settlement make such orders as
it may deem fit.
24
(3) If a Court in any particular case finds that the proceedings, if unsuccessful, have been
instituted without prima facie grounds, it may order the member who has instituted them
on behalf of the corporation, himself to pay the costs of the corporation and of the
defendant in question in such manner as the Court may determine.

The reason for so much tape is because a members rights are derived from his ownership and when you curtail those then you limit his ownership, compared to say yours.

+


Thanks Andromeda, the legalese is quite confusing to my simple brain and makes no mention of recusal where a member has a financial interest, can I demand that the member recuse himself from a vote?

[Andromeda]

DaveB, in my opinion you would first need to do this:
49.(1) Any member of a corporation who alleges that any particular act or omission of the corporation or of one or more other members is unfairly prejudicial, unjust or inequitable to him, or to some members including him, or that the affairs of the corporation are being conducted in a manner unfairly prejudicial, unjust or inequitable to him, or to some members including him, may make an application to a Court for an order under this section

But if the amount involved is material, perhaps you should consult an attorney well versed in corporate matters. I know of an excellent firm in Pta, if you need it.

[Dave A]

Good corporate governance (ala the King Reports) and the specific demands of the Companies Act are clearly two different things...

One of the principles of good corporate governance require that conflicts of interest (including perceived conflicts of interest and potential conflicts of interest) need to be disclosed and dealt with. Nowadays this is increasingly being seen as not just an issue of good practice, but an integral part of the fiduciary duties of directors and members.

In DaveB's instance, it seems disclosure is not the issue - the conflict of interest is known. What needs to be decided is how the conflict of interest is to be managed.

If it isn't already covered under a partnership agreement, the members should thrash this out and develop a policy. While the Companies Act may be silent on how the members should deal with conflicts of interest, as pointed out by Andromeda the Companies Act sets the acid test - whether the other members are in any way unfairly or unjustly prejudiced, and does give you the legal right to seek relief if the issue cannot be settled between the members.

[DaveB]

Good corporate governance (ala the King Reports) and the specific demands of the Companies Act are clearly two different things...

One of the principles of good corporate governance require that conflicts of interest (including perceived conflicts of interest and potential conflicts of interest) need to be disclosed and dealt with. Nowadays this is increasingly being seen as not just an issue of good practice, but an integral part of the fiduciary duties of directors and members.

In DaveB's instance, it seems disclosure is not the issue - the conflict of interest is known. What needs to be decided is how the conflict of interest is to be managed.

If it isn't already covered under a partnership agreement, the members should thrash this out and develop a policy. While the Companies Act may be silent on how the members should deal with conflicts of interest, as pointed out by Andromeda the Companies Act sets the acid test - whether the other members are in any way unfairly or unjustly prejudiced, and does give you the legal right to seek relief if the issue cannot be settled between the members.

Thanks guys, I should be able to move forward now..