ZAMBIA Law and Practice Contributed by: Emmanuel Manda, Simon Kapampa, Innocent Mung’omba and Kaluwe Libeleki, Musa Dudhia & Co.
10.3 “Broken-Deal” Disputes As the COVID-19 pandemic began to significantly spread in Zambia in early 2020, a key aspect that began to be scrutinised between parties with pending transactions was the extent of force majeure clauses and whether the clauses were sufficiently drafted to excuse performance of obligations by a party. As such, the spread of the COVID-19 pandemic under - scored the need for properly drafted force majeure clauses, with parties to M&A deals seeking to widen the scope of force majeure clauses to cover the dis - ruptions caused by the COVID-19 pandemic. Shareholder activism is an important force in the cor - porate governance of companies in Zambia. Zambian law provides for mechanisms under which sharehold - ers including minority shareholders can protect their interests. These mechanisms include the right of a shareholder to request the High Court for an appropri - ate order on the ground that the affairs of the company are being conducted in a manner that is oppressive. The focus of shareholder activism is usually on corpo - rate governance and financial matters of the company. 11.2 Aims of Activists 11. Activism 11.1 Shareholder Activism In most cases, the objectives of activists are financial in nature. As such, activists would tend to encour - age the entry of a company into M&A transactions or spin-offs if they are able to negotiate a higher financial consideration for the transaction. 11.3 Interference With Completion Interference with the completion of announced trans - actions would usually arise where the activists are not satisfied with the terms and conditions of a transac - tion which are mostly financial in nature. In Zambia, shareholders generally have overriding authority over the affairs the company and consequently over the decisions of the board of directors. As such, share - holders are able to use their overriding authority to interfere with the completion of transactions. How - ever, it is uncommon for activists to interfere with the completion of announced transactions in Zambia.
holders being denied an opportunity to decide on its merits. In particular, the board must not, without approval of the shareholders: (a) issue any shares; (b) issue or grant options in respect of any unis - sued shares; (c) create or issue or permit the creation or issue of any securities carrying rights of conversion into, or subscription for, shares of the com - pany; (d) sell, dispose of or acquire or agree to sell, dis - pose of or acquire assets of a material amount; (e) enter into contracts, including service con - tracts, otherwise than in the ordinary course of business; or (f) cause the company or any subsidiary or asso - ciated company to purchase or redeem any shares in the company or provide financial assistance for any such purchase. 9.5 Directors’ Ability to “Just Say No” The directors cannot “just say no” to a hostile ten - der offer. Section 189 of the Companies Act provides that fully paid-up shares may be transferred without restriction. To this extent, unless there is a restriction in terms of the Companies Act, the articlesof the com - pany, or any subsisting shareholders’ agreement, the shareholders are free to transfer their shares and the directors cannot prevent it by just saying no. Litigation in connection with M&A deals is generally not common in Zambia. Parties to M&A deals usu - ally provide for arbitration as the preferred dispute resolution mechanism owing to, inter alia, the lengthy nature of litigation in Zambia. However, litigation in connection with M&A deals may potentially arise against regulators where the regulator does not grant the necessary approvals for the M&A deal. 10.2 Stage of Deal Litigation against regulators would normally occur at approval stage, ie, where an application for the approval of the M&A deal is rejected by the regulator. 10. Litigation 10.1 Frequency of Litigation
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