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Is the ZCCM-IH register of members fit for purpose ?

Is the ZCCM-IH register of members fit for purpose ?

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Published by: Zambian-Economist on Jun 30, 2013
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Is the ZCCM-IH register of members fit for purpose ?- facts and consequences -
An open letter from shareholders of ZCCM-IH seeking to improvethe corporate governance of ZCCM-Investment Holdings
To : Dr. Wala CHABALA,Chief Executive Officer Securities and Exchange Commission of Zambia9 May 2013Dear Sir,This letter describes how ZCCM-IH, the Investment Holding controlled by the Zambian Governmentwith shares listed on the Lusaka, Paris Euronext and London Stock Exchanges, fails to treat shareholdersequally by maintaining and using a Register of Members (shareholders) that is unfit for purpose. Theregister fails to identify the true owners of ZCCM-IH shares listed on the Paris Euronext Stock Exchange. As a consequence, more than 96% of the minority shareholders of the company do notreceive notice of company meetings and are not entitled to vote at such meetings. In contrast, themajority shareholder (GRZ) and the remaining 4% of minority shareholders listed on the Lusaka Stock Exchange automatically receive such notices and are automatically entitled to vote.It recalls the efforts made by Euronext shareholders to persuade the company to correct its register anddescribes the simple procedure which would enable ZCCM-IH to resolve this problem. It also relateshow officers of the company have failed to respond to requests to recognise shareholders even when presented with certified proof of shareholding. It goes on to identify some of the consequences of thisfailure of governance with respect to the shareholders, the officers involved as well as possibleimplications on the corporate business and the reputation of ZCCM-IH.In your role as the authority responsible for the “fair, efficient and transparent issuance and trading of securities", the signatories of this letter formally ask you to take all necessary steps to ensure that thisunacceptable situation is brought to a satisfactory conclusion in the shortest possible time.
Registered and Unregistered Members
The Companies Act Part III: Membership and Register, defines who are the members of a company.
Section 45. (1) The members of a company with a share capital shall be the shareholders and  stockholders of the company.
Article 48 stipulates that a company must maintain a register of its members.
 Article 48. Register of members (1) A company shall maintain a register of its members and enter therein the following particulars:(a) the full name and address of each member of which it has received notice, etc. 
The Company Secretary of ZCCM-IH does of course maintain a Register of Members but this register is
unfit for purpose
since it fails to identify the true shareholders of ZCCM-IH. Indeed the Register does not mention any of the shareholders of ZCCM-IH shares listed on the Paris Euronext Stock Exchange (Euronext) where most ZCCM-IH shares are traded. Instead, all of the 10,5 million shareslisted on Euronext are registered under the name of a single company, a nominee called Euroclear. As aconsequence, these Euronext-listed shareholders, who represent 96% of all the minority shareholders of ZCCM-IH, are not recognised as Registered Members.1
In contrast, shareholders who own ZCCM-IH shares listed on the Lusaka Stock Exchange
automaticallybecome Registered Members
of the company entitled to vote at meetings, whereas those who ownZCCM-IH shares listed on the Paris Euronext Stock Exchange
never become Registered Members.
Faced with this situation, shareholders whose ZCCM-IH shares are listed on Euronext repeatedly wroteto officers of the Company as well as to the Zambian Securities and Exchange Commission (SEC).A brief chronology of events is given below.
6 February 2012
A Minority Shareholders Group informs the Executive Chairman Mr Mung'Omba that Euronext-listedshareholders are not identified in the Register of Members and asks that a solution be found to resolvethis. This question had previously been raised at each AGM of the Company since 2010.
16 March 2012
ZCCM-IH sends a Circular to Shareholders with the following text …
The purpose of this circular to provide an equal opportunity to all minority shareholders to make anomination of a person/institution to represent them as director on the ZCCM-IH board.
The use of the term “equal opportunity to all minority shareholders” is important here, since, as thisdocument will demonstrate, the opportunity to vote or nominate is not at all equal depending on whether the holder's shares are listed in the LuSE or on the Paris Euronext.
19 March 2012
The Company Secretary was informed by email that the Register of Members does not include theindividual identities of Euronext shareholders and therefore prevents them from responding directly tothe above nomination circular. The Company Secretary is also informed of the solution proposed byEuroclear to correct this inequality : “ZCCM-IH should ask Euroclear to implement a procedure calledTPI.” TPI (see below), is a simple request to provide ZCCM-IH with a full and accurate list of theidentities and shareholding of all the ZCCM-IH shares listed on Euronext. No reply was received.
11 April 2012
The Company Secretary was informed again the that Euronext-listed shareholders are still excludedfrom the Register of Members and asked how the company intends to interpret nomination formssubmitted by Euronext shareholders whose names are not in the register, but whose forms areaccompanied by bank certificates giving the exact details of their holding of ZCCM-IH shares.
19 April 2012
The Executive Chairman Mr Mung'Omba, the CEO Mr Muyunda are again informed of the problem andasked to ensure that Euronext-Listed shareholders be authorised to take part in the nomination processand to vote at company meetings. The Euroclear TPI procedure is once again explained.
24 April 2012
Mr Chitalu of the Zambian Securities and Exchange Commission is informed of the problem and givendetails of the Euroclear TPI procedure designed to ensure that all shareholders are treated equally.
2 May 2012
The Company Secretary finally replies to the email of 11 April using the following words :
We will only recognise those shareholders whose names appear on the ZCCM-IH register of members. In the case of shares on Euronext, Euroclear is the registered holder per the ZCCM-IH register ad theyhave been contacted in this regard 
.In this statement Mr Chabala confirmed his clear intention to continue to use the existing register thatdiscriminates against 96% of the minority shareholders.2
11 May 2012
Company Secretary, the Executive Chairman, the CEO and Officials of the Securities and ExchangeCommission, are contacted again with a request to recognise shareholders on the basis of signed sharecertificates issued by the banks in which such shares are deposited. No reply was received.
19 November 2012
More than 40 minority shareholders send emails to ZCCM-IH and the SEC complaining of theunacceptable governance and management of ZCCM-IH. They demand that the Register of Members becorrected to identify Euronext-listed shareholders.
20 November 2012
Announcement of 2012 AGM for 13 December 2012 is sent to all shareholders with the exception of those whose shares are listed on Euronext.
25 April 2013
Announcement of EGM to take place on 17 May 2013 sent to all shareholders with the exception of those whose shares are listed on Euronext.It is therefore quite clear that the Company Secretary, the CEO and the Executive Chairman as well asthe SEC were fully informed for more than a year that the Register of Members was unfit for purposesince it failed to treat Euronext-listed shareholders as equal to LuSE-listed shareholders. The CompanyOfficials failed to respond to repeated demands for Euronext-listed shareholders to be treated equally.This amounts to a serious breach of good Corporate Governance of ZCCM-IH.
The role of Euroclear in relation to ZCCM-IH shares listed on Euronext
Euroclear does not own any ZCCM-IH shares and is therefore not a member of the company. Euroclear is a nominee, a financial intermediary and a depository for shares. On Euronext, ZCCM-IH shares areautomatically registered with Euroclear. ZCCM-IH shareholders cannot choose to hold ZCCM-IH sharesin their own names. However the true identity of the shareholders can be communicated to ZCCM-IH provided the company orders a Shareholder Identity data file (Titres au Porteur Identifié, or TPI) fromEuroclear.By ordering TPI, Euroclear will provide ZCCM-IH with the details of shares listed on Euronext with thenumber of shares, names and co-ordinates of the shareholders at a given date.This is the equivalent of a branch register defined by
 Article 51 of the Companies Act.
A branch register can be used to records the identities of members resident in a foreign country. The company is requiredto integrate this foreign share ownership as part of the register of members.
 Article 51. (1) Company may keep branch register. A company with share capital may, subject to itsarticles, keep a part of its register of members (in this Act called a "branch register"), being the part relating to members resident in a specified foreign country or countries, at a place in the foreigncountry, or one of the foreign countries.(2) The shares registered in a branch register shall be distinguished from the other shares of thecompany while they are held by members resident in a country to which the branch register applies.(3) The company shall arrange for the information as to any entry in a branch register to be transmitted to its registered records office as quickly as practicable, and shall maintain there, as part of its register of members, a duplicate of the branch register.

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