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[2018] ZAWCHC 68
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Cilliers v LA Concorde Holdings Limited and Others (23029/2016) [2018] ZAWCHC 68; 2018 (6) SA 97 (WCC) (14 June 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
23029/2016
In
the matter between:
ABRAHAM
ALBERTUS CILLIERS
Applicant
and
LA
CONCORDE HOLDINGS LIMITED
KWV
SOUTH AFRICA (PTY) LIMITED
KWV
INTELLECTUAL PROPERTY (PTY) LIMITED
and
ABRAHAM
ALBERTUS CILLIERS SNR
BNS
NOMINEES (PTY) LIMITED,
ON
BEHALF OF JANNINE CILLIERS
BNS
NOMINEES (PTY) LIMITED,
ON
BEHALF OF ABRAHAM ALBERTUS CILLIERS
CATHARINA
HELENA MARGARETHA JOHANNA
RETIEF
FEBROS
NOMINEES (PTY) LIMITED,
ON
BEHALF OF OE VEGLIO DI CASTELLTO
BRENN-O-KEM
(PTY) LIMITED
First Respondent
Second Respondent
Third Respondent
Fourth
Respondent
Fifth Respondent
Sixth Respondent
Seventh
Respondent
Eighth
Respondent
Ninth Respondent
JUDGMENT
HANDED DOWN ON 14 JUNE 2018
PAPIER,
J
Introduction
[1]
This application, by agreement
between the parties, is for the determination of a question of law in
terms of Rule 6(5)(d)(iii)
of the Rules of Court
[1]
.
[2]
The court is required to
determine whether or not shareholder appraisal rights were
established in favour of a dissenting minority
shareholders of a
holding company, in terms of Section 164
[2]
of the Company’s Act 71 of 2008 (“the Act”), where
the holding company’s subsidiary disposes of all or
the greater
part of its assets or undertaking, in circumstances where, having
regard to the consolidated financial statements of
the holding
company, the disposal by the subsidiary constituted a disposal of all
or the greater part of the assets or undertaking
of the holding
company, in terms of Section 115(2)(b)
[3]
of the Act.
[3]
Where a company resolves, in
terms of Section 112
[4]
of the Act, to dispose of all or a greater part of its assets or
undertaking, subject to compliance with various statutory
requirements,
an objecting shareholder may demand that the company
pay the objecting shareholder fair value for its shares.
[4]
Section 164 could be said to,
subject to compliance with certain requirements, create a right for a
shareholder to exit the company,
at fair value. The question is
whether this appraisal right extends to the dissenting minority
shareholders in the holding company,
in circumstances contemplated in
Section 115(2)(b) of the Act?
Brief
factual background
[5]
Mr Abraham Albertus Cilliers
(“the applicant”) is a minority shareholder in the first
respondent, La Concorde Holdings
Ltd (“the holding company”).
[6]
The holding company owned 100%
of the shares in the capital of its wholly owned subsidiary, KWV SA
(Pty) Ltd (“the subsidiary”),
together with a significant
interest in KWV Intellectual (Pty) Ltd (“the third
respondent”).
[7]
On 11 May 2016, it was
announced by SENS that the subsidiary would dispose of all its
operational assets to a third party.
[8]
On 29 June 2016 the holding
company gave notice to its shareholders of a general meeting, held on
29 July 2016, at which resolutions
were put to the holding company’s
shareholders, on the basis that the disposal by the subsidiary
constituted a disposal of
all or the greater part of the assets or
undertaking of both the subsidiary and holding company, regard being
had to the latter’s
consolidated financial statements, as
required by Section 115(2)(b) of the Act.
[9]
At the meeting the applicant,
together with the fourth to ninth respondents, in their capacity as
shareholders in the holding company,
objected to and voted against
the resolutions.
[10]
It is noteworthy that the
holding company initially represented to its shareholders, in the
Circular issued and at the general meeting,
that Section 164
appraisal rights were available to them. The holding company changed
their minds pursuant thereto. It is
not surprising that the
holding company initially understood and applied the relevant
provisions in the way they did.
[11]
It is in this context, that the
question for determination before this court, is whether Section 164
of the Act affords appraisal
rights to the dissenting shareholders of
the holding company whose subsidiary has implemented a transaction
disposing of all or
the greater part of its assets or undertaking in
circumstances envisaged in Section 115(2)(b) of the Act.
[12]
I am required to interpret the
meaning of the relevant parts of Section 164 of the Act, together
with Section 115(8) of the Act.
[13]
For purposes of this judgment,
it was not in issue between the parties, that all formalities and
requirements in terms of Section
164 of the Act were complied with.
[14]
The holding company made an
offer to acquire the shares held by the dissenting shareholders,
including the applicant, and relied
on a valuation of their shares,
obtained from KPMG.
[15]
This offer was rejected by the
applicant on the basis of it being inadequate, and he then instituted
this application, in terms
of Section 164 of the Act, for two
appraises to be appointed to enable the court to determine fair value
in respect of the shares.
[16]
The parties agreed that this
question be determined
in
initio litis
, without
compromising the right of the subsidiary to deal with the merits of
the application, should the question be decided against
them.
The
Law
[17]
Mr E.W. Fagan S.C., assisted by
Mr P.J. Olivier, for the first, second and third respondents
contended that the appraisal rights
established in terms of Section
164 of the Act, are only granted to shareholders in the disposing
company, the subsidiary in this
matter. He asserts that the applicant
is therefore incapable of holding an appraisal right in these
circumstances.
[18]
Mr R.D.E. Gordon, assisted by
Ms B.J. Vaughan, for the applicant, contended that Section 115(8)
[5]
of the Act afforded the dissenting shareholders, appraisal rights in
terms of Section 164 of the Act, in these circumstances.
[19]
In the oft quoted decision of
Wallis JA in
Natal Joint
Municipal Pension Fund v N Endumeni Municipality
NP
2012 (4) SA 593
(SCA), with regard to the interpretation of statutes,
he states at 603 to 604 D;
“
The
present state of the law can be expressed as follows:
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attended upon it coming into existence.
Whatever the nature of the document, consideration
must be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision
appears; the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where
more than one meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective,
not subjective. A
sensible meaning is to be preferred to one that leads to insensible
or un-business-like results or undermines
the apparent purpose of the
document. Judges must be alert to, and guard against, the
temptation to substitute what they
regard as reasonable, sensible or
business-like for the words actually used. To do so in regard
to a statute or statutory
instrument is to cross the divide between
interpretation and legislation; in a contractual context it is to
make a contract for
the parties other than the one they in fact
made. The inevitable point of departure is the language of the
provision itself,
read in context and having regard to the purpose of
the provision and the background to the preparation and production of
the document.
”
(Footnotes
omitted)
[20]
Mr Gordon contended that the
point of departure was Section 115(8) of the Act. This section
authorises the holder of
any
voting rights in a company
to seek relief in terms of Section 164 of the Act. (My underlining).
[21]
Mr Fagan asserted that a
distinction should be drawn between the words “
the
company” and “
a
company” (my underlining) used in the Section, and that the two
references in the Section should be interpreted to mean “the
disposing company”, not “the holding company”.
[22]
In my view, as a starting
point, the only sensible meaning to be ascribed to the phrase, “
the
holder of any voting rights in a company
”,
taking into account its context, purpose, and background of the Act,
is exactly what it says, in plain language, and must
be what the
legislature intended it to mean. If the legislature intended the
meaning of “the holder of any voting rights
in a company”
to be limited to “the holder of voting rights in the disposing
company”, it would have simply said
so
[6]
.
There is in my view, no ambiguity in the Section, nor is there any
uncertainty about it that requires an interpretation, other
than the
plain meaning. It is more the correct application than the
interpretation of the law.
[23]
The wording in my view, is
clear and unambiguous. A holder of any voting rights in a company is
entitled to seek relief in accordance
with the provisions of Section
164 of the Act.
[24]
Mr Fagan contended that
“
shareholder
”
as referred to in Section 164(5) of the Act clearly refers to the
holder of the shares in “the Company”, as
the subsection
refers to “
shares of
the company held by that person
”
(“the Shareholder”). This he submitted the legislature
reinforced by the repeated linking of “the Company”
and
“the Shareholder” in the other subsections of Section
164.
[25]
In essence the first, second
and third respondents contended that a dissenting shareholder of the
disposing company has an appraisal
right if the company in which it
holds shares, adopted a resolution contemplated in Section 112 of the
Act
[7]
,
as resolved by the subsidiary in this matter.
[26]
In this regard it is important
to note that Section 112 of the Act is in fact subject to the
provisions of Section 115 of the Act
[8]
.
[27]
The transaction contemplated by
the subsidiary is a transaction in terms of Section 112 of the Act.
It is clear that Section 112
does not create an appraisal right; it
contemplates the adoption of a special resolution by the
shareholders, approving the disposal
of all or the greater part of
the assets or undertaking of a company, in terms of Section 115 of
the Act.
[28]
Section 115
[9]
sets out the manner in which shareholder approval must be obtained,
but more so, creates a requirement and establishes an obligation
for
the shareholders in the disposing company’s holding company if,
having regard to the consolidated financial statements
of the holding
company, the disposal by the subsidiary constitutes a disposal of all
or the greater part of the assets or undertaking
of the holding
company
[10]
.
[29]
The relevant provisions of the
Act regulating the disposal of all or the greater part of the assets
or undertaking are Sections
112, 113, 114, 115 and 164 of the Act.
These Sections are interrelated, in the sense that they refer to each
other in cascading
sequence.
[30]
Mr Fagan, relied on the
Endumeni judgment, and asserted that when interpreting the relevant
parts of the statutes, the court should
have regard to the language
used and its context, which are to be considered together, with
neither predominating over the other.
[11]
He asserted that context includes textual context, together with the
provision’s purpose; that a sensible meaning is to be
preferred
to one that leads to insensible results.
[12]
Mr Fagan contended that the reference made to the shareholders in
Section 112 of the Act, read in conjunction with the reference
to “
a
company
” referred to
in Section 164(5)(b) creating the appraisal right, should be
interpreted to mean, and in fact restricts the
shareholders to, the
shareholders of the disposing entity, which in this case would be the
subsidiary, and should not be interpreted
to extend to the
shareholders in the holding company, in the context of present
scenario before the court. In other words,
he asserted that
“
the company
”
is the disposing company and the appraisal right is only available if
the disposing company has adopted the relevant special
resolution,
which is only available to a shareholder of the disposing company.
[31]
In my view, this assertion is
not in accordance with the clear wording of the relevant Sections.
In this instance, the disposing
company, as a subsidiary, may not
proceed with the transaction unless a special resolution of the
holding company
approves it. If the shareholders of the holding company had no right
to vote on the matter, then Sections 112 and 115 would be
rendered
meaningless. If the shareholders of the holding company do have
the right to vote on the matter, then the procedure
stipulated in
Sections 115(2)(a) AND (b) must be followed. The moment the
shareholders are given notice of a meeting to be
held to consider
adopting a resolution to enter into a transaction in terms of Section
112, the rights in terms of Section 164
are triggered by Section
164(2).
[32]
With regard to the
interpretation of the meaning of “
assets
”
in the context of Section 112(2), Mr Fagan contended that the word
“
assets
”
should be given its ordinary meaning, and therefore refers to the
disposal by a company of its assets. In the context
of this
matter, KWV SA disposed of its assets, and La Concorde did not.
It follows, according to his argument, that the applicant,
being a
shareholder in La Concorde, does not hold a Section 164 appraisal
right in these circumstances.
[33]
Again, Section 112(2)(a)
explicitly makes the transaction subject to Section 115, which means
Section 115(2)(a) and (b) must be
complied with. The applicant
need not hold shares in the subsidiary, his shares in La Concorde
secures such rights.
[34]
The author Jacqueline Yeats, in
her article –
Putting
Appraisal Rights into Perspective
[13]
- quoting from the DTI explanatory memorandum (on the objects of the
Company’s Bill, 2008), notes the legislature’s
commitment
to minority shareholder protection, with one of the goals in the
creation of a company law regime that would “
provide
a protective and fertile environment for economic activity
”,
being a remedy “
to
avoid locking in minority shareholders in inefficient companies
”.
[14]
The introduction of appraisal rights effectively changed the nature
of the rights and remedies which were previously available
to
minority shareholders that were lawfully outvoted. It
effectively provides a statutory exit mechanism for minority
shareholders.
“
Not
only does the shareholder have this exit right, but instead of having
to find a willing purchaser, the company itself becomes
the (possibly
unwilling but obligatory) purchaser. Furthermore, the shareholder
does not have to be satisfied with whatever price
he would have been
prepared to accept to facilitate his exit under the previous company
law regime, but instead can insist on a
“fair price”
(payable in cash) which may ultimately be determined by the
court”
.
[15]
[35]
Nigel Boardman, in his article,
A critical analysis of the new South African takeover laws as
proposed under the Company’s
Act 71 of 2008
[16]
,
states that:
“
the
protection of the disenfranchised and minorities is of particular
importance in South Africa, and it is for this reason that
the new
Act (and the 1973 Act before it) contains explicit prescriptive
legislation to ensure that even non-public, non-listed
company must
subject disposals of “all or the greater part
”
of their assets to approval by a special resolution of
shareholders.”
[36]
He observes
that
South Africa, while adopting the US model for business acquisitions,
went further by adapting and extending the provision to
provide even
greater shareholder protection.
[17]
[37]
F Kassiem MF, Kassiem R et al,
Contemporary Company Law
in their chapter on
Fundamental
Transactions, Takeovers and Offers
,
at page 716, describes the appraisal rights of dissenting
shareholders, as innovative safeguards for dissenting
shareholders.
[18]
[38]
It is clear that in the
transaction envisaged herein, both sets of shareholders, in the
disposing entity and the holding company
were eligible for appraisal
rights.
[19]
[39]
According to Kassiem, this
provision is a protective measure for shareholders of the holding
company. – “
it
gives them both voting rights and appraisal rights in respect of
relevant Section 112 disposals by its subsidiary company
”.
[20]
[40]
The
General
Notice No: 26493 notice 1183 of 2004 – South African Company
Law for the 21st Century: Guidelines for Corporate Law
Reform; May
2004
- constitutes the
policy document underpinning the Company’s Act. For the
sake of clarity, a policy document does not
constitute binding law,
but records the contextual background and manifests the mind of the
Legislature, to which regard must be
had when interpreting
legislation with the object of determining the intention of the
Legislature, in the quest to give meaning
and content to the
legislation. The policy notes that: “
socio-political
and economic change in South Africa has underscored the need for
social responsiveness, transparency and accountability
of
enterprises
”.
[21]
[41]
The Act must also be consistent
with the Constitution of South Africa, and the principals of equality
and fairness that it enshrines,
together with all other laws,
including that of access to information.
[22]
[42]
In line with policy
considerations, one of the key functions of the Act is to provide
protection for investors in companies.
“
They
invest their capital in enterprises with the intention of obtaining a
return on that capital. Thus, a primary goal of
company law
should be to ensure that shareholders, as the investors of equity,
are granted explicit rights and that they have effective
recourse
when those rights are violated
”.
[23]
[43]
It is an express policy
objective to give meaning, form and content to exit, and appraisal
rights, and to provide smaller investors
with the ability to make
informed choices, where they are unable to influence company
direction and decisions effectively or to
pursue private actions
against the company in civil courts.
[24]
[44]
It is important to note that
the provisions do not dilute or negate the power of majority
shareholders; but seeks to provide minority
shareholders with
equitable protection and fairness. In my view, a dissenting minority
shareholder in the holding company is entitled
to enjoy shareholder
protection in the form of appraisal rights in terms of section 164 of
the Act, in circumstances where section
115(2)(b) of the Act is
applicable.
[45]
In the 2007 Company’s
Bill, published by the Department of Trade and Industry, the
intention of the Legislature is recorded
in the following terms:
3.
Corporate efficiency
…
(c)
There should be a remedy to avoid locking in minorities shareholders
in inefficient companies.
…
4.
Transparency
…
(c)
The law should protect shareholder rights, advance shareholder
activism, and provide enhanced protections for minority
shareholders.
…
Conclusion
[46]
In the context of the clear
policy objectives referenced above, and taking into account the
purpose of appraisal rights, as a mechanism
to protect all
shareholders with voting rights, it is clear that minority
shareholders too have a right to be treated fairly.
[47]
When shareholders choose to
exit in the context of Sections 112; 115 and 164, they too must have
the right and entitlement to be
paid fair value for their shares. To
treat the dissenting shareholder in the holding company any
differently in the circumstances
of this case, would undermine the
clear purpose of minority shareholder protection embodied in the
policy and Act.
[48]
A sensible and meaningful
interpretation to be given to Section 164, read in conjunction with
Section 112; and 115 of the Act, is
that the applicant has an
appraisal right as a shareholder in the holding company, when its
subsidiary disposes of all or the greater
part of its assets or
undertaking, in circumstances where Section 115(2)(b) of the Act is
applicable. The disposal of the
assets of the subsidiary in
this context, will have a material effect on the investment of the
shareholders in the holding company.
[49]
I am furthermore of the view
that Section 115(8) of the Act extends the category of shareholders
to all other shareholders (with
voting rights), who are not
necessarily envisaged in Section 164, affording to “
the
holder of any voting rights in a company
”
the right to seek relief in terms of Section 164 of the Act. All
shareholders with voting rights are therefore granted appraisal
rights in terms of Section 164 of the Act, on compliance with the
relevant provisions of the Act.
[50]
In the circumstances, I am
satisfied that the following order be granted:
Order
(a).
This order is granted in favour of the applicant.
(b).
The applicant as a minority shareholder in the holding company is
capable of holding a shareholder appraisal right.
(c).
Section 115(8) of the Companies Act No. 71 of 2008 (“the Act”)
is interpreted to mean that Section 164 of the Act applies to
dissenting shareholders of the holding company, who advised the
company that they object to the resolution and have voted against it
at a meeting called for that purpose, in compliance with the
provisions of the Act.
(d).
This interpretation accords with the wording of Sections 115(8)
and
164 of the Act, together with the context and the purpose of the Act.
(e).
The first, second and third respondents are ordered to pay the cost
of this application, including the costs of two counsel, where used.
_________________________________
PAPIER,
J
[1]
Rule 6(5)(d) Any
person opposing the grant of an order sought in the notice of motion
must
–
(iii)
if he/she intends to raise any question of law only he or she must
deliver notice of his or her intention to do so, within
the time
stated in the preceding sub-paragraph, setting forth such question.
[2]
Section 164:
Dissenting shareholders appraisal rights
(2) If a company
has given notice to shareholders of a meeting to consider adopting a
resolution to–
(a)
…
(b)
enter into a transaction contemplated in Section 112,
113, or 114, that notice must include
a statement informing
shareholders of their rights under this Section.
(5) A shareholder
may demand that the company pay the shareholder the fair value for
all of the shares of the company held by
that person if-
(a)
the shareholder
(i)
sent the company a notice of objection, subject to Section (6); and
(ii)
and in the case of an amendment to the company’s Memorandum of
Incorporation, holds shares of a class that is materially and
adversely affected by the amendment;
(b)
the company has adopted the resolution contemplated subsection (2);
and
(c)
the shareholder–
(i)
voted against that resolution; and
(ii)
has complied with all of the procedural requirements of this
section.
[3]
Section 115 –
Required approval for transactions
contemplated in Part
(1)
…
.
(2)
A proposed transaction contemplated in subsection (1) must be
approved –
(a)
by a special resolution adopted by persons entitled to exercise
voting rights on such a matter, at
a meeting called for that purpose
and at which sufficient persons are present to exercise, in
aggregate, at least 25% of all
of the voting rights that are
entitled to be exercised on the matter, or any higher percentage as
may be required by the company’s
Memorandum of Incorporation,
as contemplated in Section 64(2); and
(b)
by a special resolution, also adopted in the manner required
by paragraph (a), by the shareholders
of the company’s,
holding company if any, if –
(i)
the holding company is a company or an external company;
(ii)
the proposed transaction concerns a disposal of all or the greater
part of
the assets or undertaking of the subsidiary, and
(iii)
having regard to the consolidated financial statements of the
holding company,
the disposal by the subsidiary constitutes a
disposal of all or the greater part of the assets or undertaking of
the holding
company; and
(c)
…
[4]
Section 112 –
Proposal to dispose of all or the greater
part of assets or undertaking
(1)
A company may not dispose of all or the greater part of its
assets or undertaking unless–
(a)
the disposal has been approved by a special resolution of the
shareholders, in accordance with
Section 115; and
(b)
the company has satisfied all other requirements set out in Section
115, to the extent those requirements
are applicable to such a
disposal by that company.
[5]
Section (115)(8) The holder of any voting rights in a company is
entitled to seek relief in terms of Section 164 if that person–
(a)
notified the company in advance of the intention to oppose the
special resolution contemplated
in this section; and
(b)
was present at the meeting and voted against that special
resolution.
[6]
Also, see Moraitis Investments (Pty) Ltd and Others v Montic Dairy
(Pty) Ltd and Others
[2017] 3 ALL SA 485
(SCA) at para 37: “The
purpose underpinning the requirements of Sections 112 and 115 is to
ensure that the interests and
views of
all
shareholders
are taken into account before the company disposes of the whole or
the greater part of its assets or the undertaking itself.”
(Own emphasis)
[7]
According to Section 112(2):
“
(2) A
company may not dispose of all or the greater part of its
assets or undertaking unless–
(a)
the disposal has been approved with a special resolution of
the shareholders, in accordance with Section 115; and
(b)
the company has satisfied all other requirements set out in
Section 115, to the extent those requirements are applicable to such
a disposal by that company.
”
[8]
See Section 112(2).
[9]
Section 115
-
Required approval for transactions contemplated in part
(1)
…
(2)
A proposed transaction contemplated in subsection (1) must be
approved –
(a)
…
(b)
by a special resolution, also adopted in the manner required
by paragraph (a), by the shareholders
of the company’s holding
company if any, if –
(i)
the holding company is a company or an external company;
(ii)
the proposed transaction concerns a disposal of all or the greater
part of the assets or undertaking of
the subsidiary; and
(iii) having
regard to the consolidated financial statements of the holding
company, the disposal by the subsidiary constitutes
a disposal of
all or the greater part of the assets or undertaking of the holding
company; and
(c)
by the court, to the extent required in the circumstances and manner
contemplated in subsections (3)
to (6).
[10]
Id Section 115(2)(b).
[11]
Id para 19.
[12]
Id para 19.
[13]
Putting Appraisal Rights Into Perspective Stell LR 2014(2) page 328
at page 331.
[14]
Page 331. See also page. 335 para 4 -
[15]
Id. Page 335.footnote 52.
[16]
Modern Company Law for a competitive South African economy, notes on
page 306 at 312.
[17]
Id page 313 para 5.
[18]
Second edition – Juta page 715.
[19]
Id Kassiem at page 723 – note the use of the word “and”
at the end of paras (a) and (b) of Section 115(2).
[20]
Id page 723
[21]
Id at page 13 para 2.2.1.
[22]
Id page 14 para 2.2.2.
[23]
Id at page 35 para 4.4.1
[24]
Id at page 37 para 4.4.1