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[2013] ZAGPJHC 282
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Property Promotions & Management (Pty) Ltd and Others v Securities Regulation Panel and Others (2011/6086) [2013] ZAGPJHC 282 (15 November 2013)
REPORTABLE
IN THE SOUTH GAUTENG
HIGH COURT
OF SOUTH AFRICA
(JOHANNESBURG)
Case No: 2011/6086
15 November 2013
In the matter between:
PROPERTY PROMOTIONS &
MANAGEMENT
(PTY) LTD
…...................................................................................
..
1
st
Applicant
NEW PORT FINANCE
COMPANY (PTY) LTD
...........................
.
2
nd
Applicant
PINNACLE POINT
HOLDINGS (PTY) LTD
...............................
..
3
rd
Applicant
GARDENER ROSS
INTERNATIONAL FINANCE
(PTY)
LTD
...........................................................................................
4
th
Applicant
NORMAN BOSMAN
…...................................................................
..
5
th
Applicant
And
THE SECURITIES
REGULATION PANEL
.............................
..
1
st
Respondent
NEDBANK
LTD
.............................................................................
2
nd
Respondent
SYFRETS SECURITIES
LTD
.....................................................
..
3
rd
Respondent
JUDGMENT
C. J. CLAASSEN J:
1] This is a review
application in terms of Rule 53 of the Uniform Rules of Court. The
amended notice of motion
1
seeks an order to set aside the decision of the first respondent
being the Securities Regulation Panel (SRP) of 16 August 2010
to the
effect that an “affected transaction” for the purpose of
section 440A of the Companies Act 61 of 1973, did not
occur when the
second and/or third respondents’ shareholding in Acc-Ross
Holdings Ltd (“Acc-Ross”) exceeded 35%
and/or when such
holding increased by three further tranches of 5% each within a
twelve month period. It further seeks an order
declaring that an
affected transaction did in fact occur during March/April 2007 and
that the matter is to be referred back to
the SRP for reconsideration
as to whether a mandatory offer to acquire all the minority shares is
to be made.
THE PARTIES
2] Originally five
applicants lodged proceedings with the SRP for an order declaring
that an affected transaction took place. When
the SRP refused to make
such an order, the five applicants lodged the current review
application. It is necessary to deal with
the status of each of the
parties to the current review application.
a) The first applicant,
Property Promotions and Management (Pty) Ltd, has been liquidated and
no authority from the liquidator exists
entitling it to proceed with
the present application.
b) The second applicant
is New Port Finance Company (Pty) Ltd who became a shareholder in
Acc-Ross during or about December 2008.
c) The third applicant is
Pinnacle Point Holdings (Pty) Ltd who was liquidated on 28 February
2013 by an order of court issued in
the Western Cape High Court, Cape
Town.
2
No authority was issued by the third applicant’s liquidator to
continue with this litigation.
d) The fourth applicant,
Gardener Ross International Finance (Pty) Ltd, and the fifth
applicant, Norman Bosman, fell out of the
picture after the authority
of the attorney of record, Mr John Taylor, was questioned and he
withdrew as their attorney.
e) Therefore, of the five
original applicants only the second applicant seeks an order of
review in terms of the amended notice
of motion.
3] The first respondent,
the SRP, abides the decision of this court. The second respondent,
Nedbank Ltd (“Nedbank”),
and the third respondent,
Syfrets Securities Ltd (“Syfrets”), contest the granting
of the relief sought in the amended
notice of motion.
BACKGROUND FACTS
4] It is common cause
that Nedbank and Syfrets acquired, first, more than 35% of the issued
voting securities in Acc-Ross and thereafter
in further tranches of
5% each up to 50% of such securities.
3
5] Almost three years
later on 4 February 2010 a complaint was lodged with the SRP by
attorney John Taylor acting on behalf of five
objecting parties being
the original applicants in this review application. This led to a
hearing before a five-member panel of
the SRP on 19 and 20 May 2010
and a decision by the panel on 16 August 2010.
4
6] The issue at stake is
whether or not Nedbank was, under the SRP rules, required to make a
mandatory offer to Acc-Ross shareholders
in existence at the time of
the application brought before the SRP. The SRP answered this
question in the negative based on three
alternative grounds.
5
The ruling read as follows:
“
9.1
Having considered the arguments put to us, for the reasons outlined
above, we find that an affected transaction did not occur
at the time
when Syfrets’ holding of Acc-Ross shares reached 35%, or each
time that its holding increased by another 5%.
9.2 However, if we are
wrong in our decision above, we hereby exercise our discretion to
‘rule otherwise’ in terms of
Rule 8.1 of the Code, for
the reasons of equity given above.
9.3 And should we for any
reason be found to have incorrectly exercised our discretion in terms
of Rule 8.1, we hereby exercise
our general discretion in terms of
Rule 34 to excuse Syfrets and Nedbank from having to make an offer to
the other shareholders
of Acc-Ross or PPG, for the reasons of equity
given above.”
7] On 11 February 2011
the applicants commenced review proceedings to set aside the
aforesaid rulings of the SRP. Originally they
only sought to set
aside the ruling in paragraph 9.1 of the SRP ruling. Subsequently, on
1 June 2011 the amended notice of motion
was filed introducing a
review also of the rulings in paragraphs 9.2 and 9.3 of the SRP
ruling.
8] The matter came before
court during April 2012, but was postponed for purposes of allowing
the applicants to file an ancillary
review application which they did
on 4 May 2012. Thereafter both parties filed supplementary heads of
argument. The matter was
then set down as a special motion for 14 and
15 November 2013.
POINT IN LIMINE
9] In the supplementary
heads of argument filed on behalf of Nedbank and Syfrets, Mr Cilliers
SC and Mr Berridge SC raised a point
in limine which, if upheld,
would be dispositive of the entire review application. It concerned
the locus standi of the second
applicant to approach the SRP for the
ruling sought and as a result its locus standi to bring the current
review application.
10] It is common cause on
the papers that the first, second and third applicants were not
shareholders in Acc-Ross when the 35%
thresholds were crossed
allegedly triggering a mandatory offer to be made by Nedbank to the
minority shareholders. It was only
during December 2008, some
eighteen months later, that the aforesaid applicants became
shareholders in Acc-Ross. At the time when
the thresholds were
crossed, only the fourth and fifth applicants had been shareholders
in Acc-Ross.
11] The point in limine
was advanced in the following manner in the supplementary heads of
argument of Nedbank and Syfrets:
“
3.1.1
The whole rationale of the SRP Rules is that, where control of a
company (to which the SRP Rules apply, which included all
public
companies) changes, non-controlling shareholders are entitled to exit
the company on the same terms as the controlling shareholding
had
changed hands and to be made a mandatory offer on such terms by the
acquirer of the controlling shareholding…
Thus, persons who were
not shareholders in a company when the mandatory offer was to be
made, are not entitled to such offer; certainly
they do not fall
within the rationale of the SRP Rules. A fortiori, this applies to
persons who later acquired shares which did
not even exist when a
mandatory offer was to be made, i.e. shares which were not only
acquired but indeed issued, after a mandatory
offer was to be made…
3.3…The SRP found,
as an independent ground for not giving any ruling in favour of the
first, second and third applicants,
that they had not held any shares
in Acc-Ross at the time the mandatory offer allegedly had to be made.
The correctness of this
finding has not been challenged by the
applicants, and is fatal to any prospects of success of the review at
the instance of the
only surviving applicant.”
12] As indicated in
Ruling 9.1 quoted earlier in this judgment, the SRP “for the
reasons outlined above” came to a finding
that an affected
transaction did not occur at the time when the threshold of 35%
shareholding was crossed. One of the reasons which
persuaded the SRP
to conclude as above is contained in paragraph 8.5 of its written
reasons.
6
This paragraph reads as follows:
“
8.5…we
find it hard to accept the submission that each of the Complainants
should be entitled to an offer, if we were to
decide that an offer
should be made. On the facts of the matter as given to us, when
Syfrets’ shareholding in Acc-Ross crossed
the various
thresholds in March/April 2007, the Pinnacle Consortium members were
not yet shareholders of Acc-Ross/PPG. In our view
this would
disqualify them from being eligible for an offer. We do not agree
that the right to be made an offer should (depending
on the facts of
the matter) necessarily accrue to anyone who acquires the relevant
shares after the date on which an offer should
have been made (if it
must be made). Of the two Complainants who were apparently
shareholders at the relevant times, we agree with
Mr Cilliers’
submission (and assuming the facts he put to us are correct) that
Gardener Ross (the fourth applicant) was not
in the end prejudiced.
This was because it sold its shares in December 2007 at a higher
price than it would have received if an
offer had been made to it
earlier that same year. We agree that it should not therefore be
entitled to approach the Panel now asking
for an offer to be made to
it. Mr Bosman (the fifth applicant) is the only person who, it would
appear, may have had a right to
an offer, and possibly only relating
to 1.8 million shares.” (Emphasis added)
13] Mr Quixley and Ms
Reynolds for the second applicant sought to persuade me that the
reasoning in paragraph 8.5 above did not
constitute findings of fact
which led to the ultimate ruling by the SRP. I cannot agree. It is
expressly found that the applicants
were disqualified from being
eligible for a mandatory offer. That is a factual finding.
Furthermore, such factual finding has not
been challenged by the
applicants in the present review application. For current purposes it
must therefore be found that the review
application is to be
determined on the basis that the second applicant did not qualify for
a mandatory offer as envisaged in the
Rules. Once it is concluded
that the only remaining applicant, being the second applicant, was
disqualified from being eligible
for a mandatory offer, the entire
relief sought by the second applicant in the amended notice of motion
falls away.
14] Mr Quixley attempted
to counter the aforesaid conclusion by submitting that the failure to
comply with the prerequisites once
the threshold is crossed
constitutes a breach of the SRP Code. That breach was a continuing
breach which commenced during March/April
2007 and still existed at
the time when the second applicant became a shareholder in Acc-Ross
during December 2008. As such, it
was submitted, that the right to
approach the SRP redounded to the second applicant’s benefit
once it became a shareholder
some eighteen months after the threshold
was crossed. This argument was based on the contention that the
second applicant suffered
prejudice to the extent that had it known
of the control in the hands of Nedbank to the extent of 89% of the
shareholding, it may
not have concluded the transaction in terms
whereof it became a shareholder in Acc-Ross. I have come to the
conclusion that this
argument is fundamentally flawed.
EVALUATION
15] It then becomes
necessary to ascertain the rationale of the various legislative
instruments dealing with affected transactions.
A good starting point
is to remind oneself of what was said in Spinnaker Investments (Pty)
Ltd v Tongaat Group Ltd
1982 (1) SA 65
(A) at 72H – 73A in
regard to the rationale to the legislative instruments dealing with
the analogous situation of take-over
offers in terms of section 314
of the Companies Act 61 of 1973. What was said is the following:
“
While
the sections facilitate a take-over operation they also provide a
measure of protection for shareholders in the offeree company.
The
mischief whereby entrepreneurs operating on a big scale can gain
control of a company by buying out one or two of the large
shareholders and ignoring the small shareholders is to some extent
curtailed. In a word, the operations of the financier, who is
sometimes referred to in terms that are less than flattering as a
predator, a white-collar, or an early-dawn raider, are no longer
unrestricted.”
The aforesaid reasoning
was approved as also applicable to the underlying rationale of the
legislative instruments dealing with
affected transactions by Marais
JA in Sefalana Employee Benefits Organisation v Haslam and Others
[2000] ZASCA 1
;
2000 (2) SA 415
(SCA) at 418J. The definition in both the Companies
Act, section 440A(1) and the Code, section 1 of section B of affected
transactions,
centres around a change in control. It reads:
“’
Affected
transaction’ means any transaction including the transaction
which forms part of a series of transactions or scheme,
whatever form
it may take, which –
a) taking into account
any securities held before such transaction or scheme has or will
have the effect of –
i) Vesting control of any
company (excluding a close corporation) in any person, or two or more
persons acting in concert, in whom
control did not vest prior to such
transaction or scheme; or
ii) Any person, or two or
more persons acting in concert acquiring or becoming the sole holder
or holders of, or the securities,
or all the securities of a
particular class, of any company (excluding a close corporation); or
iii)…”
17] The concept of
“control” is defined as meaning:
“…
A
holding or aggregate holdings of shares or other securities in a
company entitling the holder thereof to exercise, or cause to
the
exercised, directly or indirectly, the specified percentage or more
of the voting rights at meetings of that company, or any
company
controlled by it, irrespective of whether such holding or holdings
confers de facto control.”
18] Section 5 of section
B of the Code, determines what the specified percentage is which
would establish control of the company
and states:
“
For
the purpose of determining control as defined in the Act, the
specified percentage is hereby prescribed as being 35% or more
of the
voting rights of a company.”
19] Section C, “General
Principles” of the Code specifically state that all holders of
the same class of securities
of an offeree company shall be treated
similarly by an offeror.
7
It also establishes a principle that persons holding shares in a
company shall be entitled to dispose of their shares on “terms
comparable to those of any affected transaction in the relevant
securities.”
8
20] Of importance for the
present enquiry is the time delay after the prerequisites were to be
complied with once the 35% threshold
had been crossed. As will be
noted here after, no express period is stipulated within which a
mandadory offer is to be made. In
this regard Rule 2.3 of section D
of the Code states the following:
“
2.3
An Announcement of a firm intention to make an offer is an
Announcement published in the press in the circumstances and
containing
the information set out in this Rule.
…
2.3.1 An announcement of
a firm intention to make an offer shall be made –
a) …
b) Immediately upon on
acquisition of securities which gives rise to an obligation to make
an offer under Rule 8.” (Emphasis
added)
21] Rule 8 deals with the
mandatory offer which is to be made when an affected transaction
occurs. It states:
“
8.1
Whenever an affected transaction occurs, then the person or persons
who have acquired control of a company, or who acquire further
securities in excess of the limits prescribed by the rules, shall,
unless the Panel rules otherwise, extend offers to the holders
of any
class of equity capital, whether voting or non-voting, and also to
the holders of any class of voting non-equity capital
of which such
person or persons acting in concert with him are holders, to acquire
all of their securities or such portion of the
securities as the
Panel on application may determine. In making such determination, the
Panel shall have regard to the facts of
the case, the general
principles of the Code and equity. The offers shall be for the same
or a comparable consideration. Offers
for different classes of equity
capital shall be comparable and the Panel shall be consulted in
advance in such cases: Provided
that for purposes of this rule the
limit prescribed shall be the acquisition in any period of 12 months
of securities carrying
more than 5% of the voting rights by the
person or persons holding not less than the specified percentage but
not more than 50%
of the voting rights of a company.” (Emphasis
added)
22] Applying these
provisions to the facts of the present case, it is obvious that
Nedbank indeed obtained control of Acc-Ross during
March/April 2007.
The question which arises is what consequences flow from Nedbank’s
failure to comply with the provisions
of Rule 2.3. It is common cause
that in breach of this Rule, no such announcement or mandatory offer
was made. In fact it appears
that Nedbank itself did not even
appreciate that the threshold had been crossed, because it became the
market-maker for Single
Stock Futures in Acc-Ross (“SSF”).
9
As such, it did not carry the risk in the fluctuations of the market.
Thus, as the holder of these shares, it was bound to deliver
them
upon the effluxion of the specified time, to the then purchasers of
the shares. This, however, never occurred because the
purchasers
defaulted.
23] Any breach of the
Code is to be remedied in terms of section 440M of the Act which
provides:
“
440M(1)
If any person who is not exempted from compliance with the Rules acts
in contravention of any of the Rules, the Panel may
apply to the
Court for an order compelling such person to comply with the relevant
Rule, and the Court may in its discretion issue
such an order.
(2) If the Panel has
reason to suspect that any person who is not exempted from compliance
with the Rules –
(a) …
(b) Have so contravened
any of the Rules, or that such a contravention is likely to be
continued or repeated,
the Panel may apply to
the Court for an order –
(I) …
(ii) Prohibiting the
continuation or repetition of a contravention referred to in
paragraph (b); or
(ii) Prohibiting the
person concerned from continuing with an affected transaction or
proposed affected transaction.
(3) …
(4) Any person who
contravenes any of the Rules shall be liable to any other person for
any loss or damage suffered by that person
as a result of such
contravention.”
24] It is obvious from
the above that breaches of the Code are to be remedied by action on
the part of the SRP in approaching the
court for the necessary order
to enforce compliance of the rules and/or prevent breach of such
rules. It is common cause that the
SRP did not approach the court for
any such relief in terms of section 440M of the Act.
25] What the second
applicant is in effect doing is to rely on section 440M(4) in
contending that it had suffered prejudice because
of the continued
breach of the Code by Nedbank. The subsection grants the second
applicant an independent right to sue Nedbank
for any damages it may
have suffered, if so advised. I am informed from the bar that indeed,
the second applicant instituted just
such an action for delictual
damages in the North Gauteng High Court.
26] However, once the SRP
in fact ruled that an affected transaction did occur and that the
Rules had been breached by the offeror,
the shareholders in the
offeree company cannot approach the SRP to remedy such situation on
its own. It is for the SRP to approach
the court, if so advised, to
remedy the situation by seeking an order of court to prohibit the
offending offeror from continuing
its breach. At best, it would seem
to me that the Rules were designed to allow affected shareholders to
approach the SRP with a
request that it should engage the assistance
and intervention of the Court to remedy any breach of the Rules.
27] I am therefore of the
view that the second applicant has misconstrued its remedy. Either
the SRP, as an independent institution,
seeks the assistance of the
court to enforce its Rules in the Code or alternatively affected
parties may sue the offending offeror
for any damages they may have
suffered. That being the case, I am of the view that the entire
review application falters on the
ground of reliance upon a
misconceived premise.
28] I am further of the
view that the rationale of the Rules pertaining to affected
transactions are to protect “existing”
shareholders who
wish to exit the company once a control change occurs. It is not
designed to protect “entering” shareholders
who became
such long after the affected transaction took place. A simple example
will suffice. If a company has 100 shares and
an offeror purchases 35
from existing shareholders, such offeror obtains control of the
company. If subsequent to such change of
control the company
increases its share capital a thousand fold, the purchasers of shares
issued as a result of such increased
capital cannot be seen to demand
to be treated on the same basis as the original minority shareholders
who were in existence prior
to the increase of the share capital. It
would be manifestly unjust and inequitable to do so. In terms of Rule
8.1 the decisions
of the SRP are based on equity and the particular
facts of each case. It would be surprising if in the postulated
scenario above,
the SRP was to find that an affected transaction took
place entitling the new shareholders to be treated and bought out
with a
mandatory offer by the offeror at a price a thousand fold in
excess of that which it paid at the time of purchasing its
controlling
shareholding. In effect that is what the second applicant
is contending for. It wishes, as a late-comer, to be treated as if it
was one of the minority shareholders at the time when the control
changed.
29] Finally it would seem
to me that the general import of the Code by virtue of Rule 2.3.1(b)
is for action to be taken immediately
after the occurrence of an
affected transaction. In my view, equity to all concerned would
demand such speedy action, otherwise
it would make no sense for the
Legislature to demand an announcement to be made “immediately
upon an acquisition of securities
which give rise to an obligation to
make an offer under Rule 8.”
CONCLUSION
30] For the reasons set
out above I am of the view that the point in limine was well taken.
The SRP dealt with this very issue in
its reasoning and found as a
fact that the second applicant had no locus standi to approach it for
relief arising from Nedbank’s
alleged breach of the Code in
failing to make a mandatory offer. It follows that similarly the
second applicant has no standing
to review the finding made by the
SRP to the effect that it was not eligible to receive a mandatory
offer. The fact that this finding
was never contested adds weight to
the aforesaid conclusion.
31] The following order
is issued:
The review application is
dismissed with costs, which costs are to include the costs of two
counsel.
DATED THE 15 TH OF
NOVEMBER 2013 AT JOHANNESBURG
C. J. CLAASSEN
JUDGE OF THE HIGH
COURT
Counsel for the Second
Applicant: Adv G. Quixley SC
Adv K. Reynolds
Counsel for the Second
and Third Respondents: Adv S. A. Cilliers SC
Adv B. Berridge SC
Attorney for the First
Respondent: Tshievhe Gwina Ratshimbilani Inc
Attorney for the Second
Applicant: John Taylor and Associates
Attorney for the Second
and Third Respondents: Cliffe Dekker Hofmeyr Inc
The hearing took place on
14 and 15 November 2013
Summary
PROPERTY PROMOTIONS &
MANAGEMENT (PTY) LTD AND OTHERS v THE SECURITIES REGULATION PANEL
(SRP) AND OTHERS
Administrative law –
Review of the ruling of the Securities Regulation Panel (SRP)(now
known as the Takeover Regulation Panel)
– respondents raised
point in limine – lack of locus standi of the applicant.
Codes of the SRP –
whether breaches the rules of the Code existed – whether
remedies available in section 440M Companies
Act 61 of 1973-SRP
empower an applicant to approach the Court to remedy the situation.
The applicant brought a
review application to set aside the decision of the SRP relieving the
second respondent of the necessity
to make the mandatory offer to
minority shareholders when its majority shareholding exceeded 35%.
The SRP had ruled that the second
respondent did not have to make the
offer.
The court dismissed the
review application based on the fact that the second applicant had no
locu standi to review the SRP findings
as it was not a shareholder at
the relevant time the mandatory offer was to have been made. The
appropriate remedy was for the
applicant to request the SRP to
approach the court for an order remedying the situation as provided
for in the Code.
1
See
Main Application p. 160
2
See
Annexure “X” attached to the second and third
respondents’ supplementary Heads of Argument filed on 10 June
20
3
See
Applicants’ Founding Affidavit, Record pp. 16 – 17 par
34 and Nedbank’s Answering Affidavit Record p. 21
par 21
4
See
SRP Ruling Record pp. 54 – 86
5
See
SRP Ruling par 9 at p. 85 of the Main Application
6
See
Main Application p. 76
7
See
Section 2(1) of Section C
8
See
Section 11 of Section C
9
See
the unreported decision of
ABSA Bank
Ltd v Ukwanda Leisure Holdings (Pty) Ltd
(Case
No: 2009/35416) handed down in the South Gauteng High Court on 9
September 2013 for a full exposition of the meaning of
Single Stock
Futures