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[2015] ZAGPJHC 265
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Modisane and Another v Prime Portfolio Investment SA (Pty) Limited (2014/4017) [2015] ZAGPJHC 265 (12 November 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER: 2014/4017
DATE:
12 NOVEMBER 2015
In
the matter between:
MODISANE
AL
...............................................................................................................
First
Applicant
MODISANE
NGWENYA
NS
......................................................................................
Second
Applicant
And
PRIME
PORTFOLIO INVESTMENTS A (PTY)
LIMITED
...........................................
Respondent
JUDGMENT
[1]
The Applicants seek an order compelling the
Respondent to supply all or some of certain documents alternatively
to make the documents
available for inspection by the Applicants
and/or their appointed agent.
[2]
The documents generally relate to corporate
and financial records of the Respondent.
[3]
The Applicants further seek an order that a
forensic audit should be performed on the Respondent for the period
2003 – 2006
and 2001 – 2014 by an independent auditor
appointed by the Chairman of the South African Institute of Chartered
Accountants
(“SAICA”).
[4]
The Applicants further seek an order for
costs on the scale as between attorney and own client.
[5]
The Applicants had initially sought certain
interim relief that no dividends be paid by the Respondent to any
shareholder, and that
no assets be disposed of by the Respondent to
any party pending determination of this matter. I was informed during
argument that
this part of the relief sought is no longer relevant as
it is not proceeded with by the Applicants.
[6]
The issue for determination is whether or
not the Applicant is entitled to the main relief for access to
documentation and that
a forensic audit be performed on the
Respondent.
[7]
The relevant facts in this matter are
largely common cause. The Applicants are shareholders in the
Respondent. The Applicants own
5% and 7% respectively of the shares
in the Respondent. The balance of the shares are held by other
shareholders in the proportion
of between 10 and 18% each.
[8]
The Respondent started off as a “stokvel”
(informal savings club) of the current shareholders of the
Respondent. It
was later converted into a company but its business
was still conducted as a partnership and not strictly as a company.
[9]
Until the annual general meeting of April
2014, no annual general meetings were held and no financial
statements were approved by
the directors. It appears that the
affairs of the Respondent were not conducted strictly according to
the requirements of the Companies
Act 71 of 2008 (“the Act”).
In particular the annual financial statements were not performed as
and when strictly required
by the Act.
[10]
Directors of the Respondent have recently
attempted to comply with the requirements of the Act by preparing
annual financial statements
which stretch back to the time when the
company was incorporated. Financial statements have been approved by
the shareholders and
this is where the genesis of the dispute arises.
[11]
Applicants are dissatisfied with certain
aspects of the financial statements and affairs of the Respondent.
They complain that they
were unlawfully removed as directors and as
such they have had no access to the inner workings of the Respondent
and its financial
affairs.
[12]
The Respondent, which is represented in
these proceedings by most of the remainder of the shareholders,
contends that the Applicants
were removed as directors because they
were not actively involved in the affairs of the Respondent.
[13]
Although nominally it appears that the
Respondent is the company, on a closer analysis of the facts the
dispute in essence involves
on the one hand the Applicants and on the
other their co-shareholders. The Respondent is a proxy through which
the shareholders
do battle in this matter.
[14]
The Respondent holds substantial assets
valued at approximately R68 819 145.00 as at 1 March 2010.
The Respondent is a
special purpose vehicle in that it does not
actively trade but holds equity interest in other established
companies.
[15]
After the financial statements of the
Respondent were updated and given to the shareholders, the Applicants
suspected that certain
irregularities were committed by the
shareholders who are in charge of the business of the Respondent. The
suspected irregularities
relate to dividend distribution and disposal
or intended disposal of certain assets of the Respondent.
[16]
The Respondent has engaged in certain
transactions and earned dividends. The dividends are due for
distribution. A dispute has arisen
between the Applicants and the
other shareholders regarding the distribution or disposal of the
assets. The Applicants are of the
view that they are entitled to a
bigger share of the dividends than what is proposed. They also
suspect that in the past other
distributions were made and they were
excluded. They have queried certain specific items in the financial
statements and demand
more documentation to substantiate those
transactions. In addition they want to subject the Respondent to a
forensic audit.
[17]
The Applicants allege that they have
attempted on many occasions to gain access to the information
concerned but the Respondent
has refused them that information.
[18]
On the other hand the Respondent’s
stance is that it has either provided the information demanded by the
Applicants or it
does not have it and can thus not produce it.
[19]
After listening to the Applicants’
arguments it became clear that the extent of the scope of the
documents demanded and which
is outstanding is fairly limited.
[20]
The information which the Applicants
contend is still outstanding is more fully set out in paragraph 27.5
of the founding affidavit
and is the following:
20.1.
Copies of any written communications sent
generally by the Respondent to all shareholders of any class of the
Respondent’s
securities. The Respondent alleges that it does
not have this information in its possession.
20.2.
All management accounts of the Respondent
for the period 2007 to 2014. The Applicants contend that this
information must be available,
taking into account certain entries in
the financial statements. I was referred to certain journal entries
which form part of the
notes to the financial statements and on the
basis of these journal entries the Applicants contend that the
documents must be available
irrespective of the allegations by the
Respondents to the contrary. Respondent asserts that it does not have
this information.
20.3.
All offers made by any party for the
purchase of any of the Respondent’s assets during the period
2007 – 2014. The Respondent
asserts that this information is
not available to it. Applicants contend otherwise.
20.4.
All correspondence with regard to offers
during the period 2007 – 2014. Respondent contends that this
information is not in
its possession and as such cannot be provided.
20.5.
All valuations performed on any of the
assets of the Respondent during the period 2007 – 2014. The
Applicants contend that
the balance sheet of the Respondent records
other financial assets held in listed companies, and that the assets
are recorded at
a fair value. According to the Applicants this means
that the shares were valued and a report should be available. In
response
the Respondent submits that the very same financial
statements record that the fair values of listed or quoted
investments are
based on the quoted market price at reporting period
and that the unlisted investments are carried at cost. Accordingly
Respondent
contends that there is no separate valuation report of the
assets.
20.6.
All ledgers, including the general ledger
of the Respondent for the period 2007 – 2014. Respondent
contends that it does not
have this information while the Applicants
contend that based on a reading of the financial statements I must
conclude that there
are ledgers including the general ledger as
demanded and that I should order the Respondent to make that
available.
20.7.
The salary / wage book of the Respondent
for the period 2007 – 2014.
Similarly
the Applicants contend that based on an entry in the financial
statements recording that wages/salaries were paid, that
this
information should be available.
[21]
During argument the Applicants’
counsel conceded that the Applicants will accept the word of the
Respondent that the documents
in paragraphs 20.1 - 20.5 in fact are
not available and as such I cannot order their delivery. The
remaining documents which the
Applicants insist on are the valuation
reports, ledgers as well as the salaries / wage books.
HAS
THE APPLICANT MADE OUT A CASE ?
[22]
The parties have concluded a shareholders
agreement. A shareholders agreement, as the name suggests is an
agreement among shareholders.
In terms
of section 15(7) of the Act the shareholders of a company may enter
into any agreement with one another concerning any
matter relating to
the company, but any such agreement must be consistent with the Act
and the company’s memorandum of incorporation.
[23]
The
sanctity of contracts must prevail and the parties must be held to
the shareholders agreement.
[1]
The shareholders agreement must be interpreted in terms of the
ordinary rules of interpretation.
[24]
The purpose of the shareholders agreement
is to govern the relationship of the shareholders. The parties
concluded shareholders
agreement concluded in 2007 is binding on
them. Whatever rights and obligations the shareholders enjoy must
therefore be determined
with reference to the shareholders agreement.
[25]
Clause 6 of the shareholders agreement
governs the shareholders’ right to information. In essence this
application is an assertion
of the Applicants to their right to
information.
[26]
Cause 6.2 provides as follows:
“
6.2
In addition to the provisions of clause 6.1, each shareholder shall
be entitled at its expense to appoint its own auditors to
review the
company’s annual audited financial statements for each
financial year and for that purpose to have access to all
the
company’s books of account and records and to all the working
papers of auditors
.”
[27]
Prayer 2 of the Notice of Motion is an
order that a forensic audit be performed on the Respondent by an
independent auditor appointed
by the Chairman of the SAICA. There is
no provision in the shareholders agreement, particularly in clause
6.2 for a type of audit
called a forensic audit. All that clause 6.2
provides is that any shareholder may appoint an auditor at their own
cost. After the
appointment of that auditor, it follows as a matter
of logic that the appointed auditor may approach the auditors of the
Respondent
and request the financial statements as well as source
documents underlying the financial statements.
[28]
In order to exercise the right enshrined
this clause 6.2, a shareholder does not require the consent or
permission of the Respondent.
Nor does section 6.2 envisage that a
forensic audit would be performed by an independent auditor appointed
by an outside body such
as SAICA.
[29]
In my view therefore prayer 2 falls outside
the ambit of the shareholders agreement.
[30]
In addition it should be noted that a
shareholders meeting was convened at which the Applicants sought a
resolution to be adopted
by the Respondent authorising the
appointment of a forensic auditor.
[31]
The
resolution was not adopted as the majority rejected it. It is trite
law that the decisions of a company, especially those of
the
shareholders are taken through a majority vote
[2]
.
The principle of the supremacy of the majority is essential to the
proper functioning of companies.
[3]
The minority cannot complain if the majority exercise their vote to
defeat a minority driven resolution, provided that the laid
down
procedure of the company, the terms of the shareholders agreement and
the general principles of company law are followed.
[32]
It is not the contention of the Applicant
that the meeting at which the resolution refusing the appointment of
the forensic auditor
was adopted was improperly convened or
conducted. They have not sought to challenge that decision in these
proceedings. Neither
have the Applicants relied on section
163
of the Act which offers minority shareholders relief from oppressive
or prejudicial conduct or from abuse of separate juristic
personality
of company.
[33]
The
conduct of the majority shareholders should, however always be judged
in the light also of the principle that by becoming a
shareholder in
a company a person undertakes by his contract to be bound by the
decisions of the prescribed majority of shareholders,
if these
decisions on the affairs of the company are arrived at in accordance
with the law, even where they adversely affect his
own rights as a
shareholder.
[4]
Thus, loss of
confidence in the manner in which the company’s affairs are
conducted or resentment at being outvoted will
not of themselves
constitute prejudice.
[5]
[34]
The dispute in this matter revolves around
accounting matters. The Applicants have deposed to the founding
affidavit in their own
names and have not sought the support of an
accounting expert. The court is therefore placed in a difficult
position in that it
cannot interpret the financial statements in
order to conclude whether or not the documents which the Respondent
says are not available
to it are in fact available. The court is
therefore unable to second guess the Respondent when it says that the
documents are not
available.
[35]
I am unable to find that the documents in
fact exist. As regards the valuation reports I accept the
Respondent’s version that
the financial statements make it
clear that the listed assets are valued at their publicly listed
prices. There can therefore be
no valuation report available.
[36]
Accordingly I am of the view that the
Applicant has not established a case for relief sought. There is no
basis in the shareholders
agreement for a forensic audit. As regards
the documents which the Respondent says that it in fact does not have
those documents,
there is a dispute between the parties whether the
documents sought in fact exist. Their dispute cannot be resolved on
the papers.
[37]
Both parties have argued that the costs
should follow the suit.
[38]
Accordingly the following order is made:
38.1.
The application is dismissed.
38.2.
The Applicants are to pay the costs.
Nalane,
AJ
Acting
Judge of the High Court of South Africa
Appearances:
For
the applicant: Adv N Riley
Instructed
by: Michael Saltz Attorneys
For
the respondent: Adv R Du Plessis SC
Instructed
by: Cliffe Dekker Hofmey Inc
Date
of hearing: 05 October 2015
Date
of judgment: 12 November 2015
[1]
Theron v Phoenix Marketing (Pty) Ltd (Heyman Intervening)
pp295J-296A
[2]
Henochsberg on the
Companies Act 71 of 2008
p585
[3]
Garden
Province Investment v Aleph (Pty) Limited
1989 2 SA 525
D at 534
quoting from Sammel and Others v President Brand Gold Mining Co Ltd
1969 (3) SA 629
(A)
[4]
Henochsberg
on the
Companies Act 71 of 2008
p. 574; Garden Province Investment v
Aleph (Pty) Limited
1989 2 SA 525
D at 534-535
[5]
Garden
Province case supra at 535