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[2018] ZAGPJHC 409
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Reezen Limited v Excellerate Holdings Limited and Others (11899/2018) [2018] ZAGPJHC 409; 2018 (6) SA 571 (GJ) (22 June 2018)

HIGH
COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
Case
No: 11899/2018
REPORTABLE
OF
INTEREST TO OTHER JUDGES
REVISED.
In
the matter between:
REEZEN
LIMITED
Applicant
and
EXCELLERATE
HOLDINGS
LIMITED
1
st
Respondent
BOUNDARY
TERRACES NO 015 (PTY)
LIMITED
2
nd
Respondent
ZANMET
TRADING 7 (PTY)
LIMITED
3
rd
Respondent
Case
Summary
:
Company Law –
Companies Act 71 of 2008
– Interpretation
of
s 41(3).
Section 38(1)
empowers the board of a company to
issue shares
and
s 41(3)
limits that power and requires shareholder approval
inter
alia
for
(a) the issue of shares, if the voting power of the class of shares
that are issued or issuable as a result of the transaction
will be
equal to or exceed 30% of the voting power of all the shares of that
class held by shareholders immediately before the
transaction; or (b)
the conclusion of ‘a series of integrated transactions’,
if the voting power of the class of shares
that are issued or
issuable as a result of the transaction will be equal to or exceed
30% of the voting power of all the shares
of that class held by
shareholders immediately before the transaction.  Whether the
conclusion of one indivisible share sale
and subscription agreement
constitutes ‘a series of integrated transactions’ –
whether the shares issued or issuable
as a result of the conclusion
of the share sale and subscription agreement exceeded the 30%
restriction in
s 41(3)
– whether share sale and subscription
agreement concluded in contravention of
s 41(3)
ought to be declared
void in terms of
s 218(1).
JUDGMENT
MEYER
J
[1]
The applicant, Reezen Ltd (Reezen), seeks an order that the sale by
the first respondent, Excellerate Holdings Ltd (Excellerate),
of
19 000 000 of its treasury shares to the second respondent,
Boundary Terraces No 015 (Pty) Ltd (BT), and the issue by Excellerate

of 56 892 489 new ordinary shares to BT, be set aside.
Reezen is a shareholder and beneficial owner of Excellerate’s

ordinary shares.  The third respondent, Zanmet Trading 7 (Pty)
Ltd (Zanmet), is a wholly-owned subsidiary of Excellerate and
it
owned the 19 000 000 ordinary shares (the treasury shares)
in Excellerate before they had been sold to BT.
[2]
A written share sale and subscription agreement was concluded by
Excellerate, Zanmet and BT, on 13 February 2018.  In terms

thereof, BT, in one indivisible transaction, would purchase the
19 000 000 treasury shares at a price of R5.40 per share

from Excellerate’s wholly-owned subsidiary, Zanmet, and
subscribe to 56,892,489 new shares that would be issued to BT at
a
price of R5.40 per share.  Reezen’s case is that the share
sale and subscription agreement ought to be visited with
the sanction
of voidness:  First, it argues, that the share sale and
subscription agreement contravenes s 41(3) of the Companies
Act, 71
of 2008 (the
Companies Act).  And
, second, that the directors of
Excellerate exercised their power to sell and to issue the shares
contrary to their fiduciary duties;
they did not exercise their power
bona fide
for the benefit of Excellerate and for a proper
purpose.
[3]
The only questions which are capable of determination on the papers
are (a) whether the share sale and subscription agreement
was
concluded in contravention of
s 41(3)
of the
Companies Act and
, if
so, (b) whether it ought to be visited with the sanction of voidness,
in whole or in part.  The other issues involve the
resolution of
material disputes of fact, which are not capable of resolution on the
papers without a referral to trial.  The
directors may, in the
words of Curlewis JA in
Treasure Trove Diamonds Ltd and another v
Hyman
1928 AD 464
at 480-481, satisfy the court at a trial when
evidence is heard ‘. . . that they acted entirely
bona fide
,
and that what now looks on the face of it a transaction with an
ulterior motive and not for the benefit of the company, was quite

genuine’.
[4]
Section 38(1)
of the
Companies Act provides
that-
‘
[t]he
board of a company may resolve to issue shares of the company at any
time, but only within the classes and to the extent,
that the shares
have been authorised by or in terms of the company’s Memorandum
of Incorporation, in accordance with
section 36.
’
Section
41(3)
provides as follows:
‘
An
issue of shares, securities convertible into shares, or rights
exercisable for shares in a transaction, or a series of integrated

transactions, requires approval of the shareholders by special
resolution if the voting power of the class of shares that are issued

or issuable as a result of the transaction or series of integrated
transactions will be equal to or exceed 30% of the voting power
of
all the shares of that class held by shareholders immediately before
the transaction or series of transactions.’
Section
1
states that a ‘. . . ”series of integrated
transactions” has the meaning set out in
s 41(4)(b)
’.
And
s 41(4)
reads thus:
‘
(4)
In subsection (3)—
(a)
for purposes of determining the voting power of shares issued and
issuable as a result of a transaction or series of integrated

transactions, the voting power of shares is the greater of—
(i)
the voting power of the shares to be issued; or
(ii)
the voting power of the shares that would be issued after giving
effect to the conversion of convertible shares and other securities

and the exercise of rights to be issued;
(b)
a series of transactions is integrated if—
(i)
consummation of one transaction is made contingent on consummation of
one or more of the other transactions; or
(ii)
the transactions are entered into within a 12-month period, and
involve the same parties, or related persons; and—
(aa)
they involve the acquisition or disposal of an interest in one
particular company or asset; or
(bb)
taken together, they lead to substantial involvement in a business
activity that did not previously form part of the company’s

principal activity.’
[5]
In terms of clause 6.1 of Excellerate’s memorandum of
incorporation (MOI), it is authorised to issue 60 000 0000

ordinary shares, each of which entitles the holder to vote on any
matter to be decided by the shareholders of the company and to
one
vote in the case of a vote by means of a poll.  The board may,
in terms of clause 6.2 and subject to clause 6.3, resolve
to issue
shares at any time, but only within the classes and to the extent
that those shares have been duly authorised by or in
terms of the
MOI.  Clause 6.3 mirrors
s 41(3)
of the
Companies Act and
reads
thus:
‘
Notwithstanding
the provisions of clause 6.2, any issue of Shares, Securities
convertible into Shares, or rights exercisable for
Shares in a
transaction, or a series of integrated transactions shall, in
accordance with the provisions of
section 41(3)
[of the
Companies Act
71 of 2008
], require the approval of the Shareholders by special
resolution if the voting power of the class of Shares that are issued
or
are issuable as a result of the transaction or series of
integrated transactions will be equal to or exceed 30% (thirty
percent)
of the voting power of all the Shares of that class held by
Shareholders immediately before that transaction or series of
integrated
transactions.’
[6]
The 2008
Companies Act has
brought about significant changes in the
field of company law in this country.  One fundamental change,
as pointed out by
Carl Stein and Geoff Everingham
The New
Companies Act Unlocked
, at 14, is that–
‘
.
. . under the 1973 Act, a company could not issue any shares without
shareholder approval.  The Act now gives the directors
the power
to issue shares without shareholder approval up to a maximum of 30%
of the voting power of all shares of that class.
Minority
shareholders of unlisted public companies do not have pre-emptive
rights over these shares (i.e., the right to acquire
these shares
before they may be issued to any third party).  These minority
shareholders thus have no protection in relation
to share issues up
to this 30% level, unless the MOI provides otherwise.’
[7]
The background facts relevant to the present inquiry are not
controversial.  The board of directors of Excellerate comprises

three executive directors and three non-executive directors.
The three executive directors are also shareholders in Excellerate.

During the beginning of 2017, management of Excellerate set out to
find a new strategic BEE partner.  It was not until about

September 2017 that management located a BEE partner that they found
to be satisfactory.  This partner consisted of a consortium
that
comprised Agile Capital (Pty) Ltd and RMB Corvest.  Management
and the consortium envisaged structuring the acquisition
of the
shares by the consortium through a scheme of arrangement under
s 114
of the
Companies Act.  Management
’s goal with the proposed
transaction that was to be concluded with the consortium was
identified by Mr Hulley (the chief
executive officer of Excellerate)
in the following extract from an email that he sent to Reezen’s
representative, Mr Koudounaris:
‘
I
know that most shareholders would like to continue with Excellerate
into the next phase.  However, as BBBEE requires 51%
and
management already has 38%, this would be very difficult to achieve
unless management dilute.  This is counter-intuitive
as I feel
management should be more invested rather than less, and in fact part
of the plan is for management to leverage to buy
up to 49%.’
It
appears that the ultimate objective of the transaction involved all
of the existing shareholders (other than management) being
bought out
by the consortium and that 11% of those shares then be sold to
management - with leverage funding provided by the consortium
–
to increase management’s shareholding in the company to 49%.
[8]
On 1 November 2017, Mr Hulley distributed an ‘expression of
interest’ to the shareholders ‘with the intention
of
gauging shareholders support for the transaction’.
Pursuant to this expression of interest, the consortium indicated

that it, together with management, wishes to acquire all of the
shares at a price of R3.80 per share.  A successful scheme
of
arrangement requires the affirmative votes of 75% of independent
shareholders who vote at the meeting, and Reezen’s support
for
the transaction was thus essential.  Mr Hulley and the
consortium negotiated with Reezen to solicit its support and to

ascertain the price at which it would be willing to sell its shares.
Mr Koudounaris, at that stage, indicated that Reezen
would support
the transaction at a price of R5.40 per share.  On 8 December
2017, based on Reezen’s indication that
it would support the
transaction, Mr Hulley distributed legally binding irrevocable
undertakings to Excellerate’s shareholders.
The
consortium indicated that it intended to acquire 100% of the shares
(other than those held and owned by management), the price
payable
per share was R5.40, the transaction was to be implemented through a
scheme of arrangement in terms of
s 114
of the
Companies Act and
shareholders who signed the document irrevocably undertake to vote in
favour of all resolutions put to the shareholders of Excellerate
for
purposes of approving and implementing the scheme of arrangement.
[9]
Early in January 2018, Mr Koudounaris informed Mr Hulley that Reezen
no longer considered the offer price of R5.40 to be a fair
and
reasonable value for its shares.  It consequently decided not to
sell its shares and not to sign the irrevocable undertaking.

Shareholders holding approximately 27 000 000 of the voting
shares signed the irrevocable undertakings.  This amounts
to
18.85% of the eligible voting shares (management and treasury shares
excluded).  Shareholders holding more than 81% of
the eligible
voting shares appear to have decided not to sell their shares at
R5.40 and not to sign the irrevocable undertakings.

Consequently, management and the consortium withdrew the proposal on
17 January 2018.
[10]
On 13 February 2018, Excellerate’s board, acting also on behalf
of Zanmet, and BT concluded the share sale and subscription
agreement
without any notice to the existing shareholders and without seeking
or obtaining their prior approval.  Clause 3.2
of the share sale
and subscription agreement reads thus:
‘
3.2
The Acquirer [BT] has agreed, in terms of one indivisible
transaction, to:
3.2.1
firstly, purchase the Sale Shares from Zanmet and Zanmet has agreed
to sell the Sale Shares to the Acquirer with effect from
the Closing
Date [‘the day on which the last of the Conditions Precedent
has been fulfilled or waived, as the case may be,
or such other date
as the Parties may agree in writing’ (clause 2.1.5)]; and
3.2.2
thereafter, subscribe for the Subscription Shares at the Subscription
Price [‘an amount of R5.40 per Subscription Share”

(clause 2.1.32)],
on
the terms and subject to the conditions herein contained.’
And
clause 15 reads as follows:
’
15.1
The Parties hereby record and agree that the Sale and the
Subscription constitute one single indivisible transaction.
15.2
On the Closing Date the Parties shall
15.2.1
implement the Sale as contemplated in clause 8; and
15.2.2
immediately following the implementation of the Sale as contemplated
in clause 15.2.1, the Parties shall implement the Subscription
as
contemplated in clause 12.
15.3
The implementation of the Sale and the Subscription shall occur
strictly in accordance with the sequence of events set out
in clause
15.2, it being agreed that the Subscription will only be implemented
if and once the Sale has been implemented in the
manner contemplated
in clause 8.  Should the Sale have been implemented and the
Subscription is not for any reason whatsoever,
the Sale shall be
unwound and the Parties restored to their positions prior to the
implementation of the Sale.’
[11]
All the suspensive conditions were timeously fulfilled and the sale
transaction and the subscription transaction were implemented
in
accordance with the terms and conditions of the share sale and
subscription agreement.  On 21 February 2018, Excellerate

notified all shareholders, in terms of
s 122(3)(b)
of the
Companies
Act, that
BT had effected an acquisition of a beneficial interest in
more than 30% of the ordinary issued shares of Excellerate.  On

27 February 2018, a firm intention and announcement regarding a
mandatory offer in terms of
s 123
of the
Companies Act was
distributed to all shareholders and board members of Excellerate.
The announcement records that BT had acquired beneficial
ownership of
105 657 799 ordinary shares (being 42.75% of the ordinary
issued shares of Excellerate) at a price of R5.40
per share, it
offers to acquire all remaining shares for R5.40 each and notice is
given that an independent board of Excellerate
would be constituted,
in terms of
regulation 108
of Chapter 5 of the Companies Regulations,
2011, to consider the terms of the offer and the report of an
independent expert, which
report would make recommendations as to
whether the consideration of R5.40 per share was fair and reasonable.
[12]
Immediately before the involvement of BT, 190 275 882 of
Excellerate’s shares were in issue.  No voting rights

attaching to the 19 000 000 treasury shares owned by
Excellerate’s wholly-owned subsidiary, Zanmet, might, in terms

of
s 48(2)(b)(ii)
of the
Companies Act, have
been exercised while the
shares were held by the subsidiary.  The total voting shares in
issue were accordingly 171 275 882,
of which management
owned 28 050 000 (16.38% of the voting shares) and 143 225 882
were independently owned (83.62%
of the voting shares).
Shareholders, in terms of the irrevocable undertakings, were willing
to sell 29 765 310 of the
issued voting shares (17.38% and
20.78% if the management–owned voting shares are excluded).
The total management–owned
voting shares remained 28 050
000 shares (16.38%) and the total independent voting shares owned by
those not willing to sell
to BT at R5.40 per share were 113 460
572 shares (66.24% and 79.22% if management–owned voting shares
are excluded).
[13]
Once the share sale and subscription agreement had been concluded and
implemented (the issue of 56 892 489 new shares)
the total
issued shares increased to 247 168 371 shares.  The total
issued voting shares also increased to 247 168
371 (the voting
rights attached to the 19 000 000 treasury shares could then be
exercised by BT).  The total management
voting shares remained
28 050 000 shares (reduced to 11.35% of the voting shares) and
BT then owned 105 657 799 voting
shares (42.75%).  The
independently owned voting shares remained 113 460 572 (reduced
to 45.90% of the voting shares).
(Reezen held 19.05% of the
voting shares before BT’s involvement and 13.20% after the
conclusion and implementation of the
Share Sale and Subscription
Agreement).  The treasury shares were reduced to nil.  The
share sale and subscription agreement
thus had the effect of creating
a cluster of shareholders (consisting of management and BT) that can
control Excellerate –
it can not only pass any ordinary
resolution, but it can also veto any ordinary or special resolution –
and the significant
dilution of the minority shareholdings from
66.24% to 45.90% of the total issued voting shares.
[14]
On 22 March 2018, Reezen launched the present application.  Part
A of the notice of motion comprises an urgent application
for interim
interdictory relief.  Therein, Reezen sought to interdict BT
from selling, transferring, encumbering or dealing
with the shares
that were transferred to it pursuant to the conclusion and
implementation of the share sale and subscription agreement,
from
exercising any rights in respect of the shares and from making or
proceeding with a mandatory offer in terms of
s 123
of the
Companies
Act or
from giving effect to any transaction pursuant to such
mandatory offer, if it was made.  It further sought an order
interdicting
Excellerate from allowing BT to exercise any voting
rights at any shareholders meeting in respect of the shares and from
issuing
any further shares without the prior approval of the court.
Finally, it sought an order interdicting the directors of Excellerate

from taking into account any votes that were exercised by BT in
contravention of the order it sought when determining the outcome
of
any shareholders’ vote in terms of the
Companies Act.
>
[15]
The urgent part of the notice of motion was enrolled for hearing on
27 March 2018, when this court, by consent of all the parties,
made
an interim order in substitution of the relief sought in Part A of
the notice of motion.  BT’s undertaking not
to sell,
transfer, further encumber or in any manner deal with the shares in
question and Excellerate’s undertaking not to
convene or hold
any meeting of shareholders for purposes of proposing or passing any
resolution concerning or relating
inter alia
to the
appointment of any of BT’s nominees as directors to
Excellerate’s board, were made an order of court.
The
order specifically records that the undertakings shall lapse and have
no further force or effect on the earlier of 30 May 2018
and the date
of the determination of Part B of the notice of motion.  During
the course of the hearing of Part B of this application
before me,
the undertakings were extended until the delivery of this judgment.
[16]
Reezen argues that the transactions comprising the share sale and
subscription agreement, i.e. the sale and the subscription

transactions, constitute a ‘series of integrated transactions’
as contemplated in
s 41(3)
, read with the definition of the phrase in
s 1
and
s 41(4)(b)
of the
Companies Act.  The
exact moment of
calculating the 30% restriction in respect of the new shares that
were issued as a result of the series of integrated
transactions, so
Reezen argues, is the moment immediately before the share sale and
subscription agreement was concluded.
If Reezen’s
interpretation is correct, the calculation of the 30% would be based
on 171 275 882 voting shares that were
held by the shareholders
immediately before the conclusion of the share sale and subscription
agreement.  The 56 892
489 new ordinary shares that were
issued then constitute 33.22% of the voting power of all the shares
held by the shareholders
of that class immediately before the series
of integrated transactions.  The approval of the shareholders by
special resolution
would then have been required for the ‘series
of integrated transactions’.  It is common cause that
shareholder
approval was neither sought nor obtained.
[17]
Excellerate, BT and Zanmet, on the other hand, argue that the sale
agreement and the subscription agreement must be regarded
as two
independent agreements, the former having been effected before the
latter.  They argue that the provisions of
s 41
apply
exclusively to the issue of shares and govern the rights of parties,
in anticipation of and pursuant to such issue of shares.
The
provisions of
s 41
, so they argue, find no application to the sale or
transfer of existing shares.  The sale of shares transaction
concerned
the transfer of treasury shares from Zanmet to BT, which
shares had been issued years before the share sale and subscription
agreement
was concluded, and that transaction, they argue, is
accordingly not struck by the provisions of
s 41(3)
, read with
s
41(4).
If their interpretation is correct that the provisions
of
s 41(3)
and of
s 41(4)
do not find application in the case of a
sale of existing shares transaction and that the two transactions
in
casu
therefore do not constitute a ‘series of integrated
transactions’ as envisaged in
s 41(3)
read with
s 41(4)(b)
, no
shareholders’ approval was required and the provisions of
s
41(3)
were not contravened. The calculation of the 30% restriction
would then be based on 190 275 882 voting shares that were held

by shareholders immediately after the sale agreement in the share
sale and subscription agreement had been implemented, in which
event
the 56 892 489 newly issued shares would constitute 29.9% of the
voting power of all the shares held by the shareholders
immediately
before the implementation of the subscription agreement.
[18]
Section 38(1)
of the
Companies
Act empowers
the board of a company to issue shares.
Section
41(3)
limits that power and requires shareholder approval
inter
alia
for (a) the issue of
shares if the voting power of the class of shares that are issued or
issuable as a result of the transaction
will be equal to or exceed
30% of the voting power of all the shares of that class held by
shareholders immediately before the
transaction; or (b) the
conclusion of ‘a series of integrated transactions’ if
the voting power of the class of shares
that are issued or issuable
as a result of the series of integrated transactions will be equal to
or exceed 30% of the voting power
of all the shares of that class
held by shareholders immediately before the transaction.
The
board of directors of a company, therefore, has the power to issue
shares without shareholder approval up to a maximum of 30%
of the
voting power of all shares of that class.  The moment of
calculating the voting power of all the shares of the relevant
class
held by shareholders, is ‘immediately before the transaction or
series of transactions’.  Nothing in the
context of the
Companies Act detracts
from the clear and unambiguous meaning of
s
41(3).
Its purpose is to protect shareholders in relation to
share issues from and beyond the 30% level.
[19]
The two transactions embodied in the share sale and subscription
agreement - the sale transaction between Zanmet and BT and
the
subscription agreement between Excellerate and BT - conform to the
definition of ‘series of integrated transactions’
as
contemplated in
s 41(3)
read with
s 41(3)(b)
of the
Companies Act.
Both
transactions were entered into within a 12–month period
and involve related persons as contemplated in
s 41(4)(b)(ii)(aa).
They were entered into on the same day.  BT was the acquirer in
both transactions.  Zanmet, being a wholly-owned
subsidiary of
Excellerate and therefore a related person to Excellerate, sold the
treasury shares to BT pursuant to the sale transaction
and
Excellerate was the entity that issued the new shares to BT pursuant
to the subscription transaction.  Both transactions
involve the
acquisition or disposal of an interest in one particular company –
the shares of Excellerate.
[20]
The sale transaction and the subscription transaction embodied in the
share sale and subscription agreement, therefore, amount
to a ‘series
of integrated transactions’.  The 56 892 489 new
shares that were issued as a result of the
‘series of
integrated transactions’ constituted 33.2% of the voting power
of all the shares held by the shareholders
immediately before the
series of transactions.  The approval of the shareholders by
special resolution was not obtained and
s 41(3)
of the
Companies Act
was
thus contravened.
[21]
I now turn to the question whether the share sale and subscription
agreement that was concluded in contravention of
s 41(3)
of the
Companies Act, ought
to be declared void in terms of
s 218(1)
, which
section provides as follows:
‘
Subject
to any provision in this Act specifically declaring void an
agreement, resolution or provision of an agreement, Memorandum
of
Incorporation, or rules of a company, nothing in this Act renders
void any other agreement, resolution or provision of an agreement,

Memorandum of Incorporation or rules of a company that is prohibited,
voidable or that may be declared unlawful in terms of this
Act,
unless a court has made a declaration to that effect regarding that
agreement, resolution or provision.’
[22]
Excellerate, Zanmet and BT argue in the first instance that a
declaration of voidness in terms of s 218(1) is not sought in
the
notice of motion and that the relief claimed (the setting aside of
the sale of shares and the issue of shares plus ancillary
relief) can
thus not be granted.  I disagree.  The relief claimed by
Reezen is predicated on a declaration of voidness
by this court of
the share sale and subscription agreement.  This is clear from a
reading of the founding papers and Reezen’s
heads of argument.
To dismiss the application because a declaration of voidness is not
explicitly sought in the notice of
motion would allow form to prevail
over substance and would not be in the interests of justice.
[23]
Excellerate, Zanmet and BT further argue that the material facts
relevant to this court’s discretion to declare the transactions

void or not, are in dispute and it is thus not possible for this
court to exercise its (declaratory) discretion.  I disagree.

The contravention of
s 41(3)
of the
Companies Act, in
my view, ought
to result in the share sale and subscription agreement being declared
void, even if the version of Excellerate,
Zanmet and BT is accepted
that, in concluding the share sale and subscription agreement, the
directors of Excellerate exercised
their power
bona
fide
for the benefit of Excellerate and for a proper purpose and that the
shares were sold and issued for adequate consideration to

Excellerate.
[24]
In
Malasela Taihan Electric Cable (Pty) Ltd v Fidelity Security
Services (Pty) Ltd
(17193/2014) [2017] ZAGPJHC 341 (18 April
2017), this court said the following in respect of the consequences
for the validity of
an agreement that is in conflict with a statutory
prohibition:
‘
[42]
There are many statutes which expressly provide that certain
contracts are void, such as the
Alienation of Land Act 68 of 1981
,
but there are also many which do not contain such express statement.
A thing done contrary to the direct prohibition of
the law is
generally void and of no effect; the mere prohibition nullifies the
act.  (See
Schierhout
v Minister of Justice
1926
AD 99
at 109.)  But, as was said by Boshoff JA in
Metro
Western Cape (Pty) Ltd v Ross
1986
(3) SA 181
(A) at 188G,
“
.
. . this rule is not inflexible or inexorable.  Although a
contract is in violation of a statute it will not be declared
void
unless such was the intention of the Legislature and this is
nonetheless the rule in the case of a contract in violation of
a
statute which imposes a criminal sanction.  The legislative
intent not to render void a contract may be inferred from general

rules of interpretation.  Each case must be dealt with in the
light of its own language, scope and object and the consequences
in
relation to justice and convenience of adopting one view rather than
the other.  In the case of
Standard
Bank v Estate Van Rhyn
1925
AD 266
SOLOMON JA at 274 stated the position as follows:
“
What
we have to get at is the intention of the Legislature, and, if we are
satisfied in any case that the Legislature did not intend
to render
the act invalid, we should not be justified in holding that it was.
As
Voet
(1.3.16)
puts it – ‘but that which is done contrary to law is
not
ipso
jure
null
and void, where the law is content with a penalty laid down against
those who contravene it’. Then after giving some
instances in
illustration of this principle, he proceeds:  ‘The reason
of all this I take to be that in these and the
like cases greater
inconveniences and impropriety would result from the rescission of
what was done, than would follow if the act
itself done contrary to
the law.”
See
also
Swart
v Smuts
1971
(1) SA 819
(A) at 829C and
Dhlamini
en ‘n Ander v Protea Assurance Co Ltd
1974
(4) SA 906
(A) at 913H-914C.’
[43]
The relevant legislative instruments must be interpreted in
accordance with the established principles of interpretation
(see
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) para 18;
Bothma-Batho
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
2014
(2) SA 494
(SCA) para 12).  Section 39(2) of the
Constitution also enjoins a court to ‘promote the spirit,
purport and objects
of the Bill of Rights when interpreting any
legislation.
[44]
In
Wille’s Principles of South African Law
9
th
Ed
Francois du Bois et al, at 761, the learned authors refer to the
following factors which the courts have considered relevant
in
ascertaining the legislative intent not to render void a contract:
‘
The
legislative intent not to render void a contract may be inferred from
general rules of statutory interpretation.  In this
regard, the
courts have considered the following factors to be relevant:
the subject matter of the prohibition; its purpose
in the context of
the legislation; the remedies, if any, provided in the event of a
breach of the prohibition; the nature of the
mischief which the
prohibition was designed to remedy or avoid; and any cognizable
impropriety or inconvenience that might flow
from a finding of
invalidity.  Where the purpose of the prohibition is merely to
protect the Revenue, the inclination will
be to uphold the validity
of the contract; so too where ‘greater inconveniences and
impropriety would result from the rescission
of what was done, than
would follow the act itself done contrary to the law’.  On
the other hand, where recognition
of the validity of the contract
would bring about, or give legal sanction to, the very situation
which the legislature seeks to
prevent, the inclination will be the
other way.’
(Footnotes
omitted.
Also see
Lupacchini v Minister of
Safety and Security
2010
(6) SA 457
SCA para 8.)
[25]
The
Companies Act, as
I have mentioned earlier on in this judgment,
now gives the directors the power to issue shares without shareholder
approval up
to a maximum of 30% of the voting power of all shares of
that class.  The objective of the legislature with and the
purpose
of
s 41(3)
in the context of the
Companies Act is
the
protection of shareholders by restricting the directors’ power
to issue shares without shareholders’ approval beyond
the
limitation.  The mischief which the prohibition contained in
s
41(3)
was designed to avoid is to prevent an excessive or
impermissible dilution of existing shareholding without shareholders
consent
through the issue of shares or the conclusion of a series of
transactions as a result of which shares are issued in excess of the

30% limitation.
Section 41(3)
, therefore, also gives effect to
s 7(i)
of the
Companies Act – ‘balance
the rights and
obligations of shareholders and directors within companies’.
A transaction in violation of
s 41(3)
ought to be visited with the
sanction of voidness, for if it does not, the section would not serve
the purpose of protecting the
shareholders as it is intended to do.
[26]
The civil remedies provided for in
s 41(5)
and
s 218(2)
the
Companies
Act in
the event of a breach of
s 41(3)
are inadequate.  Damages
can hardly be said to be an adequate remedy for shareholders in
instances where the shareholder-protection
provisions of
s 41(3)
were
violated and where their share in the company was unlawfully
diluted.  Non-compliance with
s 41(3)
would also not be
discouraged if non-compliance only allows shareholders to claim
damages.
[27]
Greater
‘
inconveniences and impropriety’
would also not flow from the rescission of what was done pursuant to
the conclusion of the
share sale and subscription agreement ‘than
would follow the act itself done contrary to the law’.
Excellerate
is a very profitable company.  It is a cash
generating business, is cash flush and is not heavily geared, i.e. it
does not
have significant borrowings.  There is no suggestion
that it would be unable to repay the money that BT had paid to it
pursuant
to the conclusion of the share sale and subscription
agreement.  The shares that were obtained by BT pursuant to the
share
sale and subscription agreement have been ring-fenced in terms
of the consent order granted on 27 March 2018, with the result that

if the share sale and subscription agreement is declared void, the
parties can easily be restored to their positions immediately
prior
to the conclusion of that agreement.
[28]
I, therefore, am of the view that the share sale and subscription
agreement ought to be declared void
.
Legal sanction would otherwise be given to the very situation which
the legislature wishes to prevent.  (See
Pottie
v Kotze
1954
(3) SA 719
(A)
at 726-727.)  An interpretation that the legislative intent is
not invalidity, would detract from the adequate protection
and
safeguarding of the rights of existing shareholders of the relevant
class of shares.  That would undermine the purpose
and object of
the restriction enacted in
s 41(3)
and ignore the mischief it was
aimed to prevent.   Directors would be disincentivized from
adhering to the restriction
in exercising their extraordinary power
to issue shares without shareholders consent. The purpose of
s 41(3)
,
on a proper construction of the
Companies Act, is
not sufficiently
served by the civil penalties prescribed for a contravention of
s
41(3).
[29]
The illegal part of the share sale and subscription agreement
cannot
be severed
from
the rest of the agreement.
(See
Bal v Van Staden
1903 TS 70
at 82.)
As
stated by the learned authors in
Wille’s
Principles of South African Law
at 771, which statement of the law was accepted and applied by this
court in
Malasela
para 55:
‘
Whether
the portions of an agreement are severable or not depends in the
first instance on the probable intention of the parties
as appears
in, or can be inferred from, the terms of the contract as a whole.
Since the intention of the parties in this
regard is seldom clearly
expressed, the courts have devised certain guidelines to assist in
arriving at such intention . . . .’
Here,
the intention of the parties is clearly expressed in
clauses 3.2 and 15.1 of the share sale
and subscription agreement.  These clauses make it plain that
BT, in one indivisible
transaction, purchase the shares and subscribe
to the new shares.  The implementation of the subscription of
shares followed
immediately upon the implementation of the sale of
shares.  It was specifically agreed that the subscription will
only be
implemented if and once the sale has been implemented and
that should the sale have been implemented but the subscription is
not,
the sale shall be unwound and the parties restored to their
positions prior to the implementation of the sale.
[30]
In the result the following order is made:
1. The share sale and subscription
agreement is declared void and the issue by the first respondent of
its shares to the second
respondent and the sale of the first
respondent’s treasury shares to the second respondent are set
aside.
2. The security register of the first
respondent is to be rectified to reflect paragraph 1 above.
3. The respondents are to pay the
applicant’s costs of the application, including the costs
reserved in terms of the order
dated 27 March 2018 and the costs
occasioned by the employment of two counsel, jointly and severally,
the one paying the others
to be absolved.
______________________________
P.A.
MEYER
JUDGE OF THE HIGH COURT
Dates
of hearing: 29-30 May and 1 June 2018
Date
of Judgment: 22 June 2018
Applicant’s
Counsel: A Subel SC (assisted by J Mӱburgh)
Instructed
by: Hogan Lovells (South Africa) Inc., Sandton
1
st
and 3
rd
Respondents’ Counsel: JP Daniёls SC
(assisted by GW Amm)
Instructed
by:
Cliffe
Dekker Hofmeyer Inc., Sandton
2
nd
Respondent’s Counsel: C Badenhorst SC (assisted by A Lamprecht)
Instructed
by: Werksmans Attorneys, Sandton