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[2019] ZAGPPHC 959
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Gouws N.O and Others v Chapman Fund Managers (Pty) Ltd and Others (55346 /18) [2019] ZAGPPHC 959; [2020] 1 All SA 428 (GP) (6 August 2019)
IN THE HIGH COURT OF SOUTH
AFRICA
GAUTENG DIVISION, PRETORIA
1.
Reportable:
Yes/
No
2.
Of interest
to other Judges:
Yes
/No
3.
Date
delivered: 06 August 2019
CASE
NO: 55346 /18
JOHANNES
FREDERICK GOUWS N.O
First Applicant
WILLEM
JACQUES GOUWS N.O
Second Applicant
LYNETTE
GOUWS
N.O
Third Applicant
ABRAHAM
AARON ROUP N.O
Fourth Applicant
(In their capacity as duly
authorised trustees
of the WM GOUWS Familie Trust)
JOHANNES
PETRUS ERASMUS SWARTS N.O
Fifth Applicant
JOHANNES
PETRUS ERASMUS SWARTS N.O
Sixth Applicant
ANETTE
VAN ZYL
N.O
Seventh Applicant
(In
their capacity as duly authorised trustees
of
the Johan Swarts Familie Trust)
BORN
FREE INVESTMENTS 161 (PTY) LTD
Eighth Applicant
(Registration Number:
2004/017211/07)
and
CHAPMAN
FUND MANAGERS (PTY) LTD
First Respondent
(Registration
Number: 1955/001152/07)
DOUW
GERBRANOT KRUGER N.O
Second Respondent
JOHANNES
NICOLAAS BELL N.O
Third Respondent
ERIKA
KRUGER
N.O
Fourth Respondent
ANNETTE
VAN ZYL
N.O
Fifth Respondent
(In their capacities as duly
authorised trustees
of the Olympus Trust-IT:
4790/1995)
PATRICK MPHEPHU
N.O
Sixth Respondent
ABIGAIL MPHEPHU
N.O
Seventh Respondent
(In
their capacities as trustees
of the Abipa Family Trust -IT:
9498/2004)
PACIFIC COAST INVESTMENTS 121
(PTY) LTD
Eight Respondent
COMPANIES AND INTELLECTUAL
PROPERTY
Ninth Respondent
COMMISSION
JUDGMENT
MAKHUBELE
J
Introduction
and summary
[1]
The relief sought in this application is
phrased in the following terms;
"1.
Setting aside the CM26 Form Lodged on behalf of the 1
st
respondent with the 9
th
respondent on 12 January 2011;
2.
Setting aside the
Class
B shares in the 1
st
respondent,
and
ordering the 6
th
to
8
th
respondents to return their share certificates (insofar
as
it pertains to the Class B shares)
to
the 1
st
respondent for cancellation, and expunging the recordal
of
the
Class
B shares from the 1
st
respondent's share register.
3.
Ordering the 9
th
respondent to record the setting aside
of
the
Class
B shares in the 1
st
respondent.
4.
That the applicants
pay t/Je costs of this application, unless this application is
opposed, in which event the respondents so opposing
the application
is ordered the costs of this application;
5.
Further and/or
alternative relief'
[2]
The applicants and second to eighth respondents are shareholders in
the first respondent.
The main, if not sole business of the first
respondent emanates from government tenders with the Department of
Public Works. At
some point the initial shareholders were second
respondent, Gouws and Swart (first and fifth applicant in their
personal capacities)
as well as one Smith. They were required to
bring in Black Economic Empowerment partners (BEE Partners) as a
condition for extension
of their contract which was due to expire in
2010 with a further ten years or more. The sixth, seventh and eighth
respondents are
some of the BEE partners that were brought in at one
point or another.
[3]
During 2010, the shareholders agreed to create B Class shares without
voting rights.
The intention was to give the BEE partners more
dividends, but with no control or management of the company. A
meeting was called
where a special resolution in this regard as well
as other issues was passed. The second respondent who is indicated as
both Director
and Officer in the Company Report was mandated to lodge
the CM26 Form for registration with the CIPC.
[4]
The record before me is silent about
what happened since the passing of this resolution until 2017 when
the dispute first brew out.
The first thing to note from the relief
sought in this matter is the date of the special resolution in the
CM26 Form that is alleged
to have been unlawfully lodged and or
registered. The gist of the dispute centers on the question as to
whether the second respondent
was authorised by the shareholders to
unilaterally amend the CM26 Form and register the B class shares with
voting rights.
[5]
What is clear though is that the dispute
with regard to issue of the registration of the Class B shares with
voting rights first
arose when the applicants called a shareholders
meeting in 2017 and filed a proposal to remove the second respondent
as Director
in the first respondent. He then responded by producing
the voting allocation of all the shareholders . To the applicants'
disbelief
and dismay, they then realized that they no longer had the
majority voting shares to can carry out the removal of the second
respondent.
On investigation, the issues pertaining to the chain of
events were reconstructed, with the information from the CIPC, the
discussions
amongst themselves. until the launching of this
application, as they could not agree on the way forward. They lodged
a complaint
with the CIPC, but it refused to investigate on the basis
that the complaint was
"frivolous
, vexations or does not allege facts which, if proven, would
constitute grounds for
a
remedy
under the
Companies Act 2008
".
The
applicants were advised to approach the High Court for appropriate
relief.
[6]
The second to fifth respondents contend that the applicants have been
aware since
2011 that the original special resolution (Form C26)
could not be registered because one of the resolutions that created a
Class
B shares without voting rights was, according to the ninth
respondent, not in accordance with the provisions of the
Companies
Act, at
the time the
Companies Act, Act
61 of 1973 as amended .
[7]
Whilst the applicants admit that indeed
there was a legal hurdle with one of the special resolutions, they
contend that the second
respondent did not inform them, but went
ahead and unilaterally amended the special resolution, without the
mandate of the shareholders.
They maintain that there never was an
intention to grant the BEE partners voting rights and they would have
never consented to
that.
[8]
The defences raised by the second to
fifth respondents, represented by the second respondent are firstly,
that he acted in good
faith, on the advice of the auditors and that
in any event, he had an express or implied mandate to do whatever was
necessary to
implement the resolution and this include complying with
legal prescripts. Other defences raised include, prescription of the
debt
and estoppel. They rely on the conduct of the applicants in
terms of which they accepted the facts, and also that they failed to
review the decision of the CIPC which they were aware of since 2011.
[9]
The sixth and seventh respondents
initially filed a notice to oppose, but it was later withdrawn .
[10]
The eighth respondent contends that the relief sought is not legally
sustainable because the
applicants are aggrieved by the actions of
the CIPC of stamping and registering the special resolution that
until it is so stamped
or registered has no legal force or effect.
They argue that the available remedy for the applicants is a judicial
review of the
decision of the ninth respondent. Other defences raised
are that the reversal of the voting rights will prejudice the BEE
partners
.
Summary of findings
[11]
The Special resolution in question was
passed in terms of
section 75(1)
(i) of the
Companies Act, Act
61 of
1973 . The question is whether it was competent for CFM to pass a
resolution for creation of shares without voting rights.
There is not
sufficient evidence that this was permissible in terms of the
Articles of association.
[12]
Even if Kruger had consulted his co-shareholders and directors by
telephone or personal meetings
as he alleged, this is not sufficient
because one of the requirements for validity of a special resolution
is that it should be
passed at a meeting of shareholders. for which
the prescribed notice would have been given. The CIPC is also
enjoined to have regard
to the documents emanating from this meeting
when considering registration of a special resolution.
[13]
If this matter were to be decided on the issue of Kruger's authority,
the alleged dispute of
facts regarding his authorization to amend the
special resolution are academic in view of the legislated
requirements for validity
of special resolutions.
[14]
The decision of the Registrar to register special resolutions entails
having regard to all relevant
documents and exercising a discretion,
which, on the language of the Act is subject to a court challenge,
either to force registration
or to investigate a dispute. Therefore,
it is the decision or actions of the ninth respondent that caused the
applicants to suffer
harm.
Articles
of association and
common
cause
issues relating to shareholding in the first respondent
[15]
It is common cause that the first
respondent, who I shall henceforth refer to as UCFM" was
previously registered as
'Reislin
Investments (pty) ltd',
and that the
second respondent, who I shall henceforth refer to as "Kruger",
acquired shareholding and directorship in
that company during 1998.
[16]
The name change to CFM occurred by
special resolution that was registered with the Registrar of
Companies on 24 February 1998. The
special resolution also made
provision for amendment of article 5 of the Articles of Association
to provide for a minimum of one
and a maximum of ten directors. It
also made provision for increment of the company's authorised share
capital 'of 100 (one hundred)
ordinary par value shares of two rand
(one pound) each to 4 000 (four thousand) ordinary shares of two rand
each.
[17]
The original Articles of Association was registered on 25 April 1955.
The only provision that
was referred to in the papers before me is
Article 3. The heading is titled
"SHARES AND CERTIFICATES OF
SHARES"
As
written, it reads as follows:
'3.
Subject
to the provisions, if any, in that behalf of the memorandum of
association of the company, and without prejudice to any
special
rights previously conferred on the holders of existing shares in the
company, any share may be
issued
with such
preferred , deferred, or other special rights, or
such
restrictions,
whether in regard to dividend, voting, return of capital or
otherwise,
as
the company may
from time to time by special resolution determine, and any preference
share may,
with
the sanction of
a
special
resolution, be issued
on
the terms that it
is, or at the option of the company,
is
liable to be
redeemed"
[18]
Kruger acquired sole ownership of CFM
during 2000.
[19]
It is also common cause that other than
Kruger, the current shareholders (and others before them) came into
the picture during and
after it was awarded a tender by the
Department of Public Works ('OPW') in 2003.
[20]
When the tender was awarded, the
shareholders were Kruger, Mr. George Smith, Mr. Gouws and Mr. Swarts.
Messrs.' Gouws and Swarts
in their representative capacities, are the
first and fifth applicants. Their initial shareholding in their
personal capacities
in CFM was in recognition of their efforts in
securing this DPW tender.
[21]
Mr. George Smith is the person that alerted Kruger to the tender. His
shareholding was 50%. Mr.
Gouws was asked to come in as an electrical
engineer because that was one of the specifications for this tender.
His shareholding
was 25%. He diluted his shareholding by giving half
of his shares to Mr. Swarts, his co-employee at the City of Tshwane
Municipality.
[22]
The shareholding of convenience did not end there. They needed BEE
(Black Economic Empowerment)
partners. Kruger invited Mr. Mabotja's
company, the eighth respondent, as his 'BEE' partner in CFM.
[23]
The initial contract with DPW was for seven (7) years, meaning that
it would have expired in
2010 or thereabout.
[24]
Although it is a contended issue, it is however clear from reading
the portions of the Shareholders
Agreement that I will refer to
hereunder that BEE was a consideration that influenced the extension
of the contract between CFM
and DPW for a further period of ten (10)
years.
[25]
According to Kruger DPW introduced a certain Mr Phala of Tidal Sea
Trading 59 (Pty) Ltd who subsequently
obtained shares in CFM. New
shares totaling 2500 were issued. The shareholders also concluded a
Shareholders Agreement dated 08
April 2008.
Shareholders
Agreement
[26]
Save for Mr. Smith, the other parties to the Shareholders Agreement
are trusts and companies
in which the founding members and others are
trustees and
I
or owners respectively.
[27]
The parties to the Shareholders Agreement, dated 08 April 2008 are;
[27.1] Mr. Smith.
[27.2] WM Gouws
Familie Trust.
The Trustees are the first to
fourth applicants.
[27.3] Johan Swarts
Familie Trust.
The Trustees are the fifth to
seventh applicants.
[27.4] Born Free
investment 121 (Proprietary) Limited.
This is the eight applicant
[27.5] Chapman Fund
Managers (Proprietary) Limited
[27.6] Pacific Coast
Investments 121 (Proprietary) Limited. This is the eighth respondent,
represented by Mr. Mabotja.
[27.7] Tidal Sea
Trading 59 (Proprietary) Limited.
[28]
Paragraph 2 of the Shareholder's Agreement reads as follows;
"RECORDAL
2.1
The
company,
was
awarded
a
tender
no. PT03/006 to manage the energy consumption of the Department of
Public Works during May 2003. This contract ends on 31
May 2010 but
can be extended for
a
further
period.
2.2
The
company was approached by a Black Empowerment company, Tidal Sea who
offered their support to negotiate an extension of the
existing
contract with the Department of Public Works .
As
consideration for their support and
efforts they were awarded with
a
ten
percent shareholding in the Company by the existing shareholders.
2.3
The
Company hereby undertakes, from the effective date , to transfer, to
CUMS, all the leased buildings energy management business
of the
Department of Public Works' currently not part of the Company's
contract plus liabilities. and all and any low voltage energy
management business emanating from tender number PT03/006 and/or
extension thereof, which low voltage energy management
services
would have, but for this provision
2.3, been provided by the Company to the Department of Public
Works-Gauteng North (Pretoria)
Regional Office. For this purpose the
Company hereby agrees that the CUMS shall directly invoice and
collect from the Department
of Public Works-Gauteng North (Pretoria)
Regional Office any and at
fees
and
revenue emanating from the provision 2.3 to the Department -Gauteng
North (Pretoria) Regional Office.
Paragraph 4.3 reads amongst others
as follows:
"...
The shares will be
issued once the Department of Public Works
has
confirmed in
writing that the contract period has been extended. In the event that
the contract
has
been extended by
a
period of;- (a) 10
years or
less,
then Tidal
Sea
shall start benefitting
from such extension of the contract from June 2010; or (b) greater
than 10 years, then Tidal Sea shall start
benefitting immediately.
After the share issue the shares will beneficially belong to and be
registered in the names of the following
parties:
[29]
The shareholding was indicated as follows:
Mr. Smith:
20% (500 shares)
Born Free:
20% (500 shares)
Olympus Trust:
20% (500 shares)
Gouws Trust:
10% (251 shares)
Pacific Coast:
10% (250 shares)
Tidal Sea:
10% (250 shares)
Exit of Smith and Tidal
Sea
and
entrance of Abipa Trust represented by the sixth and seventh
respondents
[30]
During or about 2010, the shares allocated to Smith and Tidal Sea
became available because the
former was bought out after a fallout
with other shareholders and the latter s were declared null and void.
[31]
Abipa Trust , represented by the sixth and seventh respondents came
into the picture around this
time and purchased some of the 250 of
Mr. Smith's shares, acquiring 10% shareholding in CFM. The remaining
500 shares were shared
amongst the other shareholders.
[32]
The shareholding at the relevant time to
which this application pertains (end of 2010) was as follows;
Born Free:
22, 22% (500 shares)
Olympus Trust:
25, 87% (582 shares)
Gouws Trust:
14. 84% (334 shares)
Pacific Coast:
11, 11% (250 shares)
Swarts Trust:
14, 84% (334 shares)
Abipa Trust:
11. 11% (250 shares)
The directors
[33]
Save for the amendments indicated above
regarding the change of name of the company, number of directors and
an increased share
capital, the articles of association do not appear
to have been amended any further until the purported amendment that
forms the
subject matter of this application. The powers and duties
of the Directors are indicated in Articles 65 to 73. The relevant
provision
for present purposes appears to be Article 71 that reads as
follows;
"The business of the
company shall be managed by the directors . .., and
may
exercise all such powers of the company as are not by the Companies
Act, 1926, or any amendment thereof, or by these regulations
required
to
be
exercised by the company in general meeting, subject nevertheless
to
any of
these regulations, to the provisions of the said Act or modification
thereof,
and
to such regulations not inconsistent with the aforesaid regulations
or provisions, as may be prescribed by the company in general
meeting
, but no regulation made by the company in general meeting shall
invalidate any prior act of the directors which would
have been valid
if such regulation had not been made'
(highlighted
for emphasis)
[34]
In terms of Article 74 (c), the
directors are required to
'cause
minutes to be made in
books
provided for the purpose of
all resolutions and proceedings at all meetings of the company,
and
of the directors and of committees of
directors'.(highlighted
for emphasis)
[35]
The directors at the relevant time were:
[35.1]
Gouws:
[35.2]
Swarts;
[35.3]
Kruger;
[35.4]
Davey Solomon Mabotja;
[35 .5]
Duduzile Cynthia Myeni ; and
[35.6]
Ronald George Phala.
[36]
It is common cause that the shareholders have a representation in the
Board of Directors. It
was however not canvassed whether all
shareholders are represented. It does not seem to be an issue. The
only contention by the
applicants was that there is a difference or
separation between shareholders and directors' meeting. This was in
response to a
point made by Kruger that he discussed the rejection of
the initial resolution by CPIC with the shareholders' representatives
and
that they all agreed to the amendment
The
creation of B-Class shares without voting rights and the passing of
the special resolution
[37]
There is no record of the deliberations that took place on the day of
the meeting that was held
on 01 December 2010.
[38]
The applicants are adamant that the issue of giving voting rights was
not an option. They never
discussed it and they would not have agreed
to it.
[39]
The second to fifth respondents' recollection of what transpired in
the meeting when the decision
was taken is rather vague. Kruger
alleges that the parties discussed some form of prohibition on the
alienation of the shares and
everyone made suggestions. He however
does not have any written correspondence and cannot recall who
suggested what. The auditor
made a presentation to the shareholders
and prepared the CM26 Form, which was to be passed in terms of
section 75(1) (i) of the
1973 Companies Act.
[40]
The eighth respondent, supports the factual contentions of Kruger.
but he also gets himself in
an untenable position because where it
matters most, he alleges that he cannot recall things that happened
eight years ago because
he thought everything had been resolved. He
then pulls the prejudice card when confronted with a possibility of a
reversal of the
voting rights .
[41]
What is common cause though is that the
following special resolutions were passed on 01 December 2010 and
recorded in the CM26 Form,
which was signed by Kruger. It is not
clear in which capacity he signed the form because there are three
options, namely 'Director/Secretary/Manager'
and there is no
certainty as to which one was chosen.
The
Resolution reads as follows:
"1.
To convert the company's existing authorised share capital of 4000
(four thousand)
ordinary shares
of
R2-00 (Two Rand)
each into 3 600 (three thousand six hundred) ordinary
shares
of R2-00 (Two
Rand) each and 400 (four hundred) ordinary B
shares
of R2-00 (Two
Rand) each.
2.
To amend the company's Memorandum
of
Association by
deleting the contents of paragraph 4 and to amend it to read:
"
The capital of the
company
is
RB 000-00 divided into three thousand six hundred
ordinary shares of Two Rand each and four hundred ordinary B shares
of
Two
Rand each"
3.
To amend the company's Articles of Association by the addition
[1]
of the following article 4.1
(a)
"The company's ordinary B
shares are under the control of the board of directors who may in
their
sole
discretion
allot such ordinary B shares to any person or cancel such allotments
previously made.
(b)
The holder of ordinary B shares
is not entitled to dispose of such
shares
to any third party.
(c)
The company is entitled to
repurchase ordinary B shares at any time and in the sole discretion
of the board of directors at the
nominal value of such shares and the
holder of
such
shares
is obliged to sell
such
shares
to the company upon receipt of written notification from the company,
alternatively the company may cancel such allotment
previously made.
(d)
The holder of ordinary B
shares
shall enjoy no voting or any other
rights normally attached to ordinary shares.
(e)
The holder of the ordinary 8
shares shall have no rights to dividends other than to dividends
determined and approved by the Board
of Directors in their sole
discretion.
(f)
Ordinary shareholders of the
company will have no right to dividends declared and paid to the
holders of ordinary B shares and will
have no claim against the
company or board of directors in respect of dividends paid to
ordinary B shareholders'.
[42]
The notice for the meeting was given on
01 December 2010 and the special resolution was passed on the same
day. It appears from
a reading of the document that there was consent
to waive the prescribed notice period
[43]
It was further recorded that the
"Special resolution passed
in
terms of section 75 (1) (i) of the
Act I Paragraph 'article
3
of
the articles'.
There is an option to
delete whichever is not applicable, but nothing was deleted.
Events subsequent to passing
of the Special Resolution: The dispute
[44]
The dispute centers on the new article
4.1(d)
as envisaged in
paragraph 3 of the Special Resolution that according to the
applicants was unlawfully amended . In its original
form it reads as
follows:
"(d)
The holder
of
ordinary B shares
shall enjoy no voting or any other rights normally attached to
ordinary shares”
[45]
The circumstances under which the
alterations or amendment were made form the gist of the dispute. The
words 'no" and 'or'
were deleted. 'Or' was replaced by AND".
A handwritten insertion after 'shares' was made. In its amended form,
the new article
4.1 (d) reads as follows:
"The
holder of ordinary B shares shall enjoy voting AND any other rights
normally attached to ordinary shares, SUBJECT TO THE
REMAINING
CLAUSES OF THIS RESOLUTION".
The applicants’
contentions
[46]
The applicants contend that the last
thing they know about the Special Resolution is that Kruger was
mandated to lodge it with the
CIPC and that as far as they are
concerned, there was no further meeting to authorize the amendment.
This is evidenced by the fact
that even in its amended version, the
CM26 Form still refer to the meeting of 01 December 2010.
[47]
They only became aware that there were
alterations or amendments during 2018 when they called a general
shareholders meeting with
a view to propose that Kruger be removed as
a Director in terms of section 71(1) of the Companies Act , Act 71 of
2008. Thereafter
, the following events unfolded,
[47.1] In
response to a proposed resolution to remove him as a Director, Kruger
produced the amended resolution
from which they realized. for the
first time that they no longer held the majority shares (52%) because
the class B shares held
by the partners, to their disbelief and
shock, now carried voting rights.
[47.2] The
applicants made enquiries with CFM's auditors and Kruger regarding
the amendment of the special
resolution. They were advised that the
CIPC had rejected the original CM26 Form because it was in conflict
with Section 193(1)
of the Companies Act that provides that every
member of a company having a share capital shall have a right to
vote.
[47.3] The
applicants filed a complaint with the CIPC on 12 July 2018 and
alleged that
'Class B shares were issued with voting rights on Mr.
Douw Gerbrandt Kruger's request without the necessary authority in
terms of
inter alia sections 36,38 and 16 of the Companies Act, Act
71 of 2008”.
[47.4] The
CIPC issued a
'Notice of Non-investigation of complaint'
on 12
July 2018' and advised, amongst other things that it would not
investigate the complaint because
"it believes the complaint
to be frivolous, vexatious, or does not allege any facts which, if
proven, would constitute grounds
for a remedy under the
Companies
Act. 2008
".
It also attached a report,
Annexure A to elaborate further on the decision not to investigate.
Paragraphs 3 and 4 read as follows;
"
3.
Note that issuing of shares, share transfer, allocation of shares
and/or share agreements disputes do not fall
within CIPC's mandate.
4.
The CIPC advises that you apply to the High Court for an
appropriate
relief in this matter”.
[47.5]
Shareholding of shareholders:
Pre-Registration
Post-Registration
f
Names
Shares
Pe
r
-
centa
g
-
e
-
Shares
Percentage
Abipa
250
11
484
19
PCI
250
11
366
14
Olympus
Trust
582
26
582
22
JS
Trust
334
15
334
13
WMG
Trust
334
15
334
13
BFI
I
500
22
500
19
I
[47.6] The
applicants also received a copy of communication between the auditors
and ClPC dated 24 April
2018, which is an enquiry and confirmation
from the latter to the effect that the original CM26 Form could not
be processed and
was rejected with the notice that reads as follows
The ordinary "B"
shares
must have voting rights "
.
[48]
The intention of creating the ordinary B class shares was to give the
BEE partners more dividends,
but with no voting rights. They rely on
the provisions of article 3 of the Articles of Association, which
they contend, that allow
for issuing of shares with special rights or
restrictions in regard to voting and return of capital dividends.
[49]
They contend further that they would not
have agreed to issue of the 8 class shares with voting rights because
this is not in line
with the purpose for creating the shares. They do
not have a problem with the BEE partners having more shares /
dividends, but
they want a correction or reclassification to be made
with regard to their voting rights because they never intended or
anticipated
a situation where they (BEE partners) would have control
or management of the company without any consideration. They are
emphatic
that Kruger did not consult them or their representatives in
the Board before amending the new article 4.1(d) in the Special
Resolution
and that if he did. they would not have given the consent.
Second, Third, Fourth and
Fifth Respondents' contentions
[50]
As indicated . these respondents are
trustees of the Olympus Trust. Kruger articulated their version in
the answering affidavit
[51]
Save for denying that the B class shares
were created in terms of Article 3 of the Articles of Association and
that they are a new
or different class of shares, Kruger confirmed
all other material facts relating to the basis for passing the
special resolution
and that he was mandated to give effect thereto by
lodging and registering it with the CIPC.
[51.1]
Kruger contends that there is only one type of shares in CFM.
[52]
Kruger contends that he signed the CM26
Form because he was mandated to do so. The Company Auditor lodged the
special resolution
with the CIPC on 6 December 2010. The CIPC refused
to register the Class B shares as non-voting shares. The CM26 Form
was resubmitted
on 8 January 2011, after amendment as advised by the
Auditor, and it was accepted and registered by the CIPC.
[53]
He also contends that other than the
express mandate, he had a tacit, alternatively implied mandate that
he would do all things
necessary in order to comply with the legal
prescripts to give effect to the special resolution in as far as it
concerned the issuing
of shares to their BEE partners. At the time
when he signed the CM26 form, the B class shares had not yet been
registered or issued,
as such it is not correct that there was a need
for a special resolution to be passed to reclassify the B class
shares with voting
rights.
[54]
The ClPC refused to register the original CM26 Form special
resolution and advised that the B-
class shares must have voting
rights. This is in terms of Section 193 (1) of the Companies Act. The
CIPC is empowered to reject
the CM26 Form if it does not comply with
legislative prescripts.
[55]
Kruger maintains that the applicants knew at all times that the
resolution was lodged and registered
with amendments because he took
it up with his co-shareholders and director s, during personal
meetings or telephone conversations
after the auditors advised him
they should change the wording of Resolution 3(d) to make it clear
that the holders of ordinary
8 shares would indeed enjoy voting
rights.
[56]
The amendment was effected by the Auditor, and he also signed the
form. It was lodged by the
auditors on 12 January 2011 and was
approved by the CIPC on 18 January 2011.
[57]
Kruger contends that he acted
bona fide
as advised by the
Auditor.
[58]
He cannot find records of format meetings , but this is not unusual
because they did not always
keep minutes as they trusted one another
and issues were often resolved informally. This was the case until at
the end of 2017
when personal differences developed between him on
the one hand and Gouws and Swart on the other hand. The latter sought
to remove
him as director in various companies where they were
serving together, including CFM.
[59]
Kruger also relies on the conduct of the shareholders after the
registration of the B class shares
to demonstrate the fact that they
were always aware that the registration was effected with voting
rights.
[60]
The BEE partners have received increased
dividends since 2011, and they will be severely prejudiced if the
resolution is cancelled
after this lengthy delay. He contends that
the relief sought constitutes a 'debt' for purposes of the
Prescription Act 68 of 1969
. In this regard, the claim has
prescribed.
[61]
Kruger also relies on the defence of
estoppel. The argument here is that the BEE partners have been led to
believe that their B
class shares with voting rights are valid and in
force. DPW was also led to believe that CFM has the requisite BEE
status, and
on this basis the contractual position of CFM was
strengthened .
[62]
To illustrate the conduct of the shareholders that he alleges caused
the BEE partners to act
to their detriment and the DPW to increase
CFM's BEE credentials. Kruger highlighted the following
instances/incidents:
[62.1]
He attached an email that he wrote on 15 February 2011 addressed
to
the Directors / Shareholders. In this email, Kruger referred to the
resolution of 01 December 2010 which had been approved by
'CIPRO'. He
also reminded them about the reasons for the special resolution and
also proposed a way forward to give effect to it.
In this regard, he
wrote that:
"The reason behind the
special resolution was to issue B shares to our BEE partners who will
qualify only for dividend income
from these shares. We have a limited
number of shares available to issue because we converted some of our
authorised ordinary shares
to create these shares. I took into
consideration that to make it simple to declare future dividends from
these shares we will
approve
a
dividend per
share that will be equal for all shares, i.e. ordinary shares and B
shares. In doing so it
is
impossible get
the percentages spot on but I kept in mind the proposed share
percentages for our BEE partners and the above reasoning
to simplify
the calculation and dividend declarations. Hence I want to propose
that the new B class shares be issued
as
follows:
234 B class shares to Abipa
Family Trust and;
116 B class
shares
to Pacific
Coast
Investments.
The
effect
of
this
would be that the
current ordinary shareholders of the company are:
Olympus Trust
583
25,911%
Born
Free Investments
500
22,222%
Johan
Swarts Family Trust 333
14, 8%
WM
Gouws Family Trust
334
14, 8%
Abipa
Family Trust
250
11,111%
Pacific
Coast
Investments
250
11,111%
TOTAL ISSUED ORDINARY SHARES
2250
100%
The B
class
shareholders are:
Abipa
Family Trust
234
66,85%
Pacific
Coast Investments 116
33,143%
TOTAL ISSUED B CLASS
SHARES 350
100%
I WOULD APPRECIATE YOUR
URGENT FEEDBACK FOR APPROVAL PURPOSES TO ENABLE ME
TO
INSTRUCT
THE AUDITORS
TO
CONTINUE
WITH THE ISSUE
OF THE NEW B CLASS SHARES TO GIVE EFFECT TO THE ABOVE.
Kind Regards
Douw
[62.2]
Kruger further alleges that he reported the changes at CFM
Board
meeting of 2 March 2011. The minutes attached indicate that the
meeting was attended by DG Kruger, PJE Swarts, JF Gouws,
P Mphephu
and D Mabotja. An apology from D Myeni was recorded.
Under item 2, the Board approved
the minutes of a meeting that was held on 02 December 2010. No
specific issues were noted as arising
from those minutes, which do
not form part of the record before me.
Under item 5 (New Items), amongst
others, the following was recorded ;
"Share
issues-CIPRO
accepted the proposed share issue format and it is now implemented
as
approved by the Board . The remaining shares will be issued
during March 2011
".
[62.3]
The ordinary B class shares were issued to the BEE partners
with no
voting restrictions.
[62.4]
CFM was subjected to regular BEE audit and verification
and has
successfully tendered for work at DPW which has its own policies in
terms of the Broad-Based Economic
Empowerment Act 53 of 2003
and the
Regulations and Codes under this Act.
[62.5]
The issue of B shares with voting rights was never an issue
since
2011 until 2017 when the applicants realized that they did not have
sufficient majority to remove him as a director.
[62.6]
In 2018 when this issue arose he disclosed all relevant
facts to his
co-shareholders/directors by email dated 28 April 2018. The email
contents are similar to the version he has put up
above. The only
other relevant point raised was that what transpired when the shares
were issued can be confirmed in the
' documents, resolutions and
minutes'
which are
'company documents which should be
contained in our company share registers and minute books'.
[63]
Registration of B Class shares with voting rights constitutes
administrative action by CIPC.
[64]
Applicant seeks rectification of voting shares to non-voting shares,
and supportive of allocation
and relies on Section 37 of
Companies
Act 2008
. This reliance is misplaced, as this section does not
support the Applicants.
[65]
The practice in CFM has been not to cast votes, but to reach
decisions on consensus. This is
the reason why there has never been
an issue about the voting rights because there was never a need to
cast a vote.
[66]
Applicants introduced allegations of
fraud against him in the replying affidavit. whilst admitting in the
founding affidavit that
Kruger was authorised to implement the
special resolution.
[67]
The applicants should have brought
judicial review application against the CIPC.
[68]
The second to fifth respondents attached a confirmatory affidavit of
a Mr Pieter Hendrik Smit,
who described himself as an auditor of C &
S Audits Inc. He confirmed the facts deposed by Kruger which he
indicated are of
his
·own knowledge and from books .
records, and documents of the Applicants , which I either l1ave,
access to. or
have in my possession or under my control, and
are to the best of my belief both true and correct".
He also confirmed the replying
affidavit. It is worth noting that C & S is according to the
documents CFM's auditors. It is
however not clear whether this Smit
is the same auditor who advised Kruger to amend the CM26 Form to
indicate that the B class
shares have voting rights.
Eighth respondent's
(Pacific Trust) contentions
[69]
Mabotja corroborates Kruger's version that applicants were aware that
the CIPC has registered
the B class shares resolution with voting
rights. According to Mabotja, Kruger made contact with him, but he
cannot recall whether
it was by telephone or personal meeting to
advise him about the amendment that was sought by the CIPC. He was
under the impression
that Kruger had the requisite implied authority
to effect the changes, but he nevertheless gave him the necessary
consent.
[70]
Other than corroborating Kruger's version, Mabotja contends that the
relief sought in prayer
1, that of setting aside the CM26 Form is not
legally sustainable because that form only has legal force and effect
and is only
valid after it has been stamped and registered by the
CIPC. As a result, the applicants' remedy would be to review the
actions
of the CIPC, if they are of the view that they are unlawful.
[71]
The other defences is that the relief
sought in prayers 2 and 3 , that of setting aside the company's class
B shares and return
of the share certificates as well as recordal of
the setting aside are not legally sustainable. The reasoning is that
the shares
came into existence by registration of CM26 Form and
remains valid until the registration is reviewed and set aside. The
share
certificates can only be returned and the setting aside
recorded only when the decision of the CIPC to register the CM26 Form
has
been reviewed and set aside.
[72]
The other submissions under the heading
'Correct approach' are actually a lesson on the process of
registration of special resolutions,
the shortcomings and the gaps in
the registration He referred to sections 200,202 and 203 of the
Companies Act, 1973.
I
will address these provisions separately.
Mabotja
contends that the applicants ' complaints should be directed at the
ninth respondent (the CIPC and that the Promotion of
Administrative
Justice Act (PAJA) is applicable . He further contends that the
relief sought by the applicants is ill-conceived
because it seeks to
circumvent the requirements to bring review proceedings without
reasonable delay. The applicants will have
to explain the delay in
bringing review proceedings in 201B when registration occurred in
2011.
[73]
The point made is that on the evidence submitted by the applicants,
it would appear like the
amended resolution should not have been
registered because of some shortcomings on the CIPC's requirements,
and in that event,
the applicants' remedy is to review the actions of
the CIPC.
[74]
Mabotja also made a point that the
creation of B Class shares was to improve the BEE credentials of CFM
for its contract to be extended
by DPW during 2010. The essence of
shares issued is that they give voting rights/ownership and control
of the company.
Legal
framework
[75]
It appears from the face of the CM26
Form that the special resolution was passed in terms of Section 75(1)
(i) of the 1973 Companies
Act and CFM's Article 3. The relevant
provision of section 75(1) (i) authorizes a company with a share
capital, subject to sections
56 and 102, and if authorized by its
articles, to convert any of its shares, whether issued or not, into
shares of another class.
Therefore,
the second to fifth respondents ' contentions that the creation of
the Class B shares was not done in terms of the Articles
of
Association has no merit. If the relief sought were against the
decision of the Registrar (CIPC), the parties would have to
motivate
their decision to create shares without voting rights. The applicants
would have to deal with the provisions of Article
3 read with other
relevant sections of the Act, particularly on the requirements for
voting rights . For present purposes. it is
sufficient to note that
the Special resolution was passed in terms of the Articles of
Association. Whether or not this was competent
is not an issue before
me.
[76]
Section 193,
'Voting
rights of shareholders
'reads as
follows:
(1)
Subject to the provisions of
sections 194 and 195 and to the exceptions stated in section 196,
every member of a company having
a share capital shall have a right
to vote at meetings of that company in respect of each share held by
him.
(2)
Every member of a company limited
by guarantee shall, unless the articles otherwise provide, have the
right to vote at meetings
of that company and shall have
one
vole
[77]
Section 194,
'Voting
rights of preference shareholders'
reads
as follows:
(1)
Notwithstanding the provisions of
section 193 (1), the articles of a company may provide that
preference shares shall not confer
the right to vote at meetings of
the company except•
(a)
during any period
determined as provided in subsection (2) during which any dividend
or
any part of any dividend on such
shares
or
any
redemption payment thereon remains in arrear and unpaid.
or
(b)
in regard to any
resolution proposed which directly affects any of the rights attached
to such shares or the interests of the holders
thereof, including a
resolution for the winding up of the company
or
for the reduction of its capital
(2)
The period referred to in
subsection (1) (a) shall be a period commencing on a day specified in
the articles of the company concerned,
not being more than six months
after the due date of the dividend or redemption payment in question,
or,
where
no due date is specified after the end of the financial year of the
company in respect of winch such dividend accrued or such
redemption
payment became due
[78]
Section 195, 'Determination of
voting rights
'reads as
follows:
(1)
A member of a public company
having a share capital shall-
(a)
if the share capital is divided
into shares of par value be entitled to that proportion of the total
votes
in
the
company which the aggregate amount of the nominal value of the shares
issued by him bears to the aggregate amount of the nominal
value of
all the shares issued by the company ,
(b)
if the share capital is divided
into shares of no par value. be entitled
lo
one vote in respect of each share he
holds
(2)
The voting rights of a member of
a private company shall, subject to the provisions of section 193
(1). be determined by the articles
of the company.
(3)
When
any
shares of a company are converted
into stock, or have been so converted after the first day of January,
1953, all the provisions
of this section shall apply mutatis mutandis
as if such stock consisted-
(a)
in the case of shares
of
par value, of as many units of
equivalent number and value as the number and nominal value of the
shares so converted; or
(b)
in the case of shares of no par
value, of as many units as the number of shares so converted
(4)
Notwithstanding the provisions
of
this section, the articles
of
a
company may provide-
(a)
for the chairman of any meeting
to have a casting vote: and
(b)
for the votes to which any member
is entitled above a slated number to increase, not in direct
proportion to the number of shares
held, but in some lower proportion
specified in such articles and may m such event further provide that
no member shall be entitled
to a number
of
votes exceeding the number
so
specified or that the number of votes
to
which
any member is entitled be limited to a specified number.
[79]
Section 196,
'Exceptions
as
regards voting
rights in existing companies'
reads as follows:
(1)
The provisions of section 193 (1)
shall not apply in respect of shares of a company which at the dale
of the commencement of this
Act had already been Issued without
voting rights or in respect of issued shares (other than preference
shares) m respect of which
at that date there existed different
voting rights or in respect of shares subsequently issued in respect
of which there existed
at that date
a
contractual right
or
obligation to issue any such shares.
(2)
If any such company issues new
shares all the provisions of this Act as to voting rights shall save
as provided in subsection (1)
, apply in respect of such new shares
and for Ille purpose of determining the voting rights attached to
such new shares as provided
m section 195 all its shares shall be
deemed to have been issued with voting rights in accordance with the
provisions of this Act.
[80]
Section 197, 'Exercise
of
voting rights'
reads as follows:
(1)
Any person present and entitled
to vote, on
a
show
of hands. as
a
member
or
as
a proxy or as
a
representative
of
a
body
corporate at any meeting of the company shall on a show of hands have
only one vote, irrespective of the number of shares he
holds or
represents.
(2)
On a poll at any meeting of a
company. any member (including a body corporate)
or
his proxy shall be entitled to
exercise all his voting rights as determined in accordance with the
provisions of tins Act. but shall
not be obliged to use all his votes
or cast all the votes he uses in the same way.
[81]
Section199, 'Requirements
for special resolutions
'reads as
follows:
(1)
A resolution by
a
company shall be a special resolution
if at
a
general
meeting of which not less than twenty-one clear days' notice has been
given specifying the intention to propose the resolution
as a special
resolution , the terms and effect of the resolution and the reasons
for it and at which-
(a)
members holding in the
aggregate not Jess than one-fourth of the total votes of all the
members entitled to vote thereat, are present
in person
or
by proxy, or
(b)
In the case of a company
limited by guarantee, not less than one-fourth of the members
entitled to vote thereat are present in person
or by proxy, the
resolution
has
been
passed, on a show of hands, by not less than three-fourths
of
the number of members of the company
entitled to vote on
a
show
of hands at the meeting who are present in person
or
by proxy or. where
a
poll has been demanded, by not Jess
than three- fourths of tl1e total votes to which the members present
in person or by proxy are
entitled.
(2)
(a) If less than one-fourth of
the lo/al votes of all the members entitled to attend the meeting and
to vole thereat
or,
in
tile case of a company limited by guarantee less than one- fourth of
the members of such company, are present or represented
at a meeting
called for the purpose of passing a special resolution, the meeting
shall stand adjourned to a day not earlier than
seven days and not
later than twenty-one days after the date of the meeting and the
provisions of section 192 (2) shall apply in
respect of such
adjournment
(b)
At the adjourned meeting the members who are present in person or by
proxy and are
entitled to vote may deal with the business for which
the original meeting was convened and a resolution passed by not less
than
three-fourths of such members shall be deemed to be a special
resolution even if less than one-fourth of the total votes are
represented
al such adjourned meeting.
(3)
With the consent of a majority in
number of the members of a company having the right to attend and
vote at such meeting and holding
in the aggregate not less than
ninety-five per cent of the total votes of all such members. a
resolution may be proposed and passed
as a special resolution at
a
meeting of which less than twenty
one clear days' notice has been given. A copy
of
such consent, on the prescribed form,
shall be lodged with the Registrar together with the copy of the
special resolution.
(3A)
Notwithstanding the provisions
of
subsection (1),
a
resolution may,
with the written consent, on tile prescribed form, of all the members
of the company, be proposed and passed as
a
special
resolution at a meeting of which notice as contemplated in subsection
(1) has not been given. A copy of such consent, on
tile
prescribed form, shall be
lodged with the Registrar together with a copy of the special
resolution.
(4)
At any meeting at which a special
resolution is submitted to be passed. a declaration by the chairman
that the resolution is carried
shall, unless
a
poll is demanded, be conclusive
evidence of that fact without proof
of
the number or proportion of the votes
recorded in favour
of
or
against the resolution.
(5)
When a poll is is demanded regard
shall be had, in computing tile majority on the poll, to the number
of votes cast for and against
the resolution
(6)
For the purposes of this section
notice
of
a
meeting shall. subject to the provisions of this Act, be deemed to
have been duly given and the meeting shall be deemed to be
duly held
when the notice is given and the meeting is held in the manner
provided by the articles
of
the
company concerned.
[82]
Section 200 'Registration
of
special resolutions '1eads
as
follows:
(1)
Within one month from the passing
of
a
special
resolution a
copy
of
such resolution together with either a copy of the notice convening
the meeting concerned or a copy of the consent contemplated
in
section 199 (3A) as the case may be. shall be lodged with the
Registrar, who shall, subject to the provisions of subsection
(2),
and upon payment
of
the
prescribed fee, register such resolution.
(2)
The Registrar may refuse to
register any special resolution so lodged with him, except upon an
order of the
Court,
if
such resolution appears to him to be contrary to Ille provisions of
this Act
or of
the
memorandum or articles
of
the
company concerned.
(3)
A copy of every special
resolution for the time being in force shall be embodied in or
annexed to every copy of the articles issued
after the registration
of the resolution.
(4)
A copy of every special
resolution shall be transmitted by the company concerned to any
member thereof at his request, and on payment
of an amount of
twenty-five cents or such lesser amount as the company may determine.
(5)
Any company which fails to comply
with any requirement of subsection (3) or (4) and every director or
officer
thereof
who knowingly permits
or
is
a
party
to
the
failure, shall be guilty of an offence
(6)
If a company makes default m
lodging with the Registrar a copy of any special resolution. and the
notice or the consent, as required
by subsection (1). the
company.
and every director or officer who
knowingly permits
or
is
a party
to
the
default. shall be guilty of an offence.
[83]
Section 201, 'Special
resolutions
for altering memorandum or articles and matters in pursuance thereof
may be
passed
at
same meeting 'reads
as follows
"Where this Act permits
any company to do anything by special resolution subject to the
condition that its memorandum
or
articles
authorizes ii and its memorandum or articles do not provide for such
authority, but
do
not prohibit it ,
the company concerned may convene a single meeting for the purpose
of-
(a)
passing a special resolution for
the creation of the said authority in the memorandum or articles; and
(b)
passing the intended special
resolution
[84]
Section 202, 'Special
resolution to lapse unless registered'
reads
as follows:
'Any
special resolution
of
which a copy is
not lodged with the Registrar and registered by him within six months
from Ille date of the passing of that resolution
shall. unless tile
Court otherwise directs. lapse and be void’.
[85]
Section 203,
'Dates on which resolutions take effect
'reads as
follows:
(1)
A special resolution shall not take effect until it has been
registered by the Registrar
under section 200.
(2)
Any other resolution passed by a meeting of a company or of the
holders of any class
of shares
of
a company shall
have effect as from the date on which it is passed"
[86]
Section 204
'Keeping
of minutes of meetings of companies'
reads
as follows:
"(1) (a) Every company
shall
cause
minutes of the
proceedings at any meeting of the company to be entered, in
one of the
official languages of the Republic. in one or more minute books kept
for the purpose, within one month after the date
on which the meeting
was held.
(b)
Any such minute book shall be kept at the registered office
of
the company or at
the office where such minute book
is
made up.
(2)
For the purpose of this section
loose leaves of paper shall not be deemed to constitute
a
minute book unless they are bound
together permanently, without means provided for the withdrawal or
insertion of leaves and the
pages are consecutively numbered.
(3)
The minutes of any meeting
purporting to be signed by the chairman of that meeting or by the
chairman of the next succeeding meeting
shall be evidence of the
proceedings
(4)
Any company which fails to comply
with any requirement of subsection (1) or (2) and every director or
officer thereof who knowingly
permits or is a party to the failure ,
shall be guilty of an offence·
Observations
[87]
The applicants did not cite the Auditor,
upon whose advice Kruger acted. The advise of the Auditor is material
in the creation of
the B Class shares and amendment of the Special
resolution. Furthermore, it is clear from a reading of the quoted
provisions in
the 1973 Companies Act that a special resolution is
lodged with minutes of a meeting. Whether this happened or not is
within the
knowledge of Kruger and the auditor.
[88]
The applicants downplay the importance of the DPW contract and the
importance of the BEE partners
whose presence earned the company the
extension of the contract. The principle of reciprocity: the
applicants wanted government
tender as result of BEE status, but did
not want to surrender some control to BEE partners (wants to eat cake
and still have it).
The introduction of BEE where direct empowerment
is the focus, in a
"going concern"
naturally leads
to dilution of ownership/control, but compensated for by awarding of
higher points on scorecard (tender for the
benefit of the company).
[89]
The applicants failed to ensure compliance with the internal
processes as regards the meetings
to be held by shareholders, in a
going concern entity.
[89.1] They are also
silent on the application of the provisions of the Companies Act that
I have deliberately reproduced
above.
[90]
The applicants are silent on the roles of Chairperson and Secretary
of the company in a company
that is a going concern. The Board failed
in its entirety to execute the resolution in a prescribed manner. The
role of Board and
shareholders in respect of ensuring compliance with
both internal processes and the Companies Act to issue Kruger with a
signed
resolution by all is a collective responsibility and not an
individual responsibility.
Discussion
[91]
Whether Kruger was authorised to proceed with registration of the
special resolution after the
Registrar refused to register non-voting
rights shares? Are there genuine factual disputes?
[92]
Counsel for the applicants, Mr. Labuschagne SC contends that it was
necessary for the shareholders
to issue a further special resolution
after the original one was rejected by the Registrar and its absence
shows that Kruger was
never authorised to effect an amendment as he
did.
[92.1] This contention
in my view is correct and is in line with the provisions of Section
199 of the Companies Act.
The requirement for a special resolution to
be passed at a meeting of shareholders has been specifically
legislated
[92.2] Even if one
were to accept that Kruger did consult with the shareholders and or
directors on an informal basis
as he alleges, this is not sufficient.
Unanimous assent is not sufficient where legislation requires a
special resolution
(Quadrangle
investments (Pty)
Ltd v Witind
Holdings Ltd
1975 (1) SA 572
(A)
.
[92.3] Even if this
matter were to be decided on the issue of disputes of authority , it
is clear that there is no genuine
dispute of facts because Kruger
appears to have been responsible for the day to day running of the
company. It is also apparent
from a reading of the newly created
article 4.1 that the administration of the new class shares was left
to the discretion of the
Board of Directors. In the matter of
Moraitis
Investments
(Pty) Ltd
v Montie Dairy (Pty)
Ltd
[2]
,
the Supreme
Court of Appeal considered whether there was a genuine dispute of
lack of authority, and if so, whether it could be
resolved on the
papers or by a referral to oral evidence. The onus to prove lack of
authority is on the party who alleges so. The
court took into account
the business association between the parties, the affidavits filed in
other matters and basically background
facts relating to prior
dealings between the trust and the business associates (the
respondents) to come to the conclusion that
there was no genuine
dispute of lack of authority . The defence of lack of authority was
dismissed.
[93]
Counsel for the second to fifth respondents, Mr. Heystek, submitted
that there is a real factual
dispute and the matter should be
referred to oral evidence to establish whether Kruger had a mandate
to effect the changes or not.
[94]
Mr. Labuschagne SC did not agree with this submission that there is a
real factual dispute. He
argued that the defences raised by Kruger do
not create a bona fide dispute of fact because if indeed he consulted
with the shareholders,
he would not be relying on an implied mandate
or tacit mandate. Furthermore, he cannot find any record of any
meeting where the
rejection of the original resolution was discussed.
The minutes of the meeting of directors dated 02 March 2011 that he
has attached
in his affidavit do not say anything about an amended
resolution. Instead they confirm the original resolution. If the
shareholders
knew about the amendment, it would not have been
necessary for him to remind them in the email of 28 April 2018. He
submitted further
that the applicants' version that there was no
resolution, formal or informal to amend the initial resolution should
be accepted
and that Mr. Kruger's denial does not create a bona fide
dispute. In this regard, l was urged to keep in mind that as the
applicant
is seeking final relief in motion proceedings, such relief
may be granted only if those facts averred in the applicant's
affidavit
which have been admitted by the respondents, together with
the facts alleged by the Respondent, justify such final relief
(Plascon Evans Paints Ltd v Van Riebeeck Paints
(Pty)
Ltd 1984(3) SA 623 (A) at 632 H
-
I.)
In
the alternative it was argued on behalf of the applicants that
Kruger's version is inherently incorrect as he sits on many chairs
,
which do not support his version. The further alternative is that his
version should be subjected to cross-examination.
The
issue of dispute of authority or authorization is academic in view of
what I have already stated above
[95]
On whether the relief of correction or reclassification of shares is
competent or not, counsel
for the applicant submitted that the
provisions of Section 37 (2) of the 2008 Companies Act will be
applicable.
The
section reads as follows:
"(2)
Each issued share company regardless of its class, has associated
with ii one general voting
right, except to the extent provided
otherwise by
(a)
This Act; or
(b)
the preferences, rights,
limitations and other terms determined by or in terms of the
company's Memorandum of incorporation in accordance
with section
"
[96]
The second to fifth respondents contend that this section would not
be applicable because CFM
has only one class of shares.
[97]
The CIPC has already refused to investigate the complaint and in my
view, issues pertaining to
the nature of shares that should have
lawfully been registered are not relevant, unless the proceedings are
directed at the CIPC
to compel it to do one or other thing.
Judicial
review: whether CIPC decision to register B Class shares with voting
rights is a clerical or administrative action.
[98]
I agree with the submissions of the respondents ' counsel that the
functions of the Registrar
are not merely clerical but that it
exercises a discretion, which of course would be subject to scrutiny
by the courts.
This
is evident from the language in the various provisions of the 1973
Companies Act that I have quoted in the preceding paragraphs.
The Act
itself recognizes the rights of companies to approach the courts
where the Registrar refuses to act in a particular manner.
[99]
In the matter before me, there
are at least three decisions that the ninth respondent has taken.
[99.1] The refusal to
register the original CM26 Form,
[99.2] The
registration of the amended CM26 Form,
[99.3] The decision to
refuse to investigate the complaint.
[100]
On the question of delay and competency
of the CIPC to investigate complaints not lodged in time, the Supreme
Court of Appeal in
the matter of
Singh
&
Others v The Companies and
Intellectual Property Commission
&
Others
[3]
held
that there was no time bar to investigate complaints because the CIPC
had an obligation to maintain an accurate register of
companies.
"[16] Counsel for
the appellants focused his submission on the finding of the court a
quo,
based
as it was on s 219(1) (b) of the Act, that tile records of the
company continued to reflect that Smith was not a director,
was
an
omission
which constituted
a
continuous
practice. He submitted that an incorrect insertion into a record of a
company
is
a
single act. In the view of counsel for the appellants, the words
‘continuing price’ were
therefore inapplicable in this case
[17]
In my view, it is possible to
find an answer to this submission in the dictum of Wallis AJ. in
Makate v Vodacom Ltd [2016] ZACC13,
2016
[4] SA 121
(CC)
para 192, wherein he states:
In the case of
a
continuing wrong
there can be no question of prescription, even though the wrong
arises from a single act long in the past. The
reason, which may
appear somewhat artificial, but which is well established , is said
to be that while the original wrongful act
may have occurred in
a
time past the
wrong itself continues for
so
long as it
is
not abated.
'
(Emphasis added)
See also Barnett
&
others v Minister
of Land Affairs
&
others
[2007]
ZASCA 95
·
2007
(6)
SA 313
(SCA) para 20-21
and Slomow1lz v Vereeniging Town Council
1966
(3) SA
317
(A) at 330H-331G which judgments accept the description of
a
continuing wrong
as one which still is in the course of being committed and Is not to
be located wholly in a single past action.
[18]
In the present case, however it
appears to me to be unnecessary to decide this issue on the basis of
a ‘continuing practice'
in that s 219(1)(a) of the Act is
applicable rather than s 219 (1)(b) in which tile phrase 'course of
conduct or continuing practice
is
employed. Section 219(1)(a) refers to
·an act for an
omission'
either
of
which
is
applicable in this case Tim
Commission has an obligation to maintain an accurate register
of
companies. This obligation is not
frozen in time. If it were it would compel the Commission to work
knowingly with inaccurate information,
even in a case where the
record was tainted by fraudulent activity. If, as must be the case,
the Commission is enjoined to maintain
accurate records and thus
effect necessary corrections to ensure accuracy, the failure by
a
company to ensure that inaccuracies
are corrected amounts either to a misrepresentation of the correct
position or an omission to
correct the incorrect entry. In summary,
when s 219(1)(a) of the Act employs the words 'the act or omission'
the purpose thereof
is to impose an obligation not
to
misrepresent the accuracy
of
the records or to omit to ensure that
they are corrected. Thus, if the records of the company reflect
incorrect information, there
is an obligation on officers of the
company to ensure that the inaccuracy is cured. Thus the failure to
ensure that the record
is maintained accurately constitutes either an
act or an omission which falls within the scope of 219(1)(a). Thus,
if there is
a
complaint
that the records of the company are inaccurate, that constitutes a
complaint that there has been
an
act
or an omission which in terms of s 219(1)(a) constitutes the cause of
the complaint. The failure to cure the inaccuracy or to
draw it to
the attention of the Commission constitutes
a
discrete act which is not frozen in
lime, which was the appellants' argument
in
respect of prescription.
"
Conclusion
and order
[101] The facts of the
matter before me clearly demonstrate that it is the decision of the
ninth respondent that has
caused the applicants the harm that they
have alleged in their papers. The legal prescripts are very clear;
even if the actions
of the second respondents were reprehensible, the
real question is whether the ninth respondent has followed the
prescribed requirements
when registering the amended CM26 Form. This
question can best be answered . in the first place by Kruger and the
auditors, who
are obliged to keep records of the company's
resolutions, minutes and other documents. If they have not performed
their duties
diligently, the applicants' remedies lie in the internal
processes, which may include criminal charges if they persist with
their
allegations of fraud. or even a civil suit of damages. Whatever
documents the second respondent and the auditor have submitted to
the
ninth respondent will enable the applicants to consider their
available remedies and options properly, which include challenging
the registration of what they allege to be a defective special
resolution.
[102]
The relief sought in the notice of motion is simply not sustainable
in the absence of a challenge against the
ninth respondent and or the
second respondent and or the auditor to reveal the nature of
documents that served before the former
when the amended special
resolution was registered. It is not for me to prescribe the nature
of the court proceedings or remedies
that the applicant should
invoke. Such would constitute an academic exercise because of all the
gaps in the documentation and sequence
of events that I have
highlighted in this judgment.
[103]
Consequently, I make the following order;
[103.1] The
application is dismissed with costs.
TAN MAKHUBELE J
Judge of the High Court
APPEARANCES
Applicant:
Advocate EC Labuschagne SC
Instructed
by:
Savage,Jooste & Adams Inc
Nieuw Muckleneuk
PRETORIA
Second to Fifth
respondents: Advocate AM Heystek
Instructed
by:
Stefan Swart Attorneys Brooklyn
PRETORIA
Eighth
Respondent:
Advocate Kennedy Tsatsawane SC
Instructed
by:
Gildenhuys Malatji Inc Groenkloof
PRETORIA
Heard on: 12 March 2019
[1]
Article 4 reads as follows:
“
If al any lime /he share capital is divided into different
classes of shares, the rights attached lo any class (unless
otherwise
provided by the terms
of
issue
of
shares of
that class) may be varied with the consent in writing of the holders
of three-fourths of the issued shares of that class,
or with the
sanction of a special resolution passed at a separate general
meeting of the holders
of
the shares of that class. To every
such separate general meeting the provisions
of
these
regulations relating to general meetings shall mutatis mutandis
apply but
so
that the necessary quorum shall be two persons
holding or representing by proxy at least one-third of the issues
shares of that
class"
[2]
(799/20 16)
[2017] ZASCA 54
(18 May 2017)
[3]
(822/2018) [2019) ZASCA 69 (30 May 2019)