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[2009] ZAGPJHC 45
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Verimark Holdings Limited v Brait Specialised Trustees (Pty) Limited NO and Others (2009/22928) [2009] ZAGPJHC 45 (28 August 2009)
IN
THE
SOUTH
GAUTENG
HIGH
COURT
JOHANNESBURG
CASE:
2009/22928
In
the matter between:
Verimark
Holdings
Limited
Applicant
and
Brait
Specialised
Trustees
(Pty)
Limited NO
First
Respondent
Brait
Multistrategy Trustees (Pty)
Limited
NO
Second
Respondent
Securities
Regulation Panel
Third
Respondent
Judgment
Malan
J;
[1]
On 4 June 2009, the applicant applied for
leave
to
convene a meeting in terms of s 311 of the Companies Act 61 of 1973.
In terms of the proposed scheme of arrangement, the Van
Straaten
Family
Trust
(VSFT),
the
majority shareholder in the applicant, offered to acquire all the
minority shares (being
37%
thereof)
in the applicant, a company listed on the
JSE,
for
50 cents per share. On 15 June 2009,
Gildenhuys
J
granted an order convening a meeting of the ordinary shareholders of
the applicant to be held on Monday, 13 July 2009 for the
purpose of
considering the scheme proposed by VSFT.
[2]
The scheme meeting was held on 13 July 2009 under the chairmanship of
Mr
David
Leibowitz.
As
appears from the chairman's report, the results of the poll taken at
the meeting of 'scheme members' reflect that 80,06% of 'scheme
members' voted in favour of the scheme; 19.93% of 'scheme members'
voted against the scheme; and .01% of "scheme members'
abstained
from voting. I
t
is
common cause that VSFT and what are defined as 'excluded members'
under the scheme voted in favour of it.
1
[3]
The three respondents having been granted leave to intervene all
oppose the sanctioning of the scheme essentially on two grounds:
first, that VSFT and the 'excluded members' are not 'scheme
participants' and should not have been permitted to vote; and,
secondly,
VSFT and the 'excluded members' are a class of
ordinary
shareholders different from the remaining 37 per cent of the
shareholders and should not have been permitted to vote. In
addition,
the adequacy of the offer price is
challenged.
[4]
The order of court made on 15 June
2009
2
makes
reference to a scheme of arrangement proposed by the proposer between
Verimark
'and
its
ordinary
shareholders substantially in the form attached
to
the
founding affidavit in this matter'. The scheme circular to Verimark
shareholders describes the scheme of arrangement as one
between
Verimark
'and
the shareholders of Verimark (other than the
excluded
members)
in terms of which VSFT will acquire ail of Verimark's issued shares
held by the scheme participants on the consideration
record
date...',
3
[5]
The
'excluded
members'
is defined as, collectively, Prime Rentals CC (a
ciose
corporation,
an associate of the proposer holding 7% of the issued share capital
in Verimark and which close corporation is beneficially
owned by Mr
MJ
Van
Straaten and his family); Mirror Ball investments 49
(Pty)
Limited
(a Black Economic Empowerment entity holding 6,6% of the shares in
Verimark) and
Selcovest
35
(Pty)
Limited (an
employee
entity holding 3,5% of the shares in Verimark).
The
'scheme participants' is defined as:
'Verimark
shareholders, other than the excluded members, recorded in the
register on the scheme consideration record date,
who
will
dispose
of [their] scheme shares and become entitled to receive the scheme
consideration, if the scheme becomes operative;
The
'scheme shares' is defined as:
'42
272 328 shares, representing 37% of the shares in the issued share
capital of Verimark held by scheme participants on the scheme
consideration record date,'
'Scheme
members' is defined as
'Verimark
shareholder[s] recorded in the register on the scheme voting record
date, who are entitled to vote at the scheme meeting:
'Scheme
meeting' is
'the
meeting of scheme members convened in terms of an Order of the Court,
to be held
at
09:00
on Wednesday, 8 July 2009 at the registered office of Verimark ... or
any adjournment
thereof
...
at which scheme members will consider and vote on the scheme, the
notice of which is attached to and forms part of this circular.'
The
'scheme' or 'scheme of arrangement' is
'a
scheme of arrangement in terms of section 311 of the
Companies
Act,
proposed between VSFT and the shareholders of Verimark (other than
the excluded members), in terms of which VSFT will acquire
all of
Verimark's issued shares held by the scheme participants on the
consideration record date in exchange for the scheme consideration,
the terms and conditions of which are contained in the scheme of
arrangement
[6]
The
scheme
is therefore one directed at the proposer's acquiring
the
37
per cent shareholding held by the 'scheme participants' (ie
'shareholders, other than
the
excluded
members,
recorded in the register on the scheme consideration record
date,
who
will
dispose
of
[their]
scheme shares
and
become
entitled
to
receive
the
scheme
consideration, if the scheme becomes operative').
The
proposer
is
not a
'scheme
participant' because, although a shareholder, it is not envisaged
that VSFT
will
dispose
of any of its shares and receive the scheme
consideration,
albeit
a 'scheme member'
it
holds
no 'scheme shares'. However, the scheme envisages that the offer
contained in the scheme documents be accepted, not by the
'scheme
participants' (the holders of 37 per cent of the shares) to whom the
offer was addressed, but by the 'scheme members' (all
the
shareholders) at the 'scheme meeting'.
[7]
Section 311 provides;
4
'(1)
Where any compromise or arrangement is proposed between a company and
its creditors or any class
of
them
or
between a company
and
its
members
or any class
of
them,
the
Court
may,
on
the
application
of the company or any creditor or member of the company ... order a
meeting of the creditors or class of creditors,
or of the members of
the company or
class
of
members (as the
case
may
be), to be summoned in such manner as the Court may direct (2) I
f
the
compromise or arrangement is agreed to by-
a
majority in number representing
three-fourths
in
value of the creditors or class of creditors; or
a
majority representing three-fourths of the votes exercisable by the
members or class of members, (as the case may be) present
and voting
either in person or by proxy at the meeting, such compromise or
arrangement shall, if sanctioned by the Court, be
binding on all the
creditors or the class of creditors, or on the members or class of
members (as the case may be) and also on
the
company..."
[8]
At common law an offer may be accepted by the addressee
only.
5
An
offer for a composition, at common law,
6
'to
be binding and effective ... must be accepted by all to whom it is
proposed. Whilst the composition may or may not have to be
accepted
by all debtor's creditors to whom the proposal is addressed and for
whom it is intended; if any such creditor(s) refuse
or reject the
offer, it is an end to the matter.'
[9]
Because the number of creditors and members of a company are often
large making it
difficult
to
negotiate with each individual to secure his or her consent, s 311
and its predecessors were enacted.
7
In
Re
The
Dominion of Canada Freehold Estate and
Timber
Company
Limited
8
Chitty
J
said:
9
'[O]ne
of
the difficulties that there always is in dealing with matters of this
kind when the company gets
into
difficulty,
and
when
more
money is
required,
is
to deal
with
the
debenture
holders
as
a
class.
That
is
the
difficulty
which
the
Legislature
itself
felt
when
it
passed the
Act
of
1870,
allowing
a
majority,
and
a sufficient majority - that is to say, not a mere absolute majority,
but a majority that is larger than that ~ to bind the
minority. Then
it was known that, before the legislation of 1870, any particular
individual could hold out against a scheme, however
meritorious and
however beneficial if might be, in order that he might get, generally
speaking, some special advantage for himself,
or because he was a
person who did not even get a fair view of the advantages to be
gained. It was for the purpose of preventing
that the Legislature
passed the Joint Stock Companies Arrangement Act, 1870 â¦â
[10]
In defining what is meant by a
'class'
in
s 311, our courts have generally followed the
statement
of
Bowen LJ in
Sovereign
Life Assurance Co
v
Dodd:
10
The
word "class" used in the statute is vague, and to find out
what it means we must look at the general scope of the
section, which
enables the court to order a meeting of a "class of creditors"
to be summoned. St seems to me that we
must give such a meaning to
the term "class" as will prevent the section being so
worked as to produce confiscation and
injustice, and that we must
confine its meaning to those persons whose rights are not so
dissimilar as to make it impossible for
them to consult together with
a view to their common interest.'
In
the cases that have followed since
Sovereign
Life,
this
passage has virtually hardened into
law.
11
I
t
became well established that the categorisation of a class of either
members or creditors for the purposes of s 311, involves
a
determination of the similarity of rights and not the similarity of
interests.
12
[11]
The proposer, the 'excluded members' and minorities are all ordinary
shareholders in the
applicant.
Their
rights, or the 'bundle, or conglomerate, of personal rights entitling
the holder thereof to a certain interest in the company,
its assets
and dividends',
13
are identical and they all belong, it seems to me, to the same class
of shareholder. This, however, is not the issue. The inquiry
whether
separate meetings should be held arises only after determination of
the identity of the offeree, The relevant question,
'at the outset,
is 'between whom is it proposed that a compromise or arrangement is
to be made?'
14
It
was
remarked that:
15
'in
order to determine what the rights of creditors are and indeed
whether they are bound at all, one l
ooks
to
the terms of the contract. Although the Act apparently enjoins that
all creditors are bound by
a
duly
sanctioned
offer, the cases
explain,
at
least by necessary
implication,
that
this
only
applies
to those creditors who were parties to it, that is to say, to those
to whom the offer was intended to be directed.'
[12]
The reference to
'all'
the
creditors or members in s 311(2) is thus a reference to those
creditors or members to whom the offer is made. Only when this
primary question
has
been
answered does the question whether one
or
several
classes are
involved
arise. In
Re
Hawk
Insurance Co Ltd
16
Chadwick
JL
said:
[13]
The question whether to summon more than one meeting - and, if so,
who should be summoned to attend which meeting - has to
be made at
the first stage. If the matter were free from authority, i would have
regarded the basis upon which that decision has
to be made as
self-evident The relevant question is: between whom is the proposed
compromise or arrangement to be made? There are,
as it seems to me,
three possible answers to that question. Which answer is correct in
any particular case will depend upon the
circumstances peculiar to
that case,
[14]
First, there will be cases where it is plain that the compromise or
arrangement proposed is between the company and all its
creditors. In
such
a
case, s 425(1) of the 1985 Act provides for the court to order a
single meeting of all the creditors,
[15]
Second, there will be cases where it is plain that the compromise or
arrangement is proposed between the company and one distinct
class of
creditors; for example, unsecured trade creditors whose debts accrued
before (or after) a given date. Or it may be plain
that there are two
(or more) separate compromises or arrangements with two (or more)
distinct classes of creditors; for example,
one compromise with
unsecured trade creditors whose debts accrued before a given date and
a separate compromise (on different
terms)
with
unsecured
trade creditors whose debts accrued after that date. In such a case,
the section provides for the court to order a meeting
of each class
of creditors with whom the compromise or arrangement is to be made,
that is the plain meaning of the words in the
section: "Where a
compromise or arrangement is proposed between a company and
itscreditors, or any class of them, .. the court
may order a meeting
of the creditors or class of creditors, (as the case may be)"...
[16]
Cases
which fail into one or other of the two categories which I have
described above are likely to be recognised without difficulty.
More
difficult to recognise are cases in a third category. Those are cases
where what appears at first sight to be a single compromise
or
arrangement
between
the company and all its creditors (or all creditors of a particular
description; say, unsecured creditors) can be seen,
on a true
analysis, to be two or more linked compromises or arrangements with
creditors whose rights put them in several and distinct
classes. The
compromises and arrangements are linked in the sense that each is
conditional upon the other or others taking effect.
In such a case,
the section provides for the court to order - and the court should be
asked to order -that there be summoned separate
meetings of each of
the distinct classes of creditors.'
[13]
The offer in question, 'on a true
analysis',
was
made to the minority shareholders,
ie
the
'scheme participants', It was not made to the proposer, nor to the
'excluded members'. Only the 'scheme participants', as defined,
were
entitled to accept or reject it. Only they should have been
allowed
to
vote on it.
17
It follows that I do not have the power to sanction the scheme of
arrangement.
18
The
application that the proposed scheme of arrangement be sanctioned is
dismissed with costs including the costs of two counsel.
Malan
J
Judge
of the High
Court
Counsel
for the applicant: DM Fine SC and J Blou
Attorneys
for the applicant:
Glyn
Marais Inc
Counsel
for first and second respondents: A Subel SC and AJ
Eyles
Attorneys
for first and second respondents: Cliffe
Dekker
Hofmeyr
Inc
Counsel
for third respondent:
WGH
van
der
Linde
SC and T
Massyn
Attorneys
for third respondent: Edward Nathan
Sonnenbergs
I
nc
Date
of hearing: 7 August 2009
Date
of judgment: 28 August 2009
1
VSFT holds 45,94% of the shares;
Prime Rentals CC (an excluded member) 7% of the shares and these
shares are beneficially owned
by MJ Van Straaten and his family.
Mirror Bail Investments and Selcovest (both excluded members) are
not controlled by Van Straaten
and hold
6,6%
and 3,5% of the shares
respectively.
2
D59.
3
C44 para 1, The scheme contemplates a subsequent delisting of
Verimark from the JSE.
4
The parties appear to have accepted that the scheme is an
'arrangement
within
the contemplation of the Act. The term should be given a wide
meaning: Blackman 12-4 ff,
Namex
(Edms)
Bpk
v
Kommissaris
van
Binnelandse
Inkomste
[1993] ZASCA 181
;
1994
(2) SA 265
(A) 298;
NRMA
Limited
NRMA
Insurance
Limited
[2000]
NSWSC
82
para 20.
5
Schalk van der
Merwe,
LF van Huyssteen,
MFB
Reinecke
and GF Lubbe
Contract General
Principles
(2007)
54
ff.
6
De
Wit
v
Boathavens CC
(King
and
Another Intervening)
1989
(1) SA 606
(C)
611
IJ.
7
MS
Blackman,
RD
Jooste
and
GK
Everingham
Commentary
on the Companies Act (Volume
2)
(2002)
12-2.
8
(1886)
55
LT
347
at
351,
The
resulting scheme of
arrangement or compromise may
therefore
not
be
a contract in the
strict sense because the consent of all the members or creditors to
it may be lacking;
Ilic
v Parginos
1985
(1) SA 785
(A) 803 HI;
Namex
(Edms) Bpk
v
Kommissaris van
Binnelandse
Inkomste
1994 (2)
SA 265 (A) 290
A
9
Also cited by Blackman 12-2. Cf
Re
Bond Corporation Holdings Ltd
(1991)
5 ACSR 304
(SC(WA))
317 and
In
re Alabama, New Orleans,
Texas
and Pacific
Junction Railway Company
[1891]
H 213 where Bowen LJ observed: 'The object of this section is not
confiscation, It is not that one person should be a victim,
and that
the rest of the body should feast upon his rights. Its object is to
enable compromises to be made which are for the
common benefit of
the creditors as creditors, or for the common benefit of some class
of creditors as suchâ¦â.
10
[1891-94]
All ER Rep 246
;
[1892] 2
QB
573
at 583.
11
See, for
example, in addition to the cases referred to in the
next
note;
Re
Hawk
Insurance
Co Lid
[2001] EWCA
Civ 241
para 31 and
the references cited; Re
Equitable
Life Assurance
Society
[2002]
EWHC
140
(Ch),
[2002] 2 BCLC 510
paras 43 ff; Re
Hills
Motorway
Ltd
[2002]
NSWSC
879
paras 10 ff; Re
Bond Corporation
Holdings Ltd
(1991)
5
ACSR
304
(SC
(WA))
314
ff; Re
Hills
Motorway Ltd
[2002] NSWSC 897
paras 11 ff;
Australian
Co-Operative Foods
Ltd
[2001] NSWSC 382
;
(2000) 38 ACSR 71
(SC(NSW))
para
81.
12
12
Ex Parte Colman; In re
Argyle
Denial
Supplies
Limited (In Liquidation)
1933
WLD
177
190 ff;
Rosen
v
Bruyns NO
1973 (1)
SA 815
(T) 820-1;
Ensor
NO v South Pine Properties
(Pty)
Limited and
Another
1978 (2)
SA 755
(N) 763-4;
Ex
parts Klopper
and Another NNO: Re
Rena
Finansieringsmaatskappy
(Pty)
Ltd (in Provisional Liquidation)
1979
(1) SA 254
(T)
259
ff;
Borgelt
v
Moolman
NO
and Another
19S3
(1) SA 757
(C)
763
ff;
Ex
Parte
Garlick Ltd
1990 (4) SA 324
(C)
331
ff. But see
Ex
parte
Venter
and Another,
NNO:
in
re Rapid Mining Supplies (Pty) Ltd (in
Provisional
Liquidation);
African Gate and Fence Works Ltd intervening
1976
(3) SA 267 (O) 276.
13
Standard
Bank
of SA Ltd v Ocean Commodities ho
1983
(1) SA 276 (A) 288.
14
Re
Hawk
Insurance
Co
Ltd
[2001]
EWCA
Civ 241
;
[2001] BCLC
480
para 23 and see paras 13-5,
32-3 (and see
In
the
matter
of PT
Garuda
Indonesia
2001
WL 1171948
(Ch
D
(Companies
Ct)).
15
In
Kleena
Industries
(Pty) Ltd v
Senator
Insurance Co
Ltd
1982 (2) SA
458
(W)
Slomowitz
AJ at 462. Cf
Cohen
NO
v
Nell
and Another
1975
(3) SA 963
(W) 968. Referring to the word
'all'
in the section
Slomowitz AJ in
Kleena
said at 483: 'To
my mind this passage is clear authority that where the Act refers to
a sanctioned
composition
as being binding on
all creditors or on all members
of
a particular class
of them, the word
"all"
must be qualified to
mean no mors than
all
those
to whom the
offeror intended, on a proper construction of the offer, should be
bound.' He continued at
464:
'in the result, I
see
nothing
in the
Actor
in any
of
the
authorities which were
quoted
to me which
would, all
other things being
equal, preclude an offeror from making an offer to acquire only some
of
the
claims which lie against the company or perhaps only one of them, or
from directing his offer to only some of the members
of a class of
creditors and not to others. No doubt, if such offer is calculated
to produce inequality, sanction would be withheld.
I have
little
doubt that a creditor,
or, for that matter, a member, to whom the offer is not directed,
would have locus standi, either when
it is sought to obtain leave to
convene meetings or at the later stage when approval of the Court is
asked, to make his complaint
known,' He, however, left open the
question whether a 'class' was constituted by virtue of the terms of
the
offer
(at
464). Cf
Morris
NO
v
Airomatic
(Pty)
Ltd
t/a
Barlows
Air
Conditioning
Co
1990
(4)
SA
3756
(A) 397-8. In
Namex (Edms) Bpk v
Kommissaris
van
Binnelandse
Inkomste
1984
(2) SA 265
(A) 289 G - 290 C the court remarked: ' 'Ek het reeds
daarop gewys d
at
as
'n voorgestelde
reëling
in wese
'n
aanbod is wat aan oa
'n
maatskappy
se
skuldeisers
gemaak
word. Dit is gerig op
hul
aanvaarding
daarvan.
Wat betref die wat
wel
aanvaar,
kom
daar natuurlik 'n
ooreenkoms tot stand,
onderhewig
egter aan die Hof se
goedkeuring
van
die reëling. Word goedkeuring
verleen,
bind die ooreenkoms
ook ander skuldeisers van die maatskappy; nie
omdat
hulle
dan ook
kontrakspartye
is
nie, maar
eenvoudig
omdat art 311(2) so
bepaal Dit
volg
egter nie dat die
sinsnede
"al die
skuldeisers"
in
die subartikel streng
letterl
ik
vertolk
moet
word nie.
Eerstens
is
dit
duidelik.
m
een
ek, dat die sinsnede
slegs betre
kking
kan he op daa
rdie
skuld
elsers aan wie
die aanbod
geri
g
was.
En
so 'n aanbod hoe
f
natuurlik nie alle
s
kuldeisers v
an
'n maatskappy te
betrek nie.
So
byvoorbeeld
kan
dit slegs
vir
bepaalde
konkurrente
skuldeisers bestem
wees. Tweedens kon die Wetgewer
nooit
beoog het dat 'n
goedkeuringsbevel
bindend
is op
skuldeisers wat nie regtens by magte is
om
die aanbod te aanvaar
nie. Dit is die geval omdat, hoewel die statutere
meganismes
meebring dat
indien
die vereiste
meerderheid sou instem ander skuldeisers na goedkeuring ook
gebonde
is, die aanbod juis
bestem was om aanvaar te
word
' See
Kleena
Industries (Pty) Ltd
v
Senator
Insurance
Co Ltd
1982
(2)
SA 458
(W)
463
and
of
Re
Hellenic &
General Trust Ltd
[1975] 3 All ER
382
('No one can be both a vendor and a purchaser and, in my
judgment for the
purpose
of the class meetings
in the present
case,
MIT
were in
the
camp of
the
purchaser')
although
this case
is
distinguishable.
16
[2001] EWCA Civ 241
;
[2001]
BCLC
480
paras 13 ff.
In para 22 the court asked how it was to be determined that separate
meetings were to be held and stated in para
23: 'As I have
indicated, I would have regarded it as self-evident, in the absence
of authority, that the relevant question at
the outset
is.
between whom is it
proposed that a compromise or arrangement is to be made? Are the
rights of those who are to be affected by
the scheme proposed such
that the scheme can be seen as a single arrangement; or ought the
scheme to be regarded, on a true analysis,
as a number of linked
arrangements? The question may be easy to state; but, as the cases
show, it is not always easy to answer.
Nor can if be said that,
hitherto, the courts have posed the question in quite those terms.'
17
See the remarks in the opposing affidavit of Mr Richard John
Connellan, the executive director of the Securities Regulation
Panel, at D 46 paras 11 ff.
18
18
Re Hawk
Insurance Co Ltd
[2001]
EWCA Civ 241
;
[2001] 2 BCLC 480
at para 17: 'If the correct decision
is not made at the first stage, the court may find, at the third
stage,
that
it is without jurisdiction. The reason is that the court's
jurisdiction under s 425(2) of the 1985 Act is limited to
sanctioning
a compromise or arrangement between the company and its
creditors or any class of creditors (as the case may be) which has
been
approved by the requisite majority at a meeting of the
creditors or that class of creditors (as the case may be). So, if
what
has been put forward at the first stage as a single compromise
between
the
company and all its members, or all of a single
class
of members, is
seen by the
court,
at
the third stage, to be
(on
a true analysis) a
number of linked compromises or arrangements with creditors whose
rights put' them in several and distinct
classes, the court will
find that the condition that gives rise to its power to sanction
absent; none of the linked compromises
or arrangements will have
been approved by the requisite majority at a relevant meeting
because there will have been no meetings
of the distinct classes.'