- We were instructed by the intervening parties to approach the court for urgent relief. The relief in question related to the treatment by Sovereign Food Investment Limited, a public company listed on the JSE, of certain dissenting minority shareholders.
- This is the first of a two part post. It deals with the issues as we saw them, and is based upon the heads of argument, drafted by Adv Roy Gordon, of the Cap Bar.
- The second part of the post will be published in due course, and deals with the judgment of Judge I Stretch of the Port Elizabeth High Court, in so far as it relates to our client.
BACKGROUND TO AND THE CIRCUMSTANCES IN WHICH THE OFFENDING CONDUCT HAS ARISEN
- In the event that the resolution adopted at the Previous General Meeting, which triggered the intervening parties' appraisal rights ("the appraisal rights resolution"), has not lapsed or become of no force and effect, the intervening parties find themselves in the following position:
- Such shareholders ("dissidents") are then entitled, subject to certain further procedural requirements to further follow their rights in terms of section 164 of the Act and require of the relevant company that it buy out the shares of such shareholders for the fair value thereof.
- Appraisal rights are afforded to shareholders who, not being in favour of a resolution or resolutions which envisage a corporate restructure of the company in which they are shareholders, have expressed their disfavour by voting against such resolution and/or resolutions.
- On 14 January 2016, the shareholders of Sovereign in general meeting ("the Previous General Meeting") adopted a resolution which triggered what are commonly known as appraisal rights in terms of section 164 of the Act.
- they are dissidents who are waiting on Sovereign to make them an offer for their shares based on the fair value thereof in terms of section 164 of the Act;
- they have no further rights in respect of their shares other than to be paid the fair value thereof;
- their rights stand to be "re-instated without interruption" in the event of Sovereign adopting a resolution revoking the appraisal rights resolution.
- Unhappy with the number of shareholders who exercised their appraisal rights pursuant to the appraisal rights resolutionSovereign devised a further alternative scheme, the purpose of which was to achieve a corporate restructure similar to the one the intervening parties had opposed. The difference between the initial structure and the proposed restructuring is that the implementation of the latter would not trigger appraisal rights.
- Sovereign's board does this without revoking or attempting to revoke the appraisal rights resolution adopted at the Previous General Meeting and in so doing maintains and seemingly seeks to maintain the disenfranchisement of dissidents, proscribed by section 164(10) of the Act.
- Sovereign's board sought to achieve the disenfranchising effect in two ways:
- by barring dissidents from attendance at, participation in and voting at the New General meeting; and
- by crafting all the resolutions to be proposed at the New General Meeting including a resolution aimed at revoking the appraisal rights resolution ("the revoking resolution") in such a manner that they are conditional upon and inter-conditional with each other resolutions.
- In the ordinary course, should the revoking resolution be adopted, the intervening parties would by virtue of the operation of section 164(10) read with section 164(9)(c) be entitled to vote on the further resolutions proposed at the New General Meeting.
- By dictating that the intervening parties are not entitled to attend the New General Meeting to vote on any of the resolutions (as opposed to just the revoking resolution) and by determining that all of the resolutions proposed at the New General Meeting are conditional on and inter- conditional with each other resolution, Sovereign have contrived scenario in which the intervening parties will not be able to exercise their shareholder rights upon their re-instatement.
THE OFFENDING CONDUCT
- The conduct complained of is the conduct of Sovereign's board:
- in determining that the intervening parties may not attend at and vote on any of the resolutions proposed at the New General Meeting set to take place on Tuesday 29 March 2016 at 10h00 ("the New General Meeting");
- in designing the suite of resolutions proposed at the New General Meeting in such a way that it prevents the intervening parties from practically exercising their right to vote on resolutions that, but for the design of such resolutions, they would be entitled to vote on.
(hereinafter collectively referred to as "the offending conduct")
- The offending conduct has the effect of barring the intervening parties from attending at the New General Meeting and voting on all the resolutions to be presented to the meeting. The conduct of Sovereign's board constitutes conduct which clearly prejudices the intervening parties and/or unfairly disregards the interests of the intervening parties.
THE QUESTIONS FOR ADJUDICATION
- In this matter the intervening parties seek relief in terms of section 163(2) of the Companies Act No 71 of 2008 ("the Act"). Accordingly, the principal questions for adjudication are:
- whether or not the conduct complained of by Sovereign and its board constitutes oppressive conduct or conduct which unfairly prejudices or unfairly disregards the interests of the intervening parties;
- what the appropriate relief is in terms of section 163(2) of the Act.
- The question which arises is whether or not the prejudice caused is unfair and/or whether or not the disregard for the intervening parties’ interests is unfair. In considering what constitutes unfairness for the purposes of section 163(1) of the Act and its predecessor section 252, it has been said that:
"Conduct may accordingly be ‘oppressive or prejudicial’ within the meaning of the section, even where it does not violate any ‘rights’ of the applicant, for instance, rights in terms of the Act or the company’s Memorandum of Incorporation.
This is now made even clearer in the New Act by the innovative inclusion of the unfair disregard of the applicant’s ‘interests’ (as contrasted with the applicant’s ‘rights’). It would seem that the s163 has been drafted to include ‘interests’ in order to underline or emphasise the principle that the oppression remedy is not limited to the strict infringement of legal rights, but that it extends also to the protection of the interests of applicants.";
and that what is required to be established is
"a lack of probity or fair dealing, or a visible departure from the standards of fair dealing on which every shareholders is entitled to rely... the emphasis is on the unfairness of the conduct complained of. It must be conduct which departs from the accepted standards of fair play, or which amounts to unfair discrimination."
and moreover that conduct would fall foul of the section if the Company or its directors act in a manner:
"which does not enable such shareholder to enjoy a fair participation in the affairs of the Company" (emphasis provided)
- In Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others, Rogers J held that
"Where the impugned conduct is unlawful, and the conduct has a consequence which is prejudicial to the applicant, the prejudice to or disregard of the interests of the applicant is likely to be, perhaps invariably will be ‘unfair’ within the meaning of s 163. That section, like its forerunner, is thus available as a remedy for unlawful corporate conduct. There might be other remedies but s163(2) provides the court with a wide array of equitable options, some of which would not otherwise be available."
- In barring the intervening parties from the New General Meeting and preventing them from voting their shares if and when they are re-instated in terms of section 164(10) read with section 164(90(c), Sovereign's board have exceeded their powers and arrogated to themselves the right to determine who should and should not vote on resolutions that the intervening parties would, but for the conduct of Sovereign and its board, be entitled to vote on.
- In advancing their expressed aim that the scheme should be implemented no matter what – whether in terms of the adopted resolutions already voted on, or in terms of the resolutions proposed at the New General Meeting, Sovereign's board have engineered a voting regime and result which rightly falls to the general meeting and not themselves.
- Their conduct in the above regards is beyond their powers and unlawful and on the basis of what was said by Rogers J in the Visser Sitrus it has a self-evidently unfair effect.
- There is a further related respect in which Sovereign and its directors act beyond their powers and unlawfully, and that is by prescribing - in fact dictating - to dissidents that the only way in which they can attend at the New General Meeting and vote is if they give up their appraisal rights and that they should do so before there is even certainty as to whether or not the revoking resolution is adopted.
- The intervening parties have an interest (and in fact a right) to see their appraisal rights followed through to fruition or if revoked they have an interest in further participation in the affairs of the company to the full extent of their re-instated rights which must be re-instated "without interruption".
- The conduct of Sovereign unfairly interferes with the intervening parties' interests in this regard because they are at one and the same time prevented from following through with their appraisal rights while at the same time being prevented from further participation in the general meeting. As a particular sub-stratum of a class of shareholders namely dissidents they are being discriminated against peculiarly and particularly by virtue of the legitimate prior exercise of their appraisal rights.
- The course of conduct adopted by Sovereign was unnecessary and avoidable as it was entirely possible for Sovereign to frame a suite of resolutions which prevented dissidents from voting on the revoking resolution while providing them with the opportunity to thereafter participate in the New General Meeting upon the immediate restoration of their rights.
- The appropriate and ordinary remedy in the case of a disgruntled minority relying on section 163(1) of the Companies Act (s252 in terms of the Old Companies Act) is for the Court to order that such shareholders shares be bought by the offending company for their fair value. This is what the intervening shareholders seek in terms of section 163(2) of the Act.
- In the event that such relief is not granted the New General Meeting cannot proceed in its current iteration and until such time as resolutions are proposed which adequately address the re-instatement of dissenting shareholder’s rights upon the revocation of the appraisal rights resolution and preventing the holding of the New General Meeting on its current terms is proposed in the alternative.
 See section 164(3), 164(4) and 164(5) of the Act
 See section 164(7) and section 164(8) of the Act
 Section 164(9) of the Act
 Section 164(10) of the Act read with section 164(9)(c) thereof
 See paras 17 to 18 of the AA in the intervention application (p74)
 Cassim Contemporary Company Law at 770 and see Peel and Others v Hamon J&C Engineering (Pty) Ltd and Others 2013 (2) SA 331 (GSJ) at paras 41 et seq
 Donaldson Investments (Pty) Ltd and others v Anglo-Transvaal Collieries Ltd and Others 1979(3) SA 713 (W) and 1980(4) SA 204 (T)
 Aspek Pipe Co (Pty) Ltd v Mauerberger 1968(1) SA 517 (C) at 527
 2014(5) SA 179 (WCC)
 At para 56
 AA in the intervention application para: 45.1 p82