This blog was drafted by John Bell, Director.

The approval of schemes of arrangement in terms of section 115 of the Companies Act, 2008 is becoming more prevalent in the field of mergers and acquisition as well as financial restructurings. They are as such receiving more scrutiny from our courts.

In a recent matter the High Court was tasked with determining an array of questions relating to the validity of the special resolution approving Distell Group Holdings Limited’s scheme of arrangement in terms of which it its business was restructured to facilitate an acquisition by Heineken International BV. (Sand Grove Opportunities Master Fund Ltd & Others v Distell Group Holdings Ltd & Others (6378/2022) [2022] ZAWCHC 46 (13 April 2022))

Investment funds (the Funds) sought to challenge the special resolution by seeking leave from the court to review the resolution based on the review right afforded to a person who voted against the proposed resolution set out in section 115 (7) of the Act.

The Funds based their standing to bring the application on the fact that they were the beneficial owners of 3.72% of the issued shares of Distell which were voted against the special resolution at the scheme meeting.

The court determined three noteworthy preliminary points.

Standing

It was held that the Funds had no standing to bring the application. The Funds:

  • were not the registered holders of the shares but only had a beneficial interest in those shares – the shares were registered in the name of two local custodians, First National Nominees (Pty) Ltd and Standard Bank Nominees (RF) (Pty) Ltd (the local custodians); and
  • did not hold a proxy on behalf of the local custodians to vote at the scheme meeting, which proxy was given to a certain individual not associated with the Funds.

The Funds were not the ones exercising the voting right at the scheme meeting as contemplated in section 115 of the Act for purposes of being vested with the statutory right to review the special resolution.  The court emphasised the general principle that a company concerns itself only with registered holders of its shares.

Intervention by the local custodians

The court dismissed an application by the local custodians, being the registered shareholders, to intervene as applicants in the matter (thereby seeking to overcome the standing issue that the Funds faced).

The court held that:

  • the application by the Funds was not an application due to their not having had standing to bring the application;
  • the application therefore could not be saved by the intervention of the person who had the right to exercise a vote; and
  • any application by the local custodians was struck by the 10 day expiry period under section 115 of the Act, within which the application had to be launched. The right, it was held, cannot be resuscitated by piggybacking on an application that was brought by an applicant with no right to institute the application in the first place.

Condonation for non-compliance with time-period

The local custodians then sought to overcome the non-compliance with the prescribed 10 day time-period by requesting the court to condone the non-compliance based on the court’s inherent power to condone con-compliance with the statutory time limit.

This application was dismissed as it was held that the 10 day time-period in section 115(3)(b) of the Act amounted to an expiry period or “vervaltermyn” in respect of which the courts enjoy no inherent power to “ameliorate the shutting out effect of such statutorily determined expiry period”.

Conclusion

The judgment provides useful guidance in respect of the application of the s115(7) review remedy.  Beneficial owners of shares in particular should pay close attention to what their rights are pursuant to a scheme meeting and whether they will be vested with the protection afforded by the review right under section 115(7) of the Act.

Furthermore, scheme participants should be alive to the 10 day expiry period within which it should exercise the review right as any delay is cannot be condoned by a court.