The Appraisal Remedy and Share Buy-Backs – Capital Appreciation Ltd v First National Nominees (Pty) Ltd [2022] ZASCA 85

Abstract

The appraisal rights in the Companies Act 71 of 2008 empower minority shareholders to withdraw from a company, while obtaining a fair value for their shares. The main aim of the appraisal remedy is to achieve some sort of balance between minority and majority shareholders in the company.
Section 48(8)(b) of the 2008 Act provides that if a repurchase of shares is considered alone, or together with other transactions in an integrated series of transactions, and involves the acquisition of more than five per cent of the issued shares of any particular class of shares, then the company must comply with the requirements of sections 114 and 115 of the 2008 Act. Section 114(1)(e) regulates schemes of arrangement. This includes the acquisition by a company of its own shares pursuant to a shareholder-approved arrangement and requires the preparation and issue of an independent expert report. The procedural requirements applicable to schemes of arrangement are set out in section 115 of the 2008 Act. Section 115 also includes provisions that relate to the approval of the transaction by special resolution and, in addition, provides various other mechanisms aimed at protecting minority shareholders. It is well recognised and trite that if a company were to repurchase its own shares by way of a scheme of arrangement, all the requirements of sections 114 and 115 would apply, including the minority protection provisions mentioned above. However, the law is not as certain in instances where a company wishes to repurchase its own shares other than by way of a scheme of arrangement, in terms of section 48(8)(b). There has been a lack of clarity when interpreting section 48 of the 2008 Act (which regulates the acquisition by a company of its own shares) and section 114 (which regulates schemes of arrangement), as both sections apply to situations in which a company seeks to repurchase its own shares.

The judgment by the Supreme Court of Appeal (SCA) in Capital Appreciation Ltd v First National Nominees (Pty) Ltd [2022] ZASCA 85 is important because it provides much-needed clarity with regard to the interpretation and interaction between sections 48, 114, 115 and 164 of the 2008 Act. The judgment also reinforces the position of our courts and legislation, which is concerned with the protection and preservation of the rights of minority shareholders, as well as with rooting out corruption, abuse and exploitation by majority shareholders. This case note also touches on the impact of the new draft Companies Amendment Bill, 2021 on sections 48 and 164 of the 2008 Act and on the requirements to comply with sections 114 and 115.