Ex parte Garlick Ltd

• Jurisdiction: South Africa
• Judge: Friedman J
• Judgment Date: 17 November 1988
• Citation: 1990 (4) SA 324 (C)
• Court: Cape Provincial Division

Friedman J:

G This is an application for an order sanctioning a scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973.

H On 31 August 1988 this Court granted the applicant, Garlick Ltd ('Garlick') leave to convene a meeting of its shareholders to consider an offer made by Jano Retail Holdings (Pty) Ltd ('Jano') in terms of s 311 of the Companies Act. The offer was one in terms of which Jano proposed to acquire, by way of a scheme of arrangement, all the issued ordinary shares of Garlick which were not owned by it (Jano) or its I wholly-owned subsidiaries and their nominees. In terms of the scheme, shareholders would receive 1 330c in cash in respect of each existing Garlick ordinary share.

Garlick has an authorised capital of R7 million consisting of 4 000 000 ordinary shares of R1 each and 1 500 000 5% cumulative preference shares of R2 each. Of these 3 000 000 ordinary shares of R1 J each and

Friedman J

A 1 000 000 5% cumulative preference shares have been issued and fully paid. The issued ordinary and preference shares of Garlick are listed on the Johannesburg Stock Exchange.

Jano is the beneficial owner of 100 ordinary shares in Garlick but holds no preference shares.

In order to appreciate the issues which arise in the present B application it is necessary to explain briefly how the shares in Garlick were held at the time when the Jano scheme was proposed and to summarise some of the events which preceded this application.

At all relevant times 60,1% of the ordinary issued shares in Garlick were held by a company called Garlick Consolidated Ltd ('Garcon'). C Garcon is a subsidiary but not a wholly owned subsidiary of Jano.

When Jano decided to propose the present scheme to the shareholders of Garlick, it considered it desirable, seeing that Garcon held 60,1 of the shares which Jano wished to acquire, to obtain a commitment from Garcon before formally proposing the scheme to the balance of the shareholders.

Jano accordingly put its proposals to the board of Garcon. The board D of Garcon decided to call a general meeting of shareholders so that the latter could decide either to authorise the board to proceed with the implementation of the proposals or to reject them.

A general meeting of Garcon's shareholders was held on 29 July 1988. At this meeting it was resolved that, subject to Jano's offer in terms of s 311 becoming effective, Garcon should dispose of its 1 802 895 E ordinary shares in Garlick to Jano for a consideration of not less than 1 330c per share. It was further resolved that Garcon would vote in favour of the acceptance of the offer which Jano proposed to submit to the ordinary shareholders of Garlick and that any one of the directors of Garcon be authorised to vote for the acceptance of that offer. It was F apparently at all times the intention of the board of Garcon that the shares which it held in Garlick would be included in the scheme proposed by Jano and that if the scheme was implemented, the shares would be acquired by Jano in terms of the scheme. It was felt, however, that, as Garcon's shareholding in Garlick constituted at least the greater part of its assets, a resolution of shareholders should be obtained in order G to meet the requirements of s 228 of the Companies Act.

As appears from a circular issued by Garcon to its shareholders on 14 July 1988, Jano had made an offer to acquire from the Garcon shareholders all their shares in Garcon. This offer was conditional upon H the sanctioning of the scheme of arrangement for the acquisition of the Garlick shares by Jano. However, at the scheme meeting held on 30 September 1988, it was announced on behalf of Jano that Jano had in fact acquired more than 50% of the issued ordinary shares in Garcon. What Jano had acquired amounted to 59,76% of the issued shares in Garcon.

Following on the Garcon meeting held on 29 July 1988, Mr A R E Mia launched an application to this Court as a matter of urgency for an I order declaring the resolutions passed at the general meeting of Garcon's shareholders to be of no force and effect, as well as an order that Garcon shall not in any way act in terms of or give effect to those resolutions. That application which will hereinafter be referred to as the 'Mia' application, was dismissed on 29 September 1988. Mr Mia has J lodged an application

Friedman J

A for leave to appeal against the dismissal of the Mia application, but the application for leave to appeal has not yet come before the Court.

On 31 August 1988 this Court ordered that a meeting in terms of s 311 of the Companies Act 'of the holders (other than Jano Retail Holding (Pty) Ltd ("Jano"), its wholly owned subsidiaries and their nominees) of the ordinary shares of R1 each in the applicant ("the scheme members") B be convened' for the purpose of considering the scheme of arrangement proposed by Jano.

On 2 September 1988 the scheme documents were dispatched for a meeting to be held on 30 September 1988. At the meeting on 30 September 1988 C Jano increased its offer from 1 330c per share to 1 370c per share in order to meet a competing offer that had been received from Central Merchant Bank ('Senbank') on behalf of a consortium. The meeting was adjourned to 7 October 1988 in order to enable the consortium to consider whether it intended proceeding with its offer. In the result its offer was withdrawn.

When the meeting was resumed on 7 October 1988 an attorney D representing Mr Mia, who holds 50 000 ordinary shares in Garlick and one ordinary share in Garcon, submitted that Garcon had become a subsidiary of Jano and that Garcon should be dealt with as a separate class of shareholder from the other ordinary shareholders of Garlick or, alternatively, that Garcon should not vote at all.

E The chairman of the meeting correctly ruled that, because of the terms of the Court order by which he was bound, he did not have the power to prevent Garcon from voting or to convene separate meetings of shareholders.

A Mr Elio Pikholz, a retired town planner and land surveyor who is the F beneficial owner of 3 500 ordinary shares in Garcon and 3 400 ordinary shares in Garlick, and who was present at the meeting, raised obvious objections to the scheme. These have all been dealt with in this judgment. Suffice it to say at this stage that he contended inter alia that the price offered by Jano for the Garlick shares was inadequate and that the information given to shareholders was insufficient to enable G them to assess the true value of the shares. He also queried the necessity for the scheme.

The scheme was put to the meeting and the result of the voting was as follows:

Number of scheme members voting for the resolution	174
Number of scheme members voting against the resolution	25
Number of scheme members abstaining	Nil
Number of votes cast for the resolution, representing 90,1% of the total issued capital of the company	2 703 926
Number of votes cast against the resolution, representing 5,4% of the total issued capital	164 524
Garcon voted in favour of the resolution. Had it not voted the result of the voting would have been as follows:
Number of scheme members voting for the resolution	173
Number of scheme members voting against the resolution	25
Number of scheme members abstaining	Nil

Friedman J

Number of votes cast for the resolution	901 031
Number of votes cast against the resolution	164 524

There would thus have been 198 scheme members holding 1 065 555 scheme shares present in person or represented by proxy. This represents 35,5% of the scheme shares. The votes cast in favour of the resolution B represent 84,5% of the votes exercisable by the scheme members present and voting, either in person or by proxy at the meeting, whereas the votes against the resolution represent 15,4%.

The applicant now seeks an order sanctioning the scheme of arrangement. This is opposed by Mr Mia who has, in support of his opposition, filed an affidavit by Mr Pikholz and one by his wife who holds 5 000 shares in Garlick. At the commencement of the hearing of the C application, Mr Seligson, who with Mr Fitzgerald appeared for Jano, applied for leave to intervene in support of the application. The application by Jano for leave to intervene was not opposed and was granted.

Mr Shaw who, with Mr Jordaan, appeared for Mr Mia, advanced a number D of grounds on which he contended the Court should refuse to sanction the scheme. In summary, these were the following:

1.

The scheme is not an arrangement between the applicant and its members as required by s 311(1) of the Companies Act 1973.

2.

No valid meeting of applicant's members was held, due to the presence of Garcon, a member in a class different from applicant's E other members.

3.

Section 312(1)(a)(ii) of the Companies Act has not been complied with.

Mr Shaw argued that each of these constituted what he called a jurisdictional ground and that the upholding of any one of them was fatal to the application. He argued further that there were in any event F a number of grounds on which the Court should, in the exercise of its discretion, dismiss the application. These so-called discretionary grounds are the following:

1.

The possibility of Mr Mia's appeal being allowed.

2.

The scheme is directed to an object, ie the acquisition by one G member of all the shares of other members, which is not directly attainable under s 311 of the Act.

3.

The fact that Garcon, a subsidiary of Jano, voted in favour of the scheme.

4.

The purpose of the scheme, which is vague and ill-defined, could be H attained without Jano having complete control.

5.

The unsatisfactory state of the valuations of the shares.

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