Peters and Others NNO v Schoeman and Others

• Jurisdiction: South Africa
• Judge: Hefer ADCJ, F H Grosskopf JA, Marais JA, Schutz JA and Mpati AJA
• Judgment Date: 10 November 2000
• Citation: 2001 (1) SA 872 (SCA)
• Docket Number: 288/98
• Hearing Date: 11 September 2000
• Counsel: M A Kriegler for the appellants P G Cilliers for the respondents
• Court: Supreme Court of Appeal

Mpati AJA: B

[1] The main question in this appeal is whether a written deed of sale concluded in 1997 is hit by s 38 of the Companies Act 61 of 1973 (the Act) which prohibits the rendering by a company of any financial assistance for the purpose of or in connection with a purchase of its shares. The appellants acted as trustees for two family C trusts, which were the sellers. Roux J, sitting in the Transvaal Provincial Division, concluded that the parties had failed to avoid the operation of the section, indeed that their attempts to do so amounted to mere camouflage. Consequently he refused the appellants' claim for an order that the respondents comply with their obligations as D buyers, particularly to pay the final instalment of the price. Subsequently Roux J granted leave to appeal to this Court.

Section 38(1) provides:

'(1) No company shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection E with a purchase or subscription made or to be made by any person of or for any shares of the company, or where the company is a subsidiary company, of its holding company.'

[2] The company (Carpe Diem Properties (Pty) Ltd) owned immovable property in Mpumalanga. Had the immovable property of the F company been mortgaged to provide financial assistance to enable the respondents to pay the price or any part of it for the shares in the company, there would have been a clear contravention of s 38. The conversion of the company into a close corporation by the trusts, followed by the giving of financial assistance by the close corporation in order to enable the respondents to pay for the members' G interest so created, would not have offended against s 38. By contrast with the Companies Act, s 40 of the Close Corporations Act 69 of 1984 (the Close Corporations Act) allows a close corporation to give financial assistance for the purpose of the acquisition of a member's interest. But here there was another impediment. Section 27 of the H Close Corporations Act requires every member of a company which is to be converted to a close corporation to be a member of the corporation, while s 29(1) provides that only natural persons may be members of a corporation. The members of the company were the trusts which each owned 50% of the shares. They were not qualified to become members of the close corporation. The parties were quite frank about their I problems and their proposed solution, as the preamble to the deed of sale, contained the following:

'2.1

The purchasers are prohibited by law from purchasing the shares in the company.

2.2

The sellers may not convert the company to a close corporation and hold a members' interest therein as they are not natural persons. J

Mpati AJA

2.3

To facilitate this transaction the sellers have agreed to A transfer the shares to the purchasers on the terms set out hereunder and thereafter to convert the company to the close corporation.

2.4

After conversion of the company to the close corporation the mortgage bond will be registered and the purchase price for the members' interest paid to the sellers.'

[3] The manner in which the parties gave effect to the B purpose just stated was the following: The purchase price of R1 000 000 was payable by means of an initial deposit of R100 000, a further deposit of R450 000 within 10 days of signature (clause 6.2), and by the utilisation of a bank loan of R450 000 to repay the sellers' loans totalling R250 000, and to pay the sellers R200 000 in settlement of the buyers' remaining indebtedness on the price. C Clause 3.1 provided that after the first...