Analyses: The Shareholder Vote Exemption for Disposal of all or a greater Part of the Assets of the Holding Company

• Jurisdiction: South Africa
• Date: 20 August 2019
• Author: Tshepo Herbert Mongalo
• Published date: 20 August 2019
• Pages: 515-526
• Citation: (2017) 29 SA Merc LJ 515

Analyses

THE SHAREHOLDER VOTE EXEMPTION

FOR DISPOSAL OF ALL OR A GREATER PART

OF THE ASSETS OF THE HOLDING

COMPANY

TSHEPO HERBERT MONGALO

Monash South Africa and Wits Business School

I INTRODUCTION

The exemption of the disposal of all or greater part of the assets of a

company or undertaking from approval requirements set out in

sections 112(2) and 115 of the Companies Act 71 of 2008 (the Act) when

the transaction is between a holding company and its wholly-owned

subsidiary requires analysis (s 112(1)(b) of the Act). This analysis

investigates whether the reference to the elements of ‘holding’ or

‘control’ of issued securities within the def‌inition of a wholly-owned

subsidiary in terms of section 3(1)(b) of the Act, envisages that a holding

company should take steps to ensure the retention of control of the

subsidiary for the transaction to qualify for an exemption in terms of

section 112(1)(b) and (c) of the Act. In this regard, the analysis seeks to

determine whether the holding company’s sole ownership or control of

the subsidiary on the day of the ‘drop-down’ transaction is suff‌icient, or

whether additional steps should be taken to demonstrate the holding

company’s continued ‘control’ (through ownership or otherwise) over

its wholly-owned subsidiary subsequent to the ‘drop-down’ transaction.

The analysis also seeks to determine whether the failure to take steps in

advance to prevent the subsequent loss of control in the subsidiary

might support a conclusion that the relevant holding company did not

in fact control the subsidiary concerned on the day of the drop-down.

Thus, the exemption from approval requirements would not apply for

the drop-down in question.

The natural starting point in the discussion of this topic is section

112(2) of the Act, which provides that ‘[a]company may not dispose of

all or the greater part of its assets or undertaking unless...the disposal has

been approved by a special resolution of the shareholders, in accordance

515

(2017) 29 SA Merc LJ 515

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