A critical analysis of the continued preference displayed towards schemes of arrangement in South Africa

• Jurisdiction: South Africa
• Published date: 16 August 2019
• Citation: (2016) 2(2) JCCL&P 77
• Date: 16 August 2019
• Author: Jess Caitlyn Cameron
• Pages: 77-87

77

A CRITICAL ANALYSIS OF THE

CONTINUED PREFERENCE

DISPLAYED TOWARDS SCHEMES OF

ARRANGEMENT IN SOUTH AFRICA*

JESS CAITLYN CAMERON†

Associate, Cliffe Dekker Hofmeyr Attorneys Inc.

ABSTRACT

Ever since the introduction of the merger and amalgamation

provision on 1 May 2011 by the South African Companies Act,

2008, public companies continue to sidestep this new mechanism

as a means for effecting a takeover and, instead, continue to prefer

the scheme of arrangement. There are a number of reasons why the

continued use of the scheme of arrangement may be justified and

this article investigates the plausibility of those reasons.

Key terms: schemes of arrangement, merger and amalgamation,

securities, creditors

I INTRODUCTION

One of the key intentions of the new Companies Act 71 of 2008

(the new Companies Act) was to ‘facilitate the creation of business

combinations … provide flexibility and enhance efficiency in the

economy’.1 This intention was manifested in chapter 5 of the new

Companies Act, which not only presented significant changes to the

existing procedures surrounding schemes of arrangement, sales of

businesses and tender offers, but also introduced a new amalgamation

or merger mechanism. The adoption of a statutory merger mechanism

has brought South Africa in line with foreign jurisdictions such as

the United States, Canada and New Zealand and it was anticipated

that, as has been the case in the aforesaid foreign jurisdictions, this

new mechanism would become the favoured tool amongst corporate

practitioners operating within the mergers and acquisitions (M&A)

arena. Yet, if we examine the South African corporate landscape in

* This article was previously submitted in partial fulfilment of the degree of LLM at

the University of the Witwatersrand.

† BCom Law, LLB (UP).

1 Memorandum on the Objects of the Companies Bill, 2008 paras 1.2.3(d) and 9.

(2016) 2(2) JCCL&P 77

© Juta and Company (Pty) Ltd