A critical analysis of the new South African takeover laws as proposed under the Companies Act 71 of 2008
| Jurisdiction | South Africa |
| Pages | 306-336 |
| Published date | 15 August 2019 |
| Date | 15 August 2019 |
| Author | Nigel Boardman |
A critical analysis of the new South African
takeover laws as proposed under the
Companies Act 71 of 2008
NIGEL BOARDMAN*
This chapter analyses in detail the provisions of the Companies Act 71 of 2008
relating to business acquisitions, schemes of arrangement (insofar as they relate
to takeovers) and takeover offers. In so doing, it compares the new provisions
against, first, the pre-existing South African law, second, the comparable
provisions in the United Kingdom, and third, where points of interest arise,
the comparable provisions in the United States and Australia. The chapter
highlights where such takeover laws diverge and explores the reason for such
divergence, focusing on the interaction between two principal objectives of
takeover law, the protection of stakeholders’interests and the enhancement of
the market for corporate control, and suggests that divergence can largely be
explained contextually by considering the particular markets and the particular
composition and expectations of the market users. The chapter finds that the
new South African provisions progress significantly from the pre-existing
South African law, and that such progression has been effected by absorbing
and adapting elements from the laws of the UK, in particular, but also, where
appropriate, Australia and the United States. It notes that such absorption
should improve efficiency and so encourage investment, as well as align South
Africa’s corporate takeover laws with other developed corporate law regimes.
Finally, the chapter argues that adaptation, where material, largely derives
from South Africa’s particular social, political and economic context, its
market and its market-users, and reflects the utmost importance of stakeholder
protection, and in particular minority shareholder protection.
I INTRODUCTION
There are three methods of obtaining control of a company (or substan-
tially the whole of a company’s assets) under the South African Compa-
nies Act 61 of 1973 (the 1973 Act): business acquisition,
1
scheme of
arrangement
2
and takeover offer.
3
The biggest single change proposed by the Companies Act 71 of 2008
(the new Act), in the context of takeovers, is the introduction of a
US-style merger takeover method into South African law.
4
This is
* Partner, Slaughter and May,London and Member of the International Reference Team
for Company Law Reform in SouthAfrica.
1
Section 228 of the 1973Act.
2
Section 311 of the 1973Act.
3
Sections 440Ato 440N of the 1973 Act.
4
Section 113 of the newAct.
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2010 Acta Juridica 306
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considered in detail in the chapter by Ezra Davids, Trevor Norwitz and
David Yuill and will not be further considered here.
The Act also proposes significant changes to, as well as more subtle
polishing of, the three existing methods of obtaining control of a
company under the 1973 Act.
5
In order to explore the new provisions,
this chapter considers the provisions of the new Act in the context of the
existing South African takeover laws. This chapter also analyses the
provisions of the new Act against the comparable provisions in the UK, in
the first instance, and also against the comparable provisions in the USA
and Australia, where points of particular interest arise. This analysis shows
where South Africa’s proposed takeover laws will stand in relation to the
laws of three other corporate law regimes.
In addition, this chapter considers whether the takeover provisions in
the new Act are consistent with the South African Department of Trade
and Industry’s published objectives for the corporate law reform (a) to
protect stakeholders’ interests through enlightened shareholder value; (b)
to make the South African regime more compatible with the corporate
laws of its major trading partners or other developed corporate law
regimes; and (c) to encourage investment by making companies more
efficient and by encouraging transparency and accountability.
6
II BUSINESS DISPOSAL AND ACQUISITION
(1) The Act
(a) General rule
The Act provides that (subject to the exceptions discussed below) no
company may dispose of all (or the greater part) of its assets or undertaking
unless (a) the disposal has been approved by a special resolution of
shareholders and (b) the company has satisfied a number of other (largely
procedural) requirements (to the extent applicable).
7
In practice, this
means that relevant asset disposals must be approved by shareholders of
the disposing company who together hold at least 75 per cent of the
voting rights exercised on the resolution at a meeting at which sufficient
persons are present to exercise, in aggregate, at least 25 per cent of the
voting rights that are entitled to be exercised on the matter.
8
Although ‘greater part’ is undefined in the new Act, it implies assets
representing over half of the company. The construction is likely to be a
5
Sections 112 to 127 of the newAct, discussed in detail below.
6
South African Government Gazette Notice 1183 of 2004 South African Company Law for the
21st Century: Guidelines for Corporate Law Reform (May 2004).
7
Section 112(2) of the newAct. The procedural requirements in ss 112 and 115 of the new
Act, the latter of which are also relevant to schemes of arrangement, are considered in (b),
immediately below.
8
Section 115(1) and (2)(a) of the newAct.
307THE NEW SOUTH AFRICAN TAKEOVER LAWS
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