Dissenting minority shareholders' appraisal rights : reappraising the appraisal remedy in section 164 of the Companies Act 71 2008

• Jurisdiction: South Africa
• Author: Milton Seligson
• DOI: 10.10520/EJC198525
• Published date: 01 December 2016
• Date: 01 December 2016
• Pages: 1-12
• Published By: Siber Ink

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© SIBER INK

Dissenting Minority

Shareholders’ Appraisal Rights:

REAPPRAISING THE APPRAISAL REMEDY IN

SECTION 164 OF THE COMPANIES ACT 71 OF

2008

MILTON SELIGSON SC*

ABSTRACT

A recent report in Business Day dealt with a dissenting minority shareholder

who had invoked what was described as an ‘obscure’ and ‘little-used’ section

of the Companies Act (viz section 164 of the Companies Act 71 of 2008), in

applying to court for a determination of the fair value of his KWV shares after

the sale of the company’s operational assets.

Prompted by that report and by the limited use that has been made of this

important provision and the absence of any reported decisions applying it,

the present article seeks to investigate more closely the scope and purpose

of section 164.

The article initially discusses the purpose of section 164, which is essen-

tially to provide an appraisal remedy to dissenting minority shareholders, by

allowing them to realise their investment and exit the company at a fair value,

which is mutually agreed with the company, or fixed by the court if the share-

holder is dissatisfied with the company’s fair valuation of the shares.

The article then explores the detailed provisions of section 164, which has

21 sub-sections, and the requirements that a dissenting shareholder must

satisfy before the appraisal remedy can be invoked. The remedy is triggered

onlyw if a company gives notice to its shareholders of a meeting to consider

the adoption of a resolution —

(a) to amend its Memorandum of Incorporation by altering the preferences,

rights, limitations or other terms of any class of its shares in a manner

materially adverse to the rights and interests of holders of that class; or

(b) to enter into a fundamental transaction contemplated in sections 112

(proposals to dispose of all or the greater part of the assets or undertak-

ings), 113 (proposals for amalgamation or merger) or 114 (proposals for

scheme of arrangement) of the Act.

A dissenting shareholder seeking to invoke the appraisal remedy is obliged to

follow precisely the correct procedure and time limits laid down in the section.

These include objecting to the resolution, voting against it and, after the

adoption of the resolution, making a demand for payment by the company

of the fair value of the dissenting shareholder’s shares. The company is there-

upon obliged to make an offer in respect of such shares which the directors

consider to be their fair value. Such offers may be accepted by the dissenting

shareholder. A dissenting shareholder who is dissatisfied with the company’s

offer, however, may apply to a court to determine the fair value of the shares.

There are rules governing such an application to court and the company to

*Member, Cape Bar.