Ex parte Garlick Ltd

• Jurisdiction: South Africa
• Citation: 1990 (4) SA 324 (C)

Ex parte Garlick Ltd
1990 (4) SA 324 (C)

1990 (4) SA p324

Citation	1990 (4) SA 324 (C)
Court	Cape Provincial Division
Judge	Friedman J
Heard	November 3, 1988; November 4, 1988; November 8, 1988; November 9, 1988; November 10, 1988
Judgment	November 17, 1988

Flynote : Sleutelwoorde G

Company — Compromise — Scheme of arrangement in terms of s 311 of H Companies Act 61 of 1973 — Scheme of arrangement between company and its shareholders — Whether scheme one which meets requirement that it be between company and its shareholders — Scheme whereby offeror-company was to acquire all issued ordinary shares of applicant not owned by offeror or its wholly-owned subsidiaries and their nominees I from shareholders in return for a cash sum for each share — Scheme involving a reconstruction of applicant's capital without which it could not be carried into effect — Scheme accordingly qualifying as an arrangement contemplated by s 311(1) of Act.

Company — Compromise — Scheme of arrangement in terms of s 311 of J Companies Act 61 of 1973 — Scheme of arrangement between

1990 (4) SA p325

A company and its shareholders — Meeting of members of company to consider scheme — Classes of shareholders for whom meetings to be convened — Determination of such classes to be made on basis of similarity or dissimilarity of rights and not of interests — Shareholder which was a subsidiary of offeror-company held to have B rights which were no different from those of other shareholders of applicant company, although its interests might differ from theirs, and therefore not a separate class of shareholder — Difference of interests a matter which Court can take into account in deciding whether it should in its discretion sanction the scheme.

C Company — Compromise — Scheme of arrangement in terms of s 311 of Companies Act 61 of 1973 — Scheme of arrangement between company and its shareholders — Meeting of members of company to consider scheme — Explanatory statement in terms of s 312(1)(a) of Act — Requirements for compliance with s 312(1)(a)(ii) set out.

D Company — Compromise — Scheme of arrangement in terms of s 311 of Companies Act 61 of 1973 — Scheme of arrangement between company and its shareholders — Sanction of by Court — Court, in exercising its discretion in terms of s 311(2), not bound to endorse majority view of shareholders expressed at meeting, but will attach weight to fact that large majority of shareholders satisfied with offer and accepted it — E But Court must be satisfied that scheme is one which, on its merits, ought to be made binding on all the shareholders.

Headnote : Kopnota

In an application for an order sanctioning a scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973, a shareholder of the F applicant company opposed the application on the ground that the scheme was not an arrangement between the applicant and its members as required by s 311(1) of the Act, it being contended that it was merely an arrangement in terms of which the offeror-company acquired all the shares in the applicant without the applicant being party to the arrangement. In terms of the offer, the offeror-company proposed to acquire, by way of a scheme of arrangement, all the issued ordinary shares of the applicant which were not owned by the offeror-company or G its wholly-owned subsidiaries and their nominees and the shareholders of the applicant would receive 1 370c in cash in respect of each existing ordinary share of the applicant. An analysis of the scheme showed that it involved a reconstruction of the applicant's capital, without which the scheme could not be carried into effect, and was therefore not merely an arrangement between the offeror-company and the shareholders of the applicant. The Court held, accordingly, that the scheme qualified H as an arrangement as contemplated by s 311(1) of the Act.

The Court held further, as to a contention that, as one of the shareholders attending the meeting of members of the applicant to consider the scheme of arrangement was a subsidiary company of the offeror-company, it was a different class of member from the other members of the applicant with interests which might differ from those of the other members and that separate meetings for the different classes of members should have been held, that the criterion of similarity or I dissimilarity of rights, as opposed to interests, was the basis for deciding whether separate meetings should be held. Accordingly, the fact that the shareholder in question was a subsidiary of the offeror-company with interests which might differ from those of other shareholders was a matter which the Court could take into account when it decided whether it should, in the exercise of its discretion, sanction the scheme, but as the rights of such shareholder were no different from those of other shareholders of the applicant, it did not constitute a separate class of J shareholder.

1990 (4) SA p326

A Dictum in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583 applied.

Borgelt v Millman NO and Another 1983 (1) SA 757 (C) applied.

Section 312(1)(a)(ii) of the Companies Act requires every notice summoning a meeting of members to consider the scheme of arrangement to be accompanied by a statement 'stating all relevant information material to the value of the shares... concerned in any arrangement'. The requirements for compliance with s 312(1)(a)(ii) can be summarised as B follows: Firstly, the statement 'must not be untrue in any material respect by reason of what is stated in or omitted from it'. Secondly, the explanatory statement should contain such information as would enable the recipient to understand the effect of the scheme so that he can come to a sensible decision on whether to accept or reject the offer. Thirdly, the materiality of a non-disclosure depends on whether disclosure of the information which was not disclosed or the accurate disclosure of information which was inaccurately disclosed would have C induced any shareholder to have voted otherwise than he did, or to have attended the meeting in order to vote against the scheme. Fourthly, the approach is not a technical one and the question is essentially one of whether there has been substantial compliance and whether any shortcomings in the explanatory statement have caused prejudice to the shareholders. Finally, if there is any deficiency in the explanatory statement, this will entitle the Court - depending on the circumstances and the materiality of the deficiency - to exercise its discretion D against sanctioning the scheme.

In exercising the discretion vested in the Court in terms of s 311(2) of the Companies Act to sanction a scheme of arrangement proposed in terms of s 311, the Court - although it will not consider itself bound to endorse the majority view of the members of the company expressed at the meeting to consider the scheme of arrangement - does attach weight to the fact that a large majority of shareholders is satisfied with the offer and accepted it. Nevertheless, the Court must ultimately be E satisfied that the scheme is one which, on its merits, ought to be made binding on all the shareholders.

Case Information

Application for an order sanctioning a scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973. The facts and the nature of F the opposition to the application appear from the reasons for judgment.

L S Kuschke (with him O L Rogers) for the applicant.

D J Shaw QC (with him S A Jordaan) for the opposing shareholder.

M Seligson SC (with him M J Fitzgerald) for the intervening party (the offeror).

Cur adv vult.

Postea (10 November 1988).

Judgment

Friedman J:

G This is an application for an order sanctioning a scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973.

H On 31 August 1988 this Court granted the applicant, Garlick Ltd ('Garlick') leave to convene a meeting of its shareholders to consider an offer made by Jano Retail Holdings (Pty) Ltd ('Jano') in terms of s 311 of the Companies Act. The offer was one in terms of which Jano proposed to acquire, by way of a scheme of arrangement, all the issued ordinary shares of Garlick which were not owned by it (Jano) or its I wholly-owned subsidiaries and their nominees. In terms of the scheme, shareholders would receive 1 330c in cash in respect of each existing Garlick ordinary share.

Garlick has an authorised capital of R7 million consisting of 4 000 000 ordinary shares of R1 each and 1 500 000 5% cumulative preference shares of R2 each. Of these 3 000 000 ordinary shares of R1 J each and

1990 (4) SA p327

Friedman J

A 1 000 000 5% cumulative preference shares have been issued and fully paid. The issued ordinary and preference shares of Garlick are listed on the Johannesburg Stock Exchange.

Jano is the beneficial owner of 100 ordinary shares in Garlick but holds no preference shares.

In order to appreciate the issues which arise in the present B application it is necessary to explain briefly how the shares in Garlick were held at the time when the Jano scheme was proposed and to summarise some of the events which preceded this application.

At all relevant times 60,1% of the ordinary issued shares in Garlick were held by a company called Garlick Consolidated Ltd ('Garcon'). C Garcon is a subsidiary but not a wholly owned subsidiary of Jano.

When Jano decided to propose the present scheme to the shareholders of Garlick, it considered it desirable, seeing that Garcon held 60,1 of the shares which Jano wished to acquire, to obtain a commitment from Garcon before formally proposing the scheme to the balance of the shareholders.

Jano accordingly put its proposals to the board of Garcon. The board D of Garcon decided to call a general meeting of shareholders so that the latter could decide either to...