Ex parte Nbsa Centre Ltd

• Jurisdiction: South Africa
• Judge: Coetzee DJP, Goldstone J and Gordon AJ
• Judgment Date: 14 November 1986
• Court: Transvaal Provincial Division
• Hearing Date: 20 August 1986
• Citation: 1987 (2) SA 783 (T)

Coetsee DJP:

The applicant applied for leave to convene H meetings of classes of its shareholders to consider a proposed scheme of arrangement in terms of s 311 of the Companies Act 61 of 1973 ('the Act'). After hearing argument, the application was granted and we indicated that full reasons would follow. These are the reasons.

I propose to deal with the legal questions first. These concern I mainly the position where shares of a class of shareholders are to be cancelled against payment therefor by the company; in other words a typical expropriation or a kind of compulsory purchase by either the company or a third person. Can that be regarded as 'arrangement' within the meaning of s 311 of the Act?

To this question different answers have recently been given. In J this Division (Ex parte Satbel (Edms) Bpk: In re Meyer en Andere v Satbel

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(Edms) Bpk 1984 (4) SA 347 (T) (Per Coetzee J) - 'Satbel' A - and Ex parte Natal Coal Exploration Co Ltd 1985 (4) SA 279 (W) (per Stegmann J) - 'Natal Coal') the answer was in the negative. In the Cape Provincial Division (Ex parte Suiderland Development Corporation; Ex parte KaapKunene Beleggings Bpk 1986 (2) SA 442 (C) (per Van der Heever J) - 'Suiderland') B Satbel and Natal Coal were not approved and not followed.

Because of this divergence of judicial opinion, it seemed to me appropriate to direct, in terms of s 13(1)(a) of the Supreme Court Act 59 of 1959, that this matter, in which it was intimated that the same problem might arise, be heard by a Full Court of three Judges; the more so as the applicant had indicated that it wished to attack the correctness of Satbel and Natal Coal as it was felt that these decisions might C possibly sink the arrangement now proposed. It is undesirable that it should be possible to have a particular type of arrangement in Cape Town but not in Johannesburg. A Full Court can reconsider, de novo, this question fully, untrammelled by any of the limitations imposed by stare decisis. And in the case of Satbel, I have moreover the personal advantage of being D able to deal with it forthright without having to be too respectful about its possible imperfections. Under these circumstances it is advisable to deal with these decisions and the relevant principles more fully than I would otherwise have been inclined to do.

Whether a particular scheme qualifies as an 'arrangement' within the meaning of s 311 of the Companies Act can be vexing. E Ever since the enactment of this section's primal ancestor in 1870, the Joint Stock Companies Arrangement Act (33 and 34 Vic Ch 104), problems have arisen in this respect. By 1892 already it was said that this provision was constantly utilised, and often very 'carelessly and unjustly' (per Bowen LJ in Sovereign F Life Insurance Co v Dodd [1892] 2 QB 573 at 584). Nevertheless, and possibly for good reason, 'arrangement' has never been defined, otherwise than inclusively, in subsequent Companies Acts.

I believe that one's general approach to company law may exercise a subtle influence on one's perception of many of its concepts and the meaning of much of its well-worn phraseology. Company law is much more than the current statute which applies G at any particular point in time. Like every other statute which regulates comprehensively some field of human activity, it has its own inner logic which requires to be identified and mastered. In addition it has developed in a number of areas what might be termed, for want of a more suitable expression, its own inner common law which is not to be found in any H specifically identifiable provision. There are a number of such areas. The director-company-member relationship and resultant fiduciary duties of a director and the rule in Foss v Harbottle come to mind. Other examples which are presently pertinent are the rule against the acquisition or purchase of its own shares by a company and, of course, compromises and I arrangements. Particularly to these areas, would Gower's observation about company law (in the preface to the first edition of his well-known work) apply - that one should view its underlying principles in their historic and economic context rather than as a collection of statutory provisions. I should think that it follows that where one deals with problems of construction in these areas, one should be careful not to J treat the Act, as one would for instance

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A the Criminal Procedure Act, by simply rushing for dictionaries, or applying simple rules such as noscitur a sociis with undue alacrity. As pointed out by Salmon LJ in Hollier v Rambler Motors (AMC) Ltd [1972] 1 All ER 399 (CA) at 406, ignoring that rules of construction are merely our guides and not our masters could turn that branch of the law which is B under investigation into something entirely superficial. (Quoted with approval in Government of the RSA v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A).) In respect of an ordinary uncomplicated English word for instance, Lord Kilbrandon said in Brutus v Cozens [1972] 2 All ER 1297 (HL) at 1303h - j:

'I did not myself find the quotation of dictionary definitions C helpful, as it might perhaps have been had the question been whether, the justices having convicted, there is any accepted meaning of the word "insulting" which they might be said legitimately to have adopted in coming to their conclusion. But "insulting" is an ordinary uncomplicated English word. Boswell defends Dr Johnson, to whose work we were referred, against a charge of obscurity in his definitions, by quoting from the preface to the dictionary:

"To explain, requires the use of terms less abstruse than that which is to be explained, and such terms cannot always D be found.... The easiest word, whatever it may be, can never be translated into one more easy".'

Another such an ordinary uncomplicated word to which Dr Johnson's observation applies is, probably, 'arrangement'. No dictionary, Judge or textbook writer has succeeded in explaining it or defining it in less abstruse terms. Laying E dictionaries aside for the moment I propose to deal with s 311 rather in its historic context, in its economic context and above all in the context of the inner logic of the Companies Act and company law.

The origin and raison d'être of this provision is illuminating. The heading of the Joint Stock Companies Arrangement Act 1870 F (33 and 34 Vic Ch 104) reads 'An act to facilitate compromises and arrangements between creditors and companies in liquidation' (my italics). It contains virtually a single section reading as follows:

'Where any compromise or arrangement shall be proposed between a company which is at the time of the passing of this Act or afterwards in the course of being wound up, either voluntarily or by or under the supervision of the Court, under the G Companies' Act 1862 and 1867, or either of them, and the creditors of such company or any class of such creditors, it shall be lawful for the Court in addition to any other of its powers, on the application in a summary way of any creditor or the liquidator, to order that a meeting of such creditors or class of creditors shall be summoned in such manner as the Court shall direct, and if a majority number representing three fourths in value of such creditors or class of creditors present, either in person or by proxy at such meeting, shall agree to any arrangement or compromise, such arrangement or H compromise shall, if sanctioned by an order of the Court, be binding on all such creditors or class of creditors as the case may be and also on the liquidator and contributories of the said company.'

In In re Guardian Assurance Company [1917] 1 Ch 431 Younger J, in the Court a quo, described it subsequent history as follows:

'The section was there applicable only to compromises or I arrangements with creditors of a company, and then only if the company was in liquidation. In 1900, by s 24 of the Companies Act of that year, the earlier section was made applicable not only as between the company and the creditors or any class thereof, but as between the members or any class thereof and the company. The section still applied only when the company was in liquidation. In the year 1907, by s 38 of the Companies Act of that year, the Act of 1870 was made applicable whether the company was or was not in course of being wound up. Section J 120 of the new Act is merely are-enactment of s 2 of the Act of 1870 as so modified.

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Now, the limited purpose which the Legislature had in view in A making the section applicable to a going company not in liquidation was well understood at the time the Act of 1907 was passed. It was to render arrangements possible without liquidation in cases where the mere commencement of a winding up would involve a forfeiture of leases, concessions, contracts, and the like, arrangements which before the passing of that Act, if they were to be carried out at all, had to be effected by private Act of Parliament.

It would appear, therefore, that there is attached to the B section throughout its history the idea of some difficulty to be resolved by a compromise or arrangement of rights on one side or the other - a situation which before 1907 could only arise in a winding up, and after 1907 would still naturally so arise except in a case where paramount considerations against liquidation were present.'

(My italics.)

It is generally accepted that the section which had by 1907 C substantially evolved into its present form was necessary for practical reasons. It is difficult and at times impossible to negotiate individually with large classes of persons where the agreement of all of them individually is necessary to a proposal which is binding on them and the company. As Younger J D puts it supra at 441:

'Its purpose is strictly limited: it does not confer powers; its only effect at any...