Ex parte Nbsa Centre Ltd

• Jurisdiction: South Africa
• Citation: 1987 (2) SA 783 (T)

Ex parte Nbsa Centre Ltd
1987 (2) SA 783 (T)

1987 (2) SA p783

Citation	1987 (2) SA 783 (T)
Court	Transvaal Provincial Division
Judge	Coetzee DJP, Goldstone J and Gordon AJ
Heard	August 20, 1986
Judgment	November 14, 1986

Flynote : Sleutelwoorde

Company — Compromise — Scheme of arrangement in terms of s 311 of Companies Act 61 of 1973 — When scheme constituting 'arrangement' within the ambit of s 311 discussed — Scheme amounting to compulsory purchase of its shares by company resulting in reduction of capital illegal if done using F arrangement procedure under s 311 — The procedure under ss 83 — 89 must be used in such circumstances — Management company offering to purchase entire issued share capital of applicant company for cash amount per share — Consent of each shareholder required — Such constituting a scheme under G s 311 of the Act.

Headnote : Kopnota

Per Coetzee DJP, Gordon AJ concurring: Historically, an 'arrangement' within the meaning of s 311 of the Companies Act 61 of 1973 and its predecessors is the kind of re-arrangement of rights for which the individual assent of the member is a prerequisite, as opposed to one where a majority (or a particular majority) vote at a general meeting may result in a H binding variation of their general contractual relationships. And this is the very raison d'être of the scheme of arrangement procedure.

A scheme which is tantamount to a compulsory purchase of its shares by a company with the inevitable effect of a reduction of capital is illegal if done using the scheme of arrangement procedure. Proceedings for the reduction of capital have to be put into effect.

Accordingly, only a scheme or part of which necessitates the I invocation of s 311 is an arrangement, provided further that it is not illegal or ultra vires the company. A fortiori, any scheme or part of it in respect of which an exclusive procedure for its attainment is prescribed is not an arrangement. It can only be achieved by employing the prescribed machinery. Such a scheme is one which involves a reduction of capital where the applicable procedure under ss 83 - 89 of the Act must be followed. If one part of a scheme involves a reduction of capital and the other part is an arrangement as it necessitates J the invocation of s 311, the first part does not

1987 (2) SA p784

A thereby become an arrangement or part of an arrangement. To accomplish that legally, the reduction procedure must be resorted to and followed. Even if it is embodied in the scheme document which the Court sanctions as an arrangement, it does not thereby become an arrangement which has statutory or any force of law. It is a collateral matter which can only be dealt with as a condition precedent to the coming into force of the B arrangement, and its particular procedural requirements must be complied with. The Court has no jurisdiction to allow what is not an arrangement to be dealt with as an arrangement under s 311. It does not have the discretion to sanction such a scheme or to order scheme meetings. This does not affect ancillary terms of the arrangement.

Only an arrangement between the company and its members or creditors or a class thereof can be an arrangement. When members' shares are to be transferred to or are to be obtained by a third person or other members of the company, this C question arises. In every case it will have to be determined on a consideration of all the relevant aspects of the scheme and the surrounding facts whether it is such an arrangement between the company and its members or creditors.

A management company was in the process of acquiring the entire issued share capital in various property owning companies, one of which was the applicant company, in the course of the formation of a property fund in terms of the Unit Trusts Act. The management company had offered to acquire the shares in the D applicant company for a cash payment of 600 cents per share. The consent of each of the applicant's 150 shareholders was required for the proposed scheme to be effective. The applicant therefore applied for leave to convene meetings of classes of its shareholders to consider the proposed scheme in terms of s 311 of the Companies Act 61 of 1973.

Held (per Coetzee DJP, Gordon AJ concurring), that the totality E of the arrangement was prima facie one between the particular class of members and the company and fell, therefore, within the ambit of s 311.

Held, further (per Goldstone J), that since the scheme arranged rights as between the applicant and its shareholders, and since it was not contrary to the general law or ultra vires the company, it constituted an 'arrangement' within the ambit of s 311.

Held, accordingly, that the application should be granted.

The ratio decidendi in Ex parte Satbel (Edms) Bpk: In re Meyer F en Andere v Satbel (Edms) Bpk 1984 (4) SA 347 (T) overruled in part.

The ratio decidendi in Ex parte Natal Coal Exploration Co Ltd 1985 (4) SA 279 (T) overruled in part.

Case Information

Application for leave to convene a meeting in terms of s 311 of the Companies Act. The facts appear from the judgment of Coetzee DJP.

G S A Cilliers SC (with him S F Burger) for the applicant.

L I Goldblatt SC appeared amicus curiae.

[The Court granted the application on 20 August 1986 and filed the following reasons for judgment on 14 November 1986.]

Judgment

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

1987 (2) SA p785

Coetzee DJP

(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

1987 (2) SA p786

Coetzee DJP

A the Criminal...