How are offers for minority securities enforced in corporate law?

• Jurisdiction: South Africa
• Citation: (2017) 3(2) JCCL&P 52
• Pages: 52-78
• Author: Paul Nkoane
• Date: 16 August 2019
• Published date: 16 August 2019

52

HOW ARE OFFERS FOR MINORITY

SECURITIES ENFORCED IN

CORPORATE LAW?

PAUL NKOANE

Lecturer, College of Law (Department of Criminal and Procedural Law)

University of South Africa

ABSTRACT

The topic of enforcement of offers for minority securities is somewhat

novel to South African law. This article is intended to evaluate the

mechanics which may be employed to ensure that offers for minority

securities are fulfilled. The previous statutes contained certain

measures regarding takeovers and mergers that were intended to

enforce the Securities Regulation Code. The measures contained in

this Code were wide enough to apply to numerous scenarios, including

cases where there was general non-compliance with the Code or

where there was failure to acquire minority securities. Conversely,

the Companies Regulations of 2011 contain rules relating to the

parties’ compliance with the requirements during acquisition, but

without rules created to secure compliance post initial acquisition. As

such, minorities may not have measures available to them to enforce

their rights. However, the Companies Act 71 of 2008 specifies that

courts may apply the common law to enforce the same legislation.

The common–law measures that can be applied where the takeover

rules are breached, are contained in the Securities Regulation Code

on takeovers and mergers. Therefore, it is essential to evaluate

whether the measures contained in the Securities Regulation Code

on takeovers and mergers can be useful in forcing the defaulter to

render adequate performance to minorities.

I INTRODUCTION

The evolution of company law has changed the landscape of corporate

governance. Some exciting new provisions have been ushered in,

while some of the past provisions have been slightly adjusted. These

changes have encouraged commentators to give their opinions about

what the changes signify.1 The Companies Act 71 of 2008 (‘2008

1 See FHI Cassim ‘The Companies Act 2008: An overview of a few of its core

provisions’ (2010) 22 SA Merc LJ 157.

(2017) 3(2) JCCL&P 52

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53

HOW ARE OFFERS FOR MINORITY SECURITIES ENFORCED IN

CORPORATE LAW?

Companies Act’) and the Companies Regulations of 2011 contain

provisions on offers that are slightly different from those contained

in the Securities Regulation Code on takeovers and mergers (‘the

Code’).2 The Code provided certain measures that were intended to

enforce offers for minority securities. However, this trend has not

been continued, as the 2008 Companies Act has been deprived of a

regime for enforcement of offers.3 This article is concerned with the

manner in which offers could be enforced in corporate law.

The rule that the offeror must make an offer for minority securities

is, for the most part, aimed at conferring protection on minority

shareholders in cases where the change of control in a regulated

company4 is imminent.5 The minority shareholders have the option

to either remain in the company, or to have their securities acquired by

the person who has acquired securities equal to or above the prescribed

percentages.6 According to the 2008 Companies Act, a person who

intends to acquire securities where a transaction is an affected

transaction7 has a duty to make offers for minority shareholding, if

2 See Chapter XVA of the Companies Act 61 of 1973, entitled ‘Regulation of

Securities’, but also known as the Securities Regulation Code on Takeovers

and Mergers. For purposes of this article, it will be referred to as the ‘Securities

Regulation Code’ or simply ‘the Code’.

3 There are no specific enforcement provisions for offers in the 2008 Compa-

nies Act.

4 Section 118(1) of the 2008 Companies Act defines ‘regulated company’ as ‘a

profit company or its securities if the company is — (a) a public company; (b)

a state–owned company, except to the extent that any such company has been

exempted in terms of s 9; or (c) a private company, but only if — (i) the percentage

of the issued securities of that company that have been transferred, other than

by transfer between or among related or interrelated persons, within the period

of 24 months immediately before the date of a particular affected transaction

or offer exceeds the percentage prescribed in terms of subsection (2); or (ii)

the Memorandum of Incorporation of that company expressly provides that

the company and its securities are subject to this Part, Part C and the Takeover

Regulations, irrespective of whether the company falls within the criteria set out

in subparagraph (i). (2) The Minister, after consulting the Panel, may prescribe

a minimum percentage, being not less than 10%, of the issued securities of a

private company which, if transferred within a 24–month period as contemplated

in subsection (1)(c)(i), would bring that company and its securities within the

application of this Part, Part C, and the Takeover Regulations in terms of that

subsection’.

5 See Stephanie Luiz ‘Recent developments in corporate law: Part 2’ (2000) 12 SA

Merc LJ 13 at 18–9.

6 The prescribed percentage for mandatory offers is 35 per cent, and compulsory

acquisition has to be made where an offeror has acquired securities amounting

to 90 per cent of the relevant securities, and where minorities wish to have their

securities acquired.

7 Section 117(1)(c) of the 2008 Companies Act. History enthusiasts may also

consult SM Luiz ‘Some comments on the definition of an “affected transaction”

in the Companies Act’ (2004) 16 SA Merc LJ 1, for a detailed discussion of this

issue in relation to the old Companies Act.

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