How are offers for minority securities enforced in corporate law?

JurisdictionSouth Africa
Citation(2017) 3(2) JCCL&P 52
AuthorPaul Nkoane
Date16 August 2019
Published date16 August 2019
Lecturer, College of Law (Department of Criminal and Procedural Law)
University of South Africa
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.
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
© Juta and Company (Pty) Ltd
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
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.
© Juta and Company (Pty) Ltd

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