Re-Acquisition by a Company of Own Issued Shares under Sections 48 and 114(1) of the Companies Act 71 of 2008: A Critical Assessment through Capprec
Author | Bidie, S.S. |
DOI | https://doi.org/10.47348/SAMLJ/v34/i1a3 |
Published date | 24 October 2022 |
Date | 24 October 2022 |
Citation | (2022) 34 SA Merc LJ 52 |
Pages | 52-87 |
RE-ACQUISITION BY A COMPANY OF OWN
ISSUED SHARES UNDER SECTIONS 48 AND
114(1) OF THE COMPANIES ACT 71 OF 2008:
A CRITICAL ASSESSMENT THROUGH
CAPPREC
SIMPHIWE S. BIDIE*
Senior Lecturer, Nelson R. Mandela School of Law, University of Fort Hare
Abstract
Since the Companies Act 2008 came into being, there has been no clear
direction regarding the interpretation to be given to the provisions
regulating buy-back transactions. Recently, the provisions finally
received some concrete attention in the judgment of Windell J in First
National Nominees (Pty) Limited v Capital Appreciation Limited
(Capprec). The judgment is important because it has since provided a
measure of clarity on the potent interdependence between sections 48
and 114 of the 2008 Act, and how these must be interpreted. What is of
interest is how Windell J set out and interpreted the operation and
interdependence between section 48(2)(a), section 48(8)(b) and
section 114 of the 2008 Act. Overall, the arguments from both parties
in Capprec presented Windell J with a solid foundation that enabled
the court to proffer a succinct and illuminating direction on the
interpretation and operation of the provisions. This article attempts to
extricate whether the course Windell J adopted in her judgment is
consistent with what the 2008 Act contemplates, and if not, what
would have been the appropriate course to take. The article
demonstrates that Windell J did not seize the opportunity to
thoroughly engage with section 114(1)(e) regulating buy-back schemes
of arrangement and to ascertain what a scheme entails. This is despite
the fact that in Capprec both parties’ arguments were underpinned by
whether or not the proposed arrangement was a scheme. In this regard,
Windell J’s approach is disappointing and is criticised because her
interpretation means that the provisions of the 2008 Act have still not
been clarified, although we have been waiting for 13 years for
clarification. This is an unnecessary oversight by the judge.
*LLB, LLM, LLD (UFH).
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© Juta and Company (Pty) Ltd
Keywords: share buy-backs; re-acquisition of own shares; buy-back schemes
of arrangement; minority shareholders
I INTRODUCTION
It is almost 22 years since South African companies have been statutorily
permitted to repurchase their own shares through the use of arrange-
ments and/or schemes.
1
Even before the statutory recognition of
buy-backs in the country, court judgments had shown that not only
South African companies were engaging in such arrangements, but
companies in other jurisdictions as well. These companies found it
useful to utilise these arrangements as a mechanism by which to
fundamentally re-organise and restructure their capital.
The latter instance is mirrored in what took place in First National
Nominees (Pty) Limited v Capital Appreciation Limited (Capprec).
2
In
this recent judgment on buy-backs, the applicants sought to assert their
statutory right to protection by invoking section 164 of the Companies
Act 71 of 2008 (Act 71 of 2008).
3
The main arguments by the
respondents were that the section did not apply because the proposed
arrangement was not a scheme of arrangement as contemplated under
section 114 of the 2008 Act, or as was understood in the authorities
related to the Companies Act 61 of 1973 (Act 61 of 1973). The res-
pondents submitted that although section 48(8)(b) of Act 71 of 2008
requires that the transaction be subject to the requirements of sections
114 and 115, that reference relates only to the procedural requirement.
The section does not deem a transaction that is not meant to create a
scheme into a transaction that creates one. Moreover, the exclusion of
section 164 was informed by the fact that section 48(8)(b) of Act 71 of
2008 only refers to sections 114 and 115 but does not refer to section 164.
Had the legislature intended that section 164 be triggered in the circum-
stances referred to in section 48(8)(b), this would have been made plain
within section 48.
4
Put differently, the respondent appeared to contend that section
48(8)(b) of Act 71 of 2008 suggests two available scenarios in a buy-back
1
The recognition began with the Companies Amendment Act 37 of 1999, amending the
Companies Act 61 of 1973.
2
First National Nominees (Pty) Ltd v Capital Appreciation Ltd [2021] ZAGPJHC 18
(‘Capprec’). In Juspoint Nominees (Pty) Ltd v Sovereign Food Investments Limited (BNS
Nominees (Pty) Ltd Intervening) [2016] ZAECPEHC 15, Stretch J did not analyse schemes to
any significant extent.
3
Also see the Companies Amendment Act 3 of 2011 (‘2011 Amendment Act’); and the
Companies Amendment Bill, 2019 [B–2019].
4
Capprec para 19.
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RE-ACQUISITION BY A COMPANY OF OWN ISSUED SHARE 53
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transaction: first, that the section caters for different types of transac-
tions even if all may exceed the 5 per cent threshold set by Act 71 of 2008
as the minimum; secondly, that these transactions would operate
differently even though their application is triggered by section 48(8)(b).
They would operate differently to the extent that companies may design
arrangements not as schemes, as opposed to those companies that may
design arrangements as schemes. If a transaction is not structured as a
scheme, then section 164 would not apply even though the section 114
and section 115 procedures would have been triggered. This line of
argument suggests that the intention that must be assessed is that of the
scheme creator. The respondent’s view was that reference by section
114(4) to section 48 distinguishes a ‘transaction contemplated’ in
section 114(1)(e) from a ‘transaction contemplated’ in section 48 — if it
did not, there would be no need for the inclusion of section 114(1)(e).
5
Furthermore, the respondents contended that in section 164(2)(b) of
Act 71 of 2008 the legislature only included repurchase transactions
contemplated in section 114 and did not include repurchase transac-
tions contemplated in section 48. This was so because section 48 deals
with the acquisition by a company of its own shares in a manner
different from section 114. In this regard, they submitted that section 48
deals with a consensual agreement between the company and the seller
of shares. So, section 48 would operate differently in that a re-acquisition
in terms of the section involves a voluntary seller. Section 114 deals with
a scheme of arrangement between the company and the holders of any
class of its shares in a manner contemplated in paragraphs (a) to (f) of
section 114(1), where, in all of these instances, there must be the
requirement of coercion. Thus, in terms of section 114, a re-acquisition
by the company of its securities is achieved through a ‘scheme’ and in
such an event, in terms of section 114(4), the provisions of section 48
apply.
The applicant’s simple argument was that the requirements of section
114 of Act 71 of 2008 were not made applicable to the transaction
because the transaction was a scheme of arrangement. They submitted
that the requirements of sections 114 and 115 of Act 71 of 2008 were
made applicable to the transaction because the transaction crosses the
5 per cent threshold for a purchase by the company of its own shares and
because that is what section 48(8)(b) provides. Thus, whether or not the
transaction is a scheme of arrangement as provided for in section 114(1)
is irrelevant because section 48(8)(b) of Act 71 of 2008 makes the
5
Capprec para 18.
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