Redemption versus repurchase of shares : further observations

• Date: 01 December 2018
• Published date: 01 December 2018
• DOI: 10.10520/EJC-134849dbe6
• Pages: 7-12
• Author: Albertus Marais
• Record Number: btclq_v9_n4_a3

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© Siber ink

Redemption versus

Repurchase of Shares:

FURTHER OBSERVATIONS

ALBERTUS MARAIS*

ABSTRACT

In ITC 1859 74 SATC 213 Coppin J considered whether a share redemp-

tion amounts to a transfer of rights from a shareholder to the share issuing

company. Ever since the obiter comments made in that case on the position of

share repurchase (as opposed to a redemption), there has been much specu-

lation whether a share buyback strictly speaking involves the transfer of rights

from a shareholder back to a company.

The June 2018 Edition of the BTCLQ sought to reignite that debate. This

article adds further comments to the subject, and explores whether a share

redemption and share buyback achieve different results. The conclusion is

that, while the process to achieve a share buyback vis-à-vis a redemption

differs, the effect of both is the same. In neither instance is there a disposal

of rights by the shareholder ‘to’ the company. This is because a shareholder

holds personal rights against the company (embodied collectively by the

share held) as opposed to real rights. Personal rights, while being transfer-

able, are not transmissible.

It is interesting that the Companies Act 71 of 2008, while prescribing the

process to be followed, is silent on when shares will be considered to be

‘repurchased’ as opposed to being redeemed. This article ventures to suggest

what the difference between a redemption and a repurchase is.

Introduction

This journal considered in its June 2018 edition the differences between

a redemption of shares vis-à-vis a share buy-back.1 It was concluded that

there is a distinct difference between a redemption of shares on the one

hand, and a buyback of shares on the other. As authority for this proposi-

tion it cites the fact that section 48 of the Companies Act,2 which deals

with share repurchases, expressly excludes from its ambit share redemp-

tions. It further refers to the example of BCR044 which suggests that SARS

agrees that such a distinction exists.3

1

* Director: AJM Tax.

Nortje, L., ‘Hybrid Equity Instruments: Redemption versus Repurchase’ BTCLQ

9(2) at 9.

2

71 of 2008.

3

Nortje above.