A reflective assessment of selected problematic aspects of South Africa’s appraisal remedy regime against the Backdrop of Cilliers v La Concorde Holdings Ltd

• Jurisdiction: South Africa
• Author: Mudzamiri, J.
• Pages: 389-406
• Date: 10 June 2021
• Published date: 10 June 2021
• DOI: https://doi.org/10.47348/SAMLJ/v32/i3a4

A REFLECTIVE ASSESSMENT OF SELECTED

PROBLEMATIC ASPECTS OF SOUTH

AFRICA’S APPRAISAL REMEDY REGIME

AGAINST THE BACKDROP OF CILLIERS v LA

CONCORDE HOLDINGS LTD

JMUDZAMIRI*

LLD candidate, Nelson R Mandela School of Law, University of Fort Hare

PC OSODE**

Professor of Commercial Law and Regulation,

Nelson R Mandela School of Law, University of Fort Hare

Abstract

Several policy rationales have been offered as justifications for the new

appraisal remedy, including its functioning as a credible exit vehicle for

disgruntled shareholders upon receipt of payment of a ‘fair value’ for

their shares. However, against the backdrop of the High Court decision

in Cilliers v LA Concorde Holdings Ltd, this article explores two

problematic issues regarding the practical application of the appraisal

remedy. The first issue relates to who may access the remedy, while the

second relates to the complexity, costs, and rigidity of the procedure

that must be followed to access successfully the inherent benefits of the

appraisal remedy. The paper argues, in the first instance, that the

court’s decision in Cilliers to allow disgruntled shareholders in a

holding company to access appraisal rights in relation to a subsidiary is

salutary; and, secondly, that the complexity, costs, and rigidity of the

appraisal procedure can be alleviated through the revision of some of

the underlying statutory provisions.

I INTRODUCTION

One of the innovations for which the Companies Act is applauded is the

introduction of a new shareholder right into South African company law

popularly known as the appraisal remedy.

1

This remedy can be accessed

*LLB (UFH) LLM (UJ).

** LLB (Jos) BL (Nig) LLM (Lagos) SJD (Toronto).

1

Section 164 of the Companies Act 71 of 2008 (‘the Act’).

389 https://doi.org/10.47348/SAMLJ/v32/i3a4

(2020) 32 SA Merc LJ 389

© Juta and Company (Pty) Ltd

by dissenting shareholders only upon the occurrence of specif‌ic

triggering events.

2

Shareholders who oppose the taking of certain

specif‌ic corporate actions can invoke the appraisal remedy: the amend-

ment of the Memorandum of Incorporation (MOI); an amalgamation

or merger; the adoption of a scheme of arrangement; or the disposal of

all or a greater part of a company’s assets.

3

There are several policy

rationales for adopting the appraisal remedy in the Act. In the f‌irst

instance, the remedy can be used as an exit mechanism for disgruntled

minority shareholders.

4

Secondly, the appraisal remedy provides oppos-

ing shareholders with the right to demand payment of the ‘fair value’ of

their shares from the company that has engaged in a substantial change

of ownership and control.

5

Thirdly, the appraisal remedy can be used by

dissenting shareholders to force payment of the fair value of their shares

through court proceedings in certain circumstances.

6

Fourthly, the

remedy effectively compels the company involved to purchase the shares

of the shareholders who oppose the implementation of any of the said

triggering events.

7

This article examines two problematic issues relating to the appraisal

remedy in South Africa. The f‌irst issue relates to the question of which

shareholders have the right of access to the appraisal remedy. The

interrogation of this issue is done through a ref‌lective assessment of

Cilliers v LA Concorde Holdings Limited & others, a judgment that is

instructive regarding the critical question of who may benef‌it from the

appraisal remedy. The second issue is the procedural challenges associ-

2

Section 164(2). These specif‌ic triggering events are fundamental transactions (an

amalgamation or a merger, a scheme of arrangement, and disposals of all or greater part of a

company’s assets) and/or the amendment of the Memorandum of Incorporation (MOI).

3

Section 164(2) and (3).

4

Standard Bank Nominees (RF) (Pty) Ltd & others v Hospitality Property Fund Ltd 2020 (5)

SA 224 (GJ) para 35. See also Justpoint Nominees (Pty) Ltd & others v Sovereign Food

Investments Ltd 876/16 2016 ZAECPEHC para 66; Loest v Gendac (Pty) Ltd & another 2017 (4)

SA 187 (GP) para 40; Cassim, ‘The appraisal remedy and the oppression remedy under the

Companies Act of 2008, and the overlap between them’ (2017) 29(2) SA Merc LJ 305 at 314.

5

Loest para 40; Justpoint Nominees para 77; Cassim et al,Contemporary Company Law 2ed

(Juta 2012) 797; Cassim, (2017) 29(2) SA Merc LJ 314 at 320; Delport et al,Henochsberg on the

Companies Act 71 of 2008 (LexisNexis 2019) 580.

6

Section 164(14). Cassim, ‘The introduction of the statutory merger in South African

corporate law: Majority rule offset by the appraisal right (Part 1)’ (2008) 20(1) SA Merc LJ 1at

19. Davids, Norwitz & Yuill, ‘A microscopic analysis of the new merger and amalgamation

provision in the Companies Act 71 of 2008’ 2010 Acta Juridica 337 at 360; Pike, ‘An alternative

view of the appraisal remedy’ (2014) 26(3) SA Merc LJ 678 at 684.

7

Beukes, ‘An introduction to the appraisal remedy as proposed in the Companies Bill:

Triggering actions and the differences between the appraisal remedy and existing shareholder

remedies’ (2008) 20(4) SA Merc LJ 479 at 494–495; Seligson, ‘Dissenting minority sharehold-

er’s rights: Reappraising the appraisal remedy in section 164 of the Companies Act’ (2016)

7(4) Business Tax and Company LQ 2.

https://doi.org/10.47348/SAMLJ/v32/i3a4

(2020) 32 SA MERC LJ

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© Juta and Company (Pty) Ltd