Regulating schemes of arrangement under the new Companies Act 71 of 2008 : innovations in minority protection

• Pages: 1-12
• Date: 01 December 2013
• DOI: 10.10520/EJC174101
• Published date: 01 December 2013
• Author: Milton Seligson

1

© SIBER INK

Regulating Schemes of

Arrangement under the New

Companies Act 71 of 2008:

INNOVATIONS IN MINORITY PROTECTION

MILTON SELIGSON SC1

ABSTRACT

Part A of Chapter 5 of the Companies Act 71 of 2008 (‘the Act’), regulates

proposals by a company to implement certain ‘fundamental transactions’ (as

they are described in the title of Chapter 5 and the head-note to Part A)

and stipulates the requirements for approval thereof. The three fundamental

transactions are: proposals to dispose of all or the greater part of the assets

or undertaking of a company (section 112); proposals for amalgamation or

merger of two or more companies (section 113); and proposals for a scheme

of arrangement between a company and the holders of its securities (section

114).

Section 115, a ground-breaking provision that introduces a number of

innovative requirements for the greater protection of minority shareholders,

creates a uniform, compulsory procedure that must be followed before imple-

menting any of the three fundamental transactions.

This article focuses in particular on proposals for a scheme of arrangement

under section 114 and the requirements of section 115 that must be satis-

f‌ied before such a scheme can be implemented. It explores two interesting

and important issues: (1) whether the provisions of sections 114 and 115 are

mandatory whenever it is sought to implement an arrangement between

a company and the holders of its securities, or merely provide an optional

method of achieving such a transaction; and (2) whether the line of judicial

decisions relating to section 311 (the provision that governed schemes of

arrangement under the Companies Act 61 of 1973 (‘the 1973 Companies

Act’), that gave a narrow interpretation to ‘arrangement’, thereby limiting

recourse to the section, would still apply to arrangements that fall under

section 114 of the Act.

The article summarises the case law relating to arrangements under

section 311 of the 1973 Companies Act, in terms of which the courts repeat-

edly held that the section could only be resorted to if the normal mechanisms

for reaching independent agreement between the company and its members

were not available, and it was necessary to resort to the section in order

to obtain the consent of all the shareholders. This approach was ultimately

endorsed by the Supreme Court of Appeal in the Senwes case in 2007, shortly

before the enactment of the new Companies Act.

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Member of the Cape Bar.