Rentekor (Pty) Ltd and Others v Rheeder and Berman NNO and Others

• Jurisdiction: South Africa
• Citation: 1988 (4) SA 469 (T)

Rentekor (Pty) Ltd and Others v Rheeder and Berman NNO and Others
1988 (4) SA 469 (T)

1988 (4) SA p469

Citation	1988 (4) SA 469 (T)
Court	Transvaal Provincial Division
Judge	Kriegler J
Heard	May 2, 1988; May 3, 1988; May 4, 1988
Judgment	May 9, 1988

Flynote : Sleutelwoorde

Company — Directors and officers — Directors — Election of — Validity — Private company owning controlling interest in public company — Private company owned in equal shares by two families — Two I members of each family constituting board of directors — Vacancy of board caused by death of one director not filled — Family with majority in number of directors selling its 50% holding to third party and guaranteeing such party that four of his nominees would be appointed to board, and that two further nominees would be appointed as alternate J directors — Declared intention of sale was

1988 (4) SA p470

A that purchaser would obtain control over public company — Family using 2 to 1 majority to vote for election of third party and nominees to board, thus resulting in 6 to 1 majority — Application for declaration that election of additional directors invalid — Court reviewing history B of company and manner in which its affairs conducted since its establishment — Concluding that history of company had been characterised by special relationship of mutual trust between shareholders — Arising out of that, each family owed the other a duty of trust — Each family had contractual right to equality of control over company — Therefore, neither had right to deprive other of right to equality in management and control, nor could such right be C transmitted to any other party — Court characterising election of third party and his nominees to board as one step in course of conduct designed to achieve by trickery and breach of faith what could not lawfully be achieved — Court concluding that such 'election' void — Winding-up — Appeal against winding-up order — Effect thereof — Leave to appeal granted five months after winding-up order granted — By that stage, joint liquidators already appointed and process of winding up commenced — Court granting leave ruling that Rule 49(11) of Uniform Rules of Court to apply — Liquidators nonetheless E proceeding in terms of their appointment — Application brought for order declaring, inter alia, that operation of winding-up order suspended — Court holding that effect of Rule 49(11) was that once leave to appeal granted, operation and execution of winding-up order suspended — Appointment of liquidators, together with their powers and F duties, similarly suspended — Argument that liquidators remain vested with control over affairs of company, since they had already taken control prior to leave to appeal being granted, and that only steps taken subsequent to leave being granted stayed, rejected.

Headnote : Kopnota

G Rentekor (Pty) Ltd, the first applicant, had been formed in 1963 by two men, Vermooten senior and Snyman senior, who until then had carried on business together in partnership. By 1968 each man owned 50% of the shares in Rentekor, they were its only directors and the articles of association conferred the right of pre-emption on each of them in respect of the other's shares. At a later stage, each man's son, the H fourth respondent (Vermooten), and the eleventh respondent (Snyman), became a director of the company. Vermooten senior died in 1981. Prior to his death, Vermooten senior had transferred half his holdings in Rentekor to his son, who in turn transferred them to a private company controlled by him and, upon his (Vermooten senior's) death, the balance of his shares devolved upon a family trust. Snyman senior, in his turn, had transferred all his shares to his son, who in turn transferred them to a private company which he controlled, the second applicant (Tjospomie). The effective position in Rentekor remained unchanged: each family, through family-held companies and a trust, held 50% of the I shares in Rentekor, and each family had equal representation on its board of directors (until Vermooten senior's death). Rentekor was primarily an investment company. Its main asset was its control over the sixth respondent, Rentbel, a public company whose shares were listed on the stock exchange. Rentekor's combined direct and indirect holdings in Rentbel amounted to 43% of its issued share capital.

The vacancy created on Rentekor's board of directors by Vermooten senior's death was not filled. The board therefore comprised the two J Snymans and Vermooten.

1988 (4) SA p471

A Vermooten had become the managing director of Rentbel; Snyman was its executive chairman; and each was actively involved in the administration of Rentbel's affairs. Although the sons did not enjoy the close friendship which had existed between their fathers, they co-operated in the administration of their joint interests. In Rentekor, meetings were held informally and decisions were reached on the basis of consensus. Matters continued in this fashion until 1987, when Snyman reached an agreement on 28 April 1987 with the twelfth respondent, one Lombard, in B terms of which the Snyman family's interest in Tjospomie would be sold to Lombard or his nominees for R4 million. The contract warranted that Tjospomie's assets consisted of 50% of the shares in Rentekor, together with a quantity of shares in Rentbel. Snyman undertook that, upon signature of the agreement, four of Lombard's nominees would be appointed as directors of Rentekor, and that two further Lombard nominees would be appointed as alternate directors to Snyman and his father. The Snymans agreed to retire from Rentekor's board after the elapse of one year. The declared intention of the transaction was that C the purchaser would obtain control of Rentbel. At a Rentekor board meeting held on 5 May 1987, and without prior notice to Vermooten of the business to be transacted, the Snymans, by virtue of their 2 to 1 majority, voted for the appointment of Lombard and three of his nominees (thirteenth, fourteenth and fifteenth respondents) as directors and for the appointment of two further Lombard nominees (sixteenth and seventeenth respondents) as alternate directors. On 8 May the D reconstituted Rentekor board adopted a resolution authorising Lombard and one of his appointees, thirteenth respondent, to nominate themselves for election to the Rentbel board of directors and to attend Rentbel's next annual general meeting on behalf of Rentekor. On 11 May, at an urgent meeting of the Rentbel board, called, apparently, to ward off the 'Lombard take-over', Snyman was purportedly dismissed as chairman and four new members were appointed.

E Vermooten's protests that the appointment of Lombard and his nominees to the Rentekor board had been irregular and of no effect appear to have been ignored. The Vermooten family company and trust accordingly brought an urgent application for the winding up of Rentekor. A final order was granted on 27 May 1987 on the basis of justice and equity within the meaning of s 344(h) of the Companies Act 61 of 1973. The presiding Judge had found, having reviewed the history of Rentekor, that the company had been founded and managed on the basis of mutual trust, and that even F when the company's interests had grown to their current substantial proportions, it had continued to be administered in a style consistent only with the spirit of mutual fidelity, fairness, parity and respect, notwithstanding the lack of personal friendship between Snyman and Vermooten. He concluded that the sale by Snyman of the family's shares in Tjospomie and the creation of a 6 to 1 majority on the board of Rentekor in favour of a group of shareholders owning only 50 of the shares had been a 'regsfoefie' (a legal trick), warranting the winding G up of the company in terms of s 344(h) of the Act.

Pursuant to the winding-up order, the first and second respondents were appointed as joint liquidators of Rentekor. On 12 October 1987 the Appellate Division granted leave to the Snymans and Tjospomie to appeal to a Full Bench against the winding-up order. The Appellate Division directed that Rule 49(11) of the Uniform Rules of Court would apply. Rule 49(11) provides, inter alia, that pending the outcome of the appeal H the operation of the order in question is suspended unless otherwise directed. No application was made in terms of that proviso. The first respondent nonetheless proceeded with the performance of his functions as joint liquidator; the second respondent appeared to have done likewise.

Rentbel's annual general meeting was to be held on 18 November 1987. Certain of its directors were due to retire and the vexed question was who was to represent Rentekor's controlling interest at that meeting - I Lombard and his nominee had been appointed to do so prior to the liquidation, on the one hand, while the joint liquidators held the opinion that they were empowered to vote Rentekor's shares, on the other hand. A joint resolution by the liquidators was signed in terms of which the first respondent was appointed to represent Rentekor at the meeting and to vote for the appointment of certain specified persons to the board. The first respondent was later instructed by the largest creditor not to vote in terms of the joint resolution, but to vote instead for J the re-appointment of the existing board and for his own

1988 (4) SA p472

A appointment to the Rentbel board. Lombard brought an urgent application for an order declaring that Rentekor was not in liquidation and prohibiting the liquidators from voting on its behalf at the Rentbel meeting (the application came to naught). Vermooten in the meanwhile had instructed Rentbel's transfer secretaries to register Rentekor's shares in the liquidators' names. Finally, at the meeting, the chairman of the board ruled...