The Fundamental Transactions under the Companies Act: A Report back from Practice after the first few years

• Jurisdiction: South Africa
• Published date: 16 August 2019
• Pages: 361-384
• Author: Johan Latsky
• Citation: (2014) 25 Stell LR 361
• Date: 16 August 2019

361

THE FUNDAMENTAL TRANSACTIONS UNDER

THE COMPANIES ACT: A REPORT BACK FROM

PRACTICE AFTER THE FIRST FEW YEARS

Johan Latsky

BA LLB

Attorney of the High Court of South Africa*

Professor David Butler taught me and the rest of the class of 1980 a few

important t hings about the law.

Much of the law that David taught us has changed , and we can of course no

longer rely on the law as it stood when he taught it to us. But he demonst rated,

and taught us, more impor tant things about the law than the content of

insurance law, sectional titles and related topics. They include a gentle but

keen wit in coming to ter ms with new legal concepts, shar pest insight,

consistent excellence, meticulous attention to detail, patient and principled

analysis, and a sardonic view of life’s little legal adventures. Although few

of us can emulate even some of these qualities, we all continue to carry a n

example embedded within u s of how it can be done. Unli ke the conte nt of the

law, these qualities will not become outdat ed.

David sent me out to practise, and I now come back after the rst few years

to tell him about a recent advent ure, albeit a little one. This is also a report

back from pr actice, after the  rst few years following the com mencement of

the new Companies Act, on the fundamental transactions discussed in this

article.

1 Introduction

The “funda mental transact ions” governed by part A of chapter 5

(fundamental tra nsactions) of the new Companies Act 71 of 2008 (“Companies

Act” or “the Act”) relate to the disposal of all or the greater pa rt of the assets

or under taking of a company; schemes of arrangement; and amalgamations

and mergers.

More than three year s have elapsed since the commencement of the Compa nies

Act on 1 May 2011. When it came into force, there was no opportun ity for

corporate lawyers at the forefront of the daily cut and thr ust of implementing

fundament al tra nsactions to reect on how to get going, contemplate theory and

to see how things tu rned out. They had to take a ru nning leap into the un known,

relying on their experience of similar transact ions, built up under the previous

Companies Act 61 of 1973 (“1973 Act”).

* Director, Cli ffe Dekker Hofmey r Inc, Johannes burg I am very g rateful to Yaniv Kleit man, Senior

Associate, Cl iffe Dekker Hofmey r Inc, for his resea rch assistance an d suggestions in w riting this ar ticle

(2014) 25 Stell LR 361

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It seems to me as a practitioner t hat, by and large, despite the lack of

guidance and initial uncertai nties, the fundamental transactions work in

practice. This ar ticle will seek to demonstrate this conclusion.

From the perspective of a practitioner, the f undamental transactions work

efciently to facilitate mergers, acquisitions and reconstructions of companies

and businesses. The Compa nies Act also strikes an equitable balance be tween

majority rule and minority shareholder protection when f undamental

transaction s are implemented.1

My daily interaction with other pract itioner s conr ms, and this article seeks

to illustrate below that cons ensus has emerged in the market place arou nd how

to work around some of the ambiguities and impossibilities created in the

Companies Act and the regulations made thereunder (“Regulations”).2 There

is a common tur ning of the proverbial blind eye to provisions in subordinate

legislation that appear to be v ulnerable to an attack on t heir validity.3

Workarounds are the trick s of the t rade.

Practice on the JSE4 regarding the fundamental transactions has adapted

well to the changes. The Takeover Regulation Panel (“Takeover Panel”),

established by section 196 of the Companies Act, is playing a robust a nd

helpful role in refereeing and facilitat ing “affected transactions” in terms of

parts B and C of chapter 5 (affected transactions). The Companies Tribunal

(“Tribunal”) established in ter ms of section 193 of the Companies Act has

at last commenced its work and although there have been a few interesting

decisions handed down,5 it is early days.

However, at the time of writing, the Companies a nd Intellectual Proper ty

Commission established by sect ion 185 of the Compa nies Act (“CIPC”)

is strug gling. It is slow and impenetr able i n its ling of Memoranda of

Incorporation, special resolutions, prospectus documents and information

statements.6 But despite problems at the CIPC, fundamenta l transactions work.

1 For example s 115(2)(a) of the Companies Act contain s the requirement for a sp ecial resolution in order

to approve fun damental trans actions, whereas s 115(3)-(7) provides for a p rocess whereby an agg rieved

minority s hareholder can ap ply to court to set a side that resolution , and s 164 provides for ap praisal right s

which are in favou r of dissenting m inorities At t he same time th e Act contains som e provisions favour ing

the majority i n that the threshold for spe cial resolutions (which are req uired for the approval of any of

the funda mental transac tions) may, in the company’s Memorandu m of Incorporation , be lowered below

75% (s 65(9)) See also F HI Cassim, MF Cassim , R Cassim, R Jooste, J Shev & J Yeats Contemporary

Company Law 2 ed (2012) 677-678 on the view that the Act ai ms at striki ng such a balance

2 See the Compan ies Regulations 2011 GN R 351 in GG 34239 of 26-04 -2011

3 Examples are reg s 83(3) and 85 of the Regulations which a re arguably ultra vires s 123 of the princip al

Act; reg 88 which purports to exempt an enti re category of “pa rtial offers” from the take over provisions

contained in the pri ncipal Act; and the Takeover Regulation Panel’s Guideline 4/2 011 (19-0 5-2011)

purpor ting to exclude all tra nsactions unde r s 117(1)(c)(iv) from the application of s 121 (Takeover Pan el

“Guideline on S ection 122(1) of the Companies Act No 71 of 2008” (19-05-2011) TRP

trpanel co za/index php/guideli nes> (accessed 18-08-2014))

4 The license d exchange operated by t he JSE Ltd

5 These have mai nly been in the context of the Trib unal’s powers to grant exemptions u nder ss 6(2) and

72(5) of the Companies Act , as well as disputes re lating to company na mes under s 160

6 It does help that u nder the Compani es Act special resolut ions in respec t of fundament al transact ions need

not be filed or “r egistered” wit h CIPC There is no e quivalent provision to s s 200 and 203 of the 1973 Act

which general ly required al l special resolutio ns to be lodged and re gistered in ord er to be effective Un der

the Act, it is only ce rtain specia l resolutions that re quire to be filed That is determin ed by the particul ar

section deal ing with that resolu tion (for example winding- up (s 80(2)) and amendments to Memo randa of

Incorporation (s 16(9))

362 STELL LR 2014 2

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