Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others

• Jurisdiction: South Africa
• Judge: Rogers J
• Judgment Date: 19 June 2014
• Citation: 2014 (5) SA 179 (WCC)
• Docket Number: 15854/2013
• Hearing Date: 28 May 2014
• Counsel: A Ferreira for the applicant. J Newdigate SC for the first respondent.
• Court: Western Cape Division, Cape Town

Rogers J:

Introduction

[1] This application concerns the refusal by the board of the first D respondent (GHS) to approve a transfer by the applicant (VC) to the second respondent (MC) of the shares held by VC in GHS. VC seeks to compel GHS to register the transfer by way of relief in terms of s 163 of the Companies Act 71 of 2008. VC also seeks an order that the clause in GHS' memorandum of incorporation (MOI) restricting the transferability E of its shares be amended.

[2] VC seeks final relief on motion. The facts must thus be adjudicated in accordance with the Plascon-Evans rule. Mr A Ferreira appeared for VC and Mr J Newdigate SC for GHS.

F [3] Although MC was cited as the second respondent and presumably wishes the transfer of shares to be approved, it has played no part in the proceedings. It did not file affidavits in support of VC's case or in response to the allegations made by GHS in support of the board's decision to refuse approval for the transfer.

The facts

Goede Hoop Sitrus G

[4] Some years ago (the MOI indicates with effect from 1 March 2000) GHS was converted from a cooperative to a public company. By way of a special resolution passed by shareholders on 16 November 2012 it was H converted to a private company. GHS' primary functions are to receive citrus from producers and to grade, store, pack, market, sell and deliver the fruit on an agency basis. Producers may elect to acquire all or only some of GHS' services.

[5] In terms of the MOI, GHS's shareholders have preference in the I conclusion of contracts for the supply by GHS of packing and marketing services. If GHS has sufficient capacity after shareholders have made their elections, GHS may provide its services to other producers. At the present time GHS has no contracts with producers who are not also shareholders. Not all shareholders, however, pack and market their citrus through GHS. There are 88 shareholders of whom 66 pack and market their fruit J through GHS.

Rogers J

[6] A producer may elect to contract with GHS on a short-term basis (a A one-year cycle) or a long-term basis (a three-year cycle). There are currently 42 producers who have elected to contract on a long-term basis. According to GHS' board, the business strategy and vision of the company and the majority of its shareholders are that there should be long-term contracts and that producers should acquire the full range of B services, because this facilitates planning, capital investment and the appointment and retention of qualified staff.

[7] GHS' MOI from the outset contained restrictions on the transferability of its shares, even as a public company. However, the events in the present case concern the position after it became a private company. Clauses 6.1.7.1 and 6.1.7.3 read as follows: C

'6.1.7.1

No shareholder may transfer the registered or beneficial ownership of any Ordinary Shares in the Company to any other party without first —

6.1.7.1.1

complying with the requirements for transfer as set out in the Act and in this MOI; and D

6.1.7.1.2

obtaining the approval of the board for such transfer.

6.1.7.2

. . .

6.1.7.3

The board may, at any time, decline to register any transfer of Ordinary Shares in the securities register of the Company without giving any reason therefor and the directors shall be deemed to have so declined until they have resolved to register the transfer.' E

[8] As will appear, MC's shareholding in GHS will, if the disputed transfer is registered, increase above 10%. The following provisions of the MOI in regard to this threshold may be noted. In terms of clause 9.3 the right of shareholders to requisition a meeting, as set out in s 61(3) of the Act, F may be exercised by the holders of at least 10% of the voting rights. In terms of clause 9.7.1 the quorum for a shareholders' meeting to begin or for a matter to be considered is 10% in substitution of the 25% set out in s 64(1) of the Act.

[9] A shareholder in GHS has one vote for every ordinary share up to a G maximum of 4 million shares (clause 6.1.1.2.2.2 of the MOI). Thereafter there is only one vote for every 1 million shares in excess of 4 million shares (0,0001% per share). GHS currently has 31 249 515 issued shares. MC holds 2 653 811 (8,5%), which will increase by 1 066 571 to 3 720 382 (11,9%) if the disputed transfer is registered. MC's voting interest will thus increase in the same proportion (from 8,5% to 11,9%). H If MC were in future to acquire further shares taking its total to 4 million, its voting interest would increase to 12,8%. Share acquisitions above 4 million would add very little to the number of MC's votes, though every share acquired by MC in excess of 4 million would remove a full vote from the hands of other shareholders. So if, for example, MC were eventually I to hold 10 million shares, it would have only six more votes (4 000 006 in total) but its voting interest would increase from 12,8% to 15,8% because there would now be only 21 249 515 shares in the hands of other shareholders. (These percentages assume that there will be no other shareholder with a holding in excess of 4 million shares. Theoretically, if there were one shareholder with 27 249 514 shares and one other J

Rogers J

A shareholder with 4 million shares, the voting interest conferred by the 4 million shares would be a fraction under 50%.)

Mouton Citrus

[10] MC, the proposed transferee, has held shares in GHS for some years B (probably from the date of conversion to a company). As at 2008 MC held 778 875 of GHS' 24 249 515 issued shares (3,2%). During 2008 MC acquired a further 675 815 shares from seven sellers, increasing its tally to 1 454 690 (6%). In 2009 it acquired a further 518 713 shares from three sellers and in May 2011 a further 680 408 shares from another three sellers, bringing its total shareholding to 2 653 811 (10,9%).

C [11] At an unspecified date after May 2011 the number of GHS' issued shares increased to 31 249 515, which had the effect of diluting MC's holding to 8,5%. (This may have been in the context of the BEE transaction mentioned in the papers.) If MC were to obtain transfer from VC of the latter's 1 066 571 shares, MC's total shareholding would D increase to 3 720 382 (11,9%).

[12] GHS' board approved the various transfers to MC mentioned above (ie up to and including May 2011). However, the minute of the GHS board meeting of 24 May 2011 indicated some disquiet in relation to the transaction of May 2011 which took MC from 6% to 10,9%. The minute E approving the transfer recorded the following (I provide my own translation from the Afrikaans):

'The above transactions [ie MC's acquisition of a further 680 408 shares from three sellers] will result in MC holding an interest of 10,9% in GHS which will make it the largest single shareholder after the GHC Empowerment F Trust. The second largest producer [the empowerment trust was not a producer] holds about 5,4% of the shares. After an in-depth discussion, the directors were unanimously of the opinion that there was growing unease among producers over the influence of MC within GHS, taking into account MC's strategy of doing its own marketing and doing contract packing on a short-term basis. GHS' strategy of long-term G discretionary packing does not suit MC and impedes its own growth strategy by way of purchasing farms and leasing land, because the land of producers is also bound to the long-term agreements with GHS. The board is of the opinion that a further increase of MC's interest [ie in GHS] is going to discourage some producers in the future from concluding long-term discretionary contracts with GHS. The board has H the power in terms of the MOI to refuse approval for transfers without giving reasons, but strategically it is not the right time to refuse the transfers. MC has still committed its total volume to GHS for packing in the 2011 season.'

[13] After the approval of the above transfer but prior to the transaction I between VC and MC, the latter attempted to purchase a further 41 250 shares from the John van Wyk Family Trust. On 14 November 2011 GHS's board resolved to refuse the transfer without furnishing reasons.

[14] In early 2012 MC, in its negotiations with GHS, insisted that it would only conclude a short-term contract and that it required terms which J differed from the standard terms on which GHS contracted. MC's attitude

Rogers J

and its implications for GHS were considered at a GHS board meeting on A 26 February 2012. The minute reflects the following (again my translation):

'Pursuant to discussions with producers, it is clear that the vision, growth strategy and demands of MC put GHS at risk in regard to the retention and maintenance of service levels to GHS' other shareholders B and producers. The latter producers are concerned in particular about the availability of capacity in the future and the maintenance of service levels. Other packers undertake little or no contract packing for producers where they do not have control over or a say in the marketing of the fruit, primarily because of the impact on service levels and the risk of bad debt. In particular, the short-term nature of the delivery contracts which MC wants increases the risk. C

If MC should withdraw, GHS will need to adapt to the reduced volumes so that it can still render a market-related packing service to the remaining producers, which is indeed possible.'

[15] Following this meeting, GHS' managing director, Mr G van Eeden, D had further negotiations with MC but found himself unable to meet the latter's requirements. He reported back to the board on 16 April 2012. The minutes of the meeting record a unanimous decision by the directors. This was to the following effect: (i) GHS' first choice was to conclude a standard long-term packing...