Share block scheme transactions

In Trustees for the Time Being of the Hunter Family Trust v Duin-en-See (Pty) Ltd and Others [2022] 4 All SA 260 (WCC), an order was sought declaring a company to be operating a share block scheme in terms of the Share Block Control Act, and the resultant validity of transfer of rights therein.

By Merilyn Rowena Kader LLB (Unisa), Legal Editor at LexisNexis South Africa.

Property - Ownership of property by company: Duin-en-See was incorporated as a vehicle to acquire land. An agreement by the original shareholders set out how each would subscribe for a shareholding in the company and acquire a portion of the land. The plaintiffs, as shareholders, exercised their rights in respect of their parcel in accordance with the agreement. Alleging that Duin-en-See intended to dispose of their portion without their consent, the plaintiffs sought an order declaring the company to be operating a share block scheme in terms of s 4 of the Share Block Control Act 59 of 1980. Duin-en-See noted an exception to the particulars of claim.

In Trustees for the Time Being of the Hunter Family Trust v Duin-en-See (Pty) Ltd and Others [2022] 4 All SA 260 (WCC) the first ground of the exception was that the allegations pleaded were insufficient to trigger the presumption in s 4 and/or to satisfy the definition of ‘share block scheme’. A company shall be presumed to operate a share block scheme if any share of the company confers a right to or an interest in the use of immovable property. A share block scheme is defined to mean ‘any scheme in terms of which a share, in any manner whatsoever, confers a right to or an interest in the use of immovable property’. It would not be necessary for the relevant right/interest in the use of the immovable property to be provided for in the definition of the relevant class of shares in the company’s memorandum of incorporation for the alleged agreement to be effective. The essential requirement is some connection between the holding of shares in the company and the holder’s entitlement to a right/interest in the use of the company’s immovable property. The court dismissed the first ground of exception.

The second ground related to the validity of the transfer of rights to the plaintiffs. Duin-en-See maintained that the transfer of rights had to be in writing to be valid (as per the General Law Amendment Act 68 of 1957 or the Alienation of Land Act 68 of 1981). However, the transactions, which culminated in the trust’s acquisition of the shares were sale of shares agreements and not contracts for the sale of land. The agreements were not subject to the formalities in either the General Law Amendment Act or the Alienation of Land Act. This exception was dismissed.

Merilyn Rowena Kader
Legal Editor at LexisNexis