Shareholder approval of scheme

In Sand Grove Opportunities Master Fund Ltd and Others v Distell Group Holdings Ltd and Others [2022] 2 All SA 855 (WCC), standing of an investment fund not registered as a shareholder to object to a scheme of arrangement.

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

Corporate and commercial - Company law – approval of scheme of arrangement by shareholders: The first respondent (Distell) in Sand Grove Opportunities Master Fund Ltd and Others v Distell Group Holdings Ltd and Others [2022] 2 All SA 855 (WCC) proposed a scheme of arrangement to its shareholders, entailing restructuring of its business. The eventual outcome of the scheme of arrangement was that Distell would delist and the second respondent (Heineken) would hold a minimum of 65% of its issued share capital. The scheme required approval by the Takeover Regulation Panel established in terms of s 196 of the Companies Act 71 of 2008.

At a meeting convened to vote on the scheme, the scheme was approved by a majority of Distell shareholders. Section 115(3)(b) of the Act provides that a company may not proceed to implement a resolution without the approval of a court where any person who voted against the resolution obtains leave to apply to court for review of the transaction.

The applicants, who claimed to be the beneficial owners of 3,72% of the issued ordinary shares in Distell that were votable, sought leave in terms of s 115(3)(b) to apply for review of the shareholders’ resolution accepting the scheme of arrangement. The applicants (referred to collectively as Sand Grove) were investment funds. The respondents disputed Sand Grove’s standing to bring the application, stating that only registered shareholders have voting rights for the purpose of any resolution required in terms of s 115 and only registered shareholders who voted against the proposed transaction are entitled to bring proceedings for the review of a shareholders’ decision to approve the transaction.

It was held that, as the applicants had beneficial ownership of the shares, but none of the funds was the registered holder of such shares, the first issue to be determined related to their standing to bring the proceedings in terms of s 115 of the Act. The court referred to the principle of company law that a company concerns itself only with the registered holders of its shares and agreed with the respondents that the Sand Grove funds, as holders of beneficial rights in shares registered in another party’s name, were not persons entitled to exercise voting rights at the meeting. They therefore lacked standing to bring the application.

The problem regarding standing gave rise to an application by the nominee companies who were the registered holders of the shares, for leave to intervene in the proceedings as co-applicants. However, s 115(3)(b) prescribes a ten-business-daytime limit for the nominee companies to challenge the resolution. That period had elapsed before they lodged their applications for leave to intervene. The court held that it had no power to condone the non-compliance with the time limit, and the application for leave to intervene was dismissed.

Sand Grove also applied for leave to amend their notice of motion by the insertion of a claim for orders declaring that the meeting at which the resolution was adopted was not properly constituted and, therefore, invalid and void, and that the resolution purportedly adopted at it was accordingly also void. The court rejected the submission that where different classes of securities were affected by a proposed scheme, separate meetings had to be convened of the holders of each class of security.

Even if the applicants did have standing, the court would not have found that they had made out a case for review based on their submissions.

The application for leave in terms of s 115(6) to apply for a review of the scheme of arrangement was refused.

Merilyn Rowena Kader
Legal Editor at LexisNexis