Page 61 - Q&A
P. 61

The rights of a dissenting shareholder in a
            scheme of arrangement


            October 2020
            “I’m a minority shareholder in a company that has been approached by a
            buyer willing to buy out all the shareholders. Because of Covid-19 the company
            has suffered financially and I know that the shareholders holding more than
            75% of the company will want to accept the offer even though I believe it to be
            far below the market value of the shares. Is there any remedy at my disposal?”  Commercial
            The current Covid-19 pandemic and economic circumstances have wreaked
            havoc on many long-standing businesses and their future prospects and it is
            a general occurrence for companies or individuals with a healthy cash flow
            to look into buying out companies that have suffered, often below market value.
            One of the ways that such a takeover typically occurs is through a scheme
            of arrangement.

            A scheme of arrangement usually means that a buyer will contact the company,
            and make an offer to purchase the shares from its current shareholders.
            The company, the current shareholders and the buyer will then all enter into a
            scheme of arrangement and agree as to how this “friendly takeover” will take
            place. Unfortunately, such transactions do not always mean that shareholders
            will get fair value for their shares. So, what options does a minority shareholder
            have who wishes to dissent against the arrangement? Here Section 164 of the
            Companies Act 71 of 2008 comes to the rescue and provides relief for “dissenting
            shareholders” that do not agree to such arrangements.

            In order to enter into a scheme of arrangement, such a scheme must be
            approved by a special resolution (normally 75% of votes must be in favour of
            the resolution) of the holders of the relevant class of shares that are being
            acquired. For the dissenting shareholder to benefit from the relief of Section 164,
            the following steps, must be taken by the dissenting shareholder:

            •   The dissenting  shareholder  has to  give notice  of  his objection  to  the
                company before the vote takes place.
            •   When this resolution is put to a vote, the dissenting shareholder has to vote
                against the proposed transaction.

            If the special resolution is passed, the dissenting shareholder can then make use
            of the right to appraisal contained in Section 164 which allows the dissenting
            shareholder to demand that the company pay the fair value of such shares
            to him in exchange for the return of his shares to the company. In effect, the
            company will buy back the shares from the shareholder at a fair value.






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