27.3 EXAMPLE OF A TRANSACTION
Question
We have company A (Pty) Ltd which has 4 shareholders each holding 25% of the issued shares of the company. The 4 shareholders are brothers. The company holds a significant portfolio of properties in the retail sector.
Exactly one year ago one of the brothers sells his 25% interest to an unrelated outsider as he wanted to emigrate. The share transfer had the blessing of the remaining 3 brothers at that time and the transaction went through without a problem.
Today A (Pty) Ltd received an offer for selected portions of its property portfolio.
You as the company secretarial practitioner have to advise the directors of the company on how to proceed.
Answer
The first thing that we need to do is to determine whether this transaction falls within the definition of an affected transaction as defined in s 117(c) and in this instance we would need to look at s 112 – proposals to dispose of all or a greater part of assets or undertaking as well
The first thing that we need to determine is that this is not part of a business rescue plan, if it was it would not be an affected transaction. It is also not a transaction between a wholly owned subsidiary and its holding company or between various combinations of wholly owned subsidiaries and holding companies so at this point it may very well fall within the ambit of Section 112 and then s 112 would not apply.
The next thing we need to determine is if this disposal or this offer is for a greater part of the assets or the undertaking? We are also told that the value of the offer exceeds the market value of the property. If we look at s 112 (4) it talks about that the assets to be disposed of must be fairly valued as calculated in the prescribed manner as at the date of proposal, which date must be determined in the prescribed manner. .Let us assume that on enquiry we find that the disposal is for 60% of the company’s property portfolio. As long as it’s more than 50% then it complies with this requirement. This means that it falls within the ambit of Section 112 and is a fundamental transaction. It also means that it falls within the definition of s 117 (c) and is an affected transaction.
The next thing that has to happen is that the proposal or transaction has to then be approved in terms of s 115 by a special resolution of the shareholders. This will require a detailed reading of s 112 and s 115.
S 112 (5) basically says that the resolution by the shareholders must be specific and not be a generalised solution.
We now need to look at the requirements of Section 115 which deals with the issue of the Takeover Regulations panel issuing a compliance certificate, if it is a regulated company.
We have to determine if this transaction falls within the definition of a regulated company. If we look at the definition as contained in Section 118(1) we have been told that there is a share transaction to an outsider (please refer to the definition of related and inter-related) within the last 24 months. This means that this private company falls within the parameters of the definition of a regulated company.
Now because it is an affected transaction and the company is a regulated company the transaction falls within the parameters of Part B and Part C and the Takeover regulations and therefore the takeover regulations apply to the company therefore we have to make an application to the takeover regulation panel in order to get a compliance certificate or an exemption.
Let us assume that the brother who immigrated did not sell his shares but held onto them then the company would not fall within the definition of a regulated company and therefore the various sections and regulations would not apply and no application would have to be made to the takeover regulation panel.
There is however an alternative to obtaining the compliance certificate as in terms of Section 119(6) and application can be made for the exemption of the requirements.
An exemption can be made if no parties are affected or prejudiced by this transaction. The way to do this is for the shareholders to pass a special resolution which they must all sign to the affect that there has been no reasonable potential of the affected transactions prejudicing the interest of any existing holder of the regulated company’s securities. This is itself should be enough.
If the transaction was not considered to be of a material nature and then one could make the application on the basis that the cost of the compliance is disproportionate relative to the value of the affected transaction.
If the company is to apply for exemption then they are to write to the takeover regulation panel detailing the transaction putting in all the various notices and the resolutions passed by the shareholders requesting that the panel grant an exemption.
The panel will consider the application, grant the exemption if they deem fit and charge the company. For a simple exemption this is going to cost the company at the rate of R3,420 per hour and will probably in all likelihood take one hour.