THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no. 280/2021
In the matter between:

CAPITAL APPRECIATION LTD

Appellant

and

FIRST NATIONAL NOMINEES (PTY) LTD

First Respondent

NEDBANK LTD

Second Respondent

ROZENDAL PARTNERS (PTY) LTD

Third Respondent

Neutral citation:
Capital Appreciation Ltd v First National Nominees (Pty) Ltd and
Others (Case no. 280/2021) [2022] ZASCA 85 (8 June 2022)

Coram:
Ponnan, Plasket and Nicholls JJA and Tsoka and Phatshoane AJJA

Heard:
12 May 2022

Delivered:
8 June 2022

Summary:
Companies Act 71 of 2008 – repurchase by company of more than five
percent of its shares – s 48(8)(b) – transaction requires compliance with ss 114 and
115 – s 115(8) triggers appraisal right, in terms of s 164, in favour of dissenting
shareholders.

ORDER

On appeal from: Gauteng Local Division of the High Court, Johannesburg (Windell J
sitting as court of first instance).

The appeal is dismissed with costs.

JUDGMENT

Plasket JA (Ponnan and Nicholls JJA and Tsoka and Phatshoane AJJA
concurring)

[1] First National Nominees Ltd (First National), the first respondent in this appeal,
along with Nedbank Ltd (Nedbank), the second respondent, and Rozendal Partners
(Pty) Ltd (Rozendal), the third respondent, brought an application in the Gauteng Local
Division of the High Court, Johannesburg (the high court) in which Rozendal on behalf
of First National sought an  order that an appraiser be appointed in terms of s 164 of
the Companies Act 71 of 2008 (the 2008 Act) to assist the Court in determining the
fair value of its shares in Capital Appreciation Ltd (Capital Appreciation), as also, for
detailed ancillary relief. Windell J granted the order sought. She later granted Capital
Appreciation leave to appeal to this court.

The background
[2] First National is the registered holder of 18 039 829 ordinary shares in the
issued share capital of Capital Appreciation (the shares). Although the shares are
registered in the name of First National as nominee they are held on behalf of and for
the benefit of Nedbank, the beneficial owner of the shares, as envisaged by s 56 of

the Companies Act. Rozendal is a fund manager that manages a portfolio of assets
within a fund scheme in terms of a portfolio management agreement.  The shares form
a part of the scheme’s assets.

[3] In July 2019, Capital Appreciation issued a circular to its shareholders in which
it notified them of its intention to repurchase 245 million of its shares from specific
shareholders for a total purchase price of R196 million. The shareholders were
advised that because the proposed repurchase would result in the acquisition of more
than five percent of its issued share capital, it was subject to ss 48, 114 and 164 of the
2008 Act. They were also informed that the repurchase required their approval by
means of a special resolution passed at a general meeting, in terms of s 115 of the
2008 Act.

[4] First National gave notice that it objected to the proposed repurchase, and that
it would vote against the resolution.  At the general meeting, it did just that. The special
resolution was passed nonetheless by a large majority of shareholders. First National
then made a demand that Capital Appreciation purchase its shares for fair value.
Capital Appreciation made an offer of R0.80 per share, which First National rejected.
The application was then launched for the high court to determine the fair value of the
shares in terms of s 164(14) of the 2008 Act.

[5] It was at this point that Capital Appreciation changed tack and indicated for the
first time that, in its current view, s 164 of the 2008 Act did not apply, with the result
that First National had no right to an appraisal by the court of the fair value of its shares
and no right to have its shares bought by Capital Appreciation at the price so
determined. That was the sole issue that the high court was required to deal with, and
the sole issue on appeal. It concerns the proper interpretation of the regime created
by ss 48, 114 and 115 of the 2008 Act and whether, in this scheme, s 164 finds
application.

[6] In the high court, Windell J found that s 164 applied and that First National had
established its entitlement to the appraisal remedy provided by that section. She made
a detailed order pertaining to the appointment and authority of an appraiser to assist

the court in determining the fair value of the shares and concerning the obligations of
the parties in the appraisal process.

The purchase by a company of its own shares
[7] It was, for many years, a well-established principle of company law that a
company was not able to purchase its own shares even if its memorandum or articles
of association provided that it may. In Trevor v Whitworth,1 the House of Lords, in
articulating this prohibition, held that its purpose was the preservation of the capital of
the company and the prevention of a company trafficking in its own shares: it should,
after all, preserve and devote its resources to pursuing its core business, and not
extraneous purposes. The rule was described by Coetzee J in Unisec Group Ltd and
Others v Sage Holdings Ltd2 as a common law rule so fundamental to company law
that, for many years, it was not regarded as necessary to include it in the companies
legislation. The rule was aimed at protecting two sets of interests. In Sage Holdings
Ltd v Unisec Group Ltd and Others,3 Goldstone J explained that a company’s capital
had to be preserved, in the first place, in the interests of creditors and, secondly, to
protect shareholders against directors who may have wanted to strengthen their hold
on the company.

[8] The predecessor to the 2008 Act, the Companies Act 61 of 1973 (Act 61 of
1973) was amended by the Companies Amendment Act 37 of 1999 (the Amendment
Act) to allow a company to purchase its own shares. This followed a trend in Britain,
other Commonwealth jurisdictions and the United States of America from the 1970s
onwards to relax the once strict prohibition.4 The Amendment Act substituted s 85 of
Act 61 of 1973.  In essence, it provided that, subject to a solvency and liquidity test, a
company could ‘by special resolution . . . if authorized thereto by its articles, approve
the acquisition of shares issued by the company’.

1 Trevor v Whitworth (1887) 12 AC (409 (HL) at 416-417.
2 Unisec Group Ltd and Others v Sage Holdings Ltd 1986 (3) SA 259 (T) at 264H-265A.
3 Sage Holdings Ltd v Unisec Group Ltd and Others 1982 (1) SA 337 (W) at 349A.
4 See J L Yeats, R A de la Harpe, R D Jooste, Helena Stoop, Rehana Cassim, Joanne Seligmann,
Lauren Kent, Richard S Bradstreet, R C Williams, Maleka Femida Cassim, Etienne Swanepoel, F H I
Cassim and Katherine Anne Jarvis Commentary on the Companies Act of 2008 (2018) (Vol 1) at 2-460
(hereafter referred to as Yeats et al (Vol 1) or Yeats et al (Vol 2)).

[9] The effect of the amendment was commented on by Malan J in Capitex Bank
Ltd v Qorus Holdings Ltd and Others.5 He explained that while the residue of the
capital maintenance principle may have been retained, one aspect of it – that a
company could not purchase its own shares – was abolished, replacing the 19th
century concept of capital maintenance with the contemporary safeguard of a solvency
and liquidity test.

[10] Section 48 of the 2008 Act now enables and regulates the acquisition by a
company or its subsidiary of that company’s shares. In its original form, s 48 consisted
of seven subsections. In 2011, the Companies Amendment Act 3 of 2011 added s
48(8). The underlying rationale for the safeguards contained in s 48 flow from the risks
inherent in the repurchase of a company’s shares. Yeats et al summarised these risks
thus:6
‘Because a repurchase is (i) a distribution of the company’s assets and (ii) a re-organisation
of issued share capital (and hence of ownership), achieved by (iii) a transfer to the company
of its shares, it invites all the abuses associated with each of these three functions. Indeed, a
given repurchase may involve abuses of all three of these functions. Repurchase thus has
significance for corporate governance, takeover regulation, creditor protection, discrimination
between shareholders, oppression of minorities, and the proper functioning of the securities
market.’

[11] I now turn to the terms of s 48 that are relevant to this appeal, and the terms of
the sections to which s 48 refers. I do so for an obvious reason: as this case concerns
a repurchase by Capital Appreciation of its shares, s 48 is the necessary starting point
in determining whether First National has the appraisal right that it asserts, arising from
its opposition to the repurchase.

An application and interpretation of the relevant provisions of the 2008 Act
[12] Section 48(1)(a) provides that s 48 does not apply to ‘the making of a demand,
tendering of shares and payment by a company to a shareholder in terms of a

5 Capitex Bank Ltd v Qorus Holdings Ltd and Others 2003 (3) SA 302 (W) para 10. See too F H I Cassim
‘The New Statutory Provisions on Company Share Repurchases:  Critical Analysis’ (1999) 116 SALJ
760 at 764-767.
6 Yeats et al at 2-463.

shareholder's appraisal rights set out in section 164’. This means no more than that
the exercise by a shareholder of their appraisal right and the payment of the fair value
of the shares by the company ‘is not treated as an acquisition by a company of its own
shares requiring compliance with the requirements of s 48’.7 Section 48 also does not
apply to the ‘redemption by the company of any redeemable securities in accordance
with the terms and conditions of those securities’.8

[13] In terms of s 48(2)(a), ‘the board of a company may determine that the company
will acquire a number of its own shares’. The power is restricted in three ways. First, it
is made subject to compliance with s 46, which requires inter alia that the board apply
the solvency and liquidity test in s 4 and conclude on reasonable grounds that the
company will satisfy that test after the proposed transaction. Secondly, s 48(3)
prohibits the acquisition by a company of its shares, despite ‘any provision of any law,
agreement, order or the Memorandum of Incorporation of a company’, if, as a result,
‘there would no longer be any shares of the company in issue other than’ shares held
by one or more of its subsidiaries or ‘convertible or redeemable shares’. Thirdly, in
terms of s 48(8)(b), a decision by a company’s board to acquire its own shares ‘is
subject to the requirements of sections 114 and 115 if, considered alone, or together
with other transactions in an integrated series of transactions,9 it involves the
acquisition by the company of more than 5% of the issued shares of any particular
class of the company's shares’.

[14] In this case, it is common cause that the repurchase of shares by Capital
Appreciation exceeds the threshold set in s 48(8)(b). (That, one assumes, is the

7 Farouk H I Cassim, Maleka Femida Cassim, Rehana Cassim, Richard Jooste, Joanne Shev and
Jacqueline Yeats Contemporary Company Law (2 ed) (2012) at 300 (hereafter referred to as Cassim
et al).
8 Section 48(1)(b).
9 A ‘series of integrated transactions’ is defined in s 1 with reference to s 41(4)(b). That section, in turn,
states that ‘a series of transactions is integrated if-
(i)
consummation of one transaction is made contingent on consummation of one or more of the
other transactions; or
(ii)
the transactions are entered into within a 12-month period, and involve the same parties, or
related persons; and-
(aa)
they involve the acquisition or disposal of an interest in one particular company or
asset; or
(bb)
taken together, they lead to substantial involvement in a business activity that did not
previously form part of the company's principal activity.’

reason that Capital Appreciation set upon its original course, described above.) When
the threshold has been exceeded, ss 114 and 115 find application. It is to those
sections that I now turn.

[15] Sections 114 and 115 are part of Chapter 5 of the Act. This chapter is
concerned, inter alia, with the approval of what it terms ‘fundamental transactions’.
These transactions are: the disposal by a company of the greater part of its assets or
undertaking;10 amalgamations or mergers;11 and schemes of arrangement.12 Section
114(1) provides:
‘Unless it is in liquidation or in the course of business rescue proceedings in terms of Chapter
6, the board of a company may propose and, subject to subsection (4) and approval in terms
of this Part, implement any arrangement between the company and holders of any class of its
securities by way of, among other things-

(a)
a consolidation of securities of different classes;

(b)
a division of securities into different classes;

(c)
an expropriation of securities from the holders;

(d)
exchanging any of its securities for other securities;

(e)
a re-acquisition by the company of its securities; or

(f)
a combination of the methods contemplated in this subsection.’

[16] Cassim et al make two points in relation to s 114 in the context of share
repurchases: first, that the section is designed to cater for share repurchases of a
particular magnitude – those that amount to ‘wholesale fundamental changes to the
company’s capital structure’; and secondly, that it ‘allows the board to propose and –
if approved – to implement a scheme of arrangement which, among other things, might
involve a share buy-back’.13

[17] When any of the transactions listed in s 114(1) are contemplated, the company
must, in terms of s 114(2), retain the services of an independent expert to compile a
report on the possible consequences of the proposed course of conduct. That report
must, in terms of s 114(3), be furnished to the board by the independent expert who

10 Section 112.
11 Section 113.
12 Section 114.
13 Cassim et al at 304.

must also ‘cause it to be distributed to all holders of the company's securities,
concerning the proposed arrangement’. It is required, for instance, to ‘state all
prescribed information relevant to the value of the securities affected by the proposed
arrangement’;14 detail the ‘material effects that the proposed arrangement will have on
the rights and interests’ of those holders of securities likely to be affected by it;15 and
evaluate the ‘material adverse effects of the proposed arrangement’ any
compensation that may be paid to those adversely affected and any other beneficial
effects.16 In terms of s 114(3)(g), the independent experts must include copies of ss
115 and 164 in their report.

[18] Section 114(4) provides that s 48 ‘applies to a proposed arrangement
contemplated in this section to the extent that the arrangement would result in any re-
acquisition by a company of any of its previously issued securities’.

[19] Section 115 deals with the required approval for transactions contemplated in
Part A of Chapter 5. Section 115(1) provides:
‘Despite section 65, and any provision of a company's Memorandum of Incorporation, or any
resolution adopted by its board or holders of its securities, to the contrary, a company may not
dispose of, or give effect to an agreement or series of agreements to dispose of, all or the
greater part of its assets or undertaking, implement an amalgamation or a merger, or
implement a scheme of arrangement, unless-
(a)
the disposal, amalgamation or merger, or scheme of arrangement-

(i)
has been approved in terms of this section; or
(ii)
is pursuant to or contemplated in an approved business rescue plan for
that company, in terms of Chapter 6; and
(b)
to the extent that Parts B and C of this Chapter, and the Takeover Regulations,
apply to a company that proposes to-

(i)
dispose of all or the greater part of its assets or undertaking;

(ii)
amalgamate or merge with another company; or

(iii)
implement a scheme of arrangement,

14 Section 114(3)(a).
15 Section 114(3)(c).
16 Section 114(3)(d).

the Panel has issued a compliance certificate in respect of the transaction, in
terms of section 119(4)(b), or exempted the transaction in terms of section
119(6).’

[20] In terms of s 115(2)(a), any of the transactions referred to in s 115(1) must be
approved ‘by a special resolution adopted by persons entitled to exercise voting rights
on such a matter, at a meeting called for that purpose and at which sufficient persons
are present to exercise, in aggregate, at least 25% of all of the voting rights that are
entitled to be exercised on that matter, or any higher percentage as may be required
by the company's Memorandum of Incorporation, as contemplated in section 64(2)’.
In terms of s 115(2)(b), a similar procedure must be followed by a holding company of
a company that contemplates a share repurchase. In terms of s 115(2)(c), a
transaction contemplated by s 115(1) requires the approval of a court in certain
circumstances.17

[21] Section 115(8) refers expressly to s 164. It provides:
‘The holder of any voting rights in a company is entitled to seek relief in terms of section 164
if that person –
(a)
notified the company in advance of the intention to oppose a special resolution
contemplated in this section; and

(b)
was present at the meeting and voted against that special resolution.’

[22] Section 164 is headed ‘Dissenting shareholders appraisal rights’. Yeats et all
define an appraisal right as ‘the right of dissenting shareholders, on the occurrence of
certain events, to have their shares bought out by the company in cash, at a price
reflecting the fair value of the shares’.18

[23] Section 164(2)(b) provides that if a company has given notice to shareholders
of a meeting to consider a resolution to approve a transaction contemplated, inter alia,
by s 114, it must include in that notice ‘a statement informing shareholders of their
rights under this section’. Section 164(3) provides that at any time before that

17 See ss 115(3) to (7).
18 Yeats et al (Vol 2) at 7-24.

resolution is voted on ‘a dissenting shareholder may give the company a written notice
objecting to the resolution’. The company is required by s 164(4) to notify dissenting
shareholders who gave the company notice of their dissent, who did not withdraw their
notice of objection and did not vote for the resolution, of the passing of the resolution
within ten business days of its adoption.

[24] Section 164(5) provides that a ‘shareholder may demand that the company pay
the shareholder the fair value for all of the shares of the company held by that person
if they had sent a notice of objection to the company; the company had adopted the
resolution objected to; and the shareholder had voted against it and had complied with
the procedural requirements of the section’.19 Such a shareholder must, in terms of s
164(7), make their demand by delivering a written notice to the company within 20
business days of receiving the notice that the resolution had been passed or, if no
such notice had been received, within 20 business days of learning of the adoption of
the resolution.

[25] The company is required by s 164(11), within five business days of receiving a
demand, to ‘send to each shareholder who has sent such a demand a written offer to
pay an amount considered by the company's directors to be the fair value of the
relevant shares, subject to subsection (16), accompanied by a statement showing how
that value was determined’. Section 164(12)(b) provides for the lapsing of an offer if it
has not been accepted within 30 business days of being made. If, however, the offer
is accepted, the company must, in terms of s 164(13)(b), pay the shareholder the
agreed amount within ten business days.

[26] Section 164(14) creates the right that is in issue in this case. It provides:
‘A shareholder who has made a demand in terms of subsections (5) to (8) may apply to a court
to determine a fair value in respect of the shares that were the subject of that demand, and an
order requiring the company to pay the shareholder the fair value so determined, if the
company has-

(a)
failed to make an offer under subsection (11); or

19 In terms of s 164(6), a failure to give the company a notice of objection is not held against a dissenting
shareholder if ‘the company failed to give notice of the meeting, or failed to include in that notice a
statement of the shareholders rights under this section’.

(b)
made an offer that the shareholder considers to be inadequate, and that offer
has not lapsed.’

Conclusion
[27] From the discussion above of the relevant sections of the 2008 Act, the
following points stand out. In terms of s 48(8)(b), a share repurchase above a particular
threshold is regarded as a fundamental transaction. That is achieved by making those
transactions that meet the threshold prescribed in that section subject to ss 114 and
115. Yeats et al say that this simply means that ‘ss 114 and 115 must be complied
with’.20 Cassim et al explain that the ‘thinking behind s 48(8) appears to be to reconcile
the requirements of s 48 and s 114, because why can the board alone make a share
buy-back decision in terms of s 48, but a special resolution is required to approve a
share buy-back in terms of s 114’.21

[28] The reference in s 48(8)(b) to s 114 establishes a direct link between share
repurchases envisaged by s 48 and schemes of arrangement as envisaged by s 114
(1)(e). Section 115 prescribes how the fundamental transactions set out in s 114 are
to be approved. In doing so, s 115(8) makes provision for dissenting shareholders to
enjoy the benefit of an appraisal right in terms of s 164 – the ‘right of dissenting
shareholders, who do not approve of certain triggering events, to opt out of the
company by withdrawing the fair value of their shares in cash’.22

[29] From this summary, it is apparent that there is a direct connection between s
48(8)(b), via ss 114 and 115, to s 164, and the appraisal right contended for by First
National. It is common cause that First National complied with the procedural
requirements of s 115 and s 164 and thus is entitled to be paid the fair value of its
shares by Capital Appreciation. Moreover, this approach accords with the recognition
that in transactions of this nature and magnitude, it is the minority shareholders who
require some measure of protection. Those statutorily ordained protections are

20 Yeats et al (Vol 1) at 2-481.
21 Cassim et al at 304. See too Yeats et al (Vol 1) at 2-482.
22 Cassim et al at 698-699; Yeats et al (Vol 2) at 5-33.

afforded by the legislature and provided to minority shareholders in ss 114 and 115.
Accordingly, Capital Appreciation’s appeal must fail.

The order
[30] The appeal is dismissed with costs.

________________________
C Plasket
Judge of Appeal

APPEARANCES

For the appellant:

A E Bham SC
Instructed by:
Edward Nathan Sonnenbergs Inc,
Johannesburg

Webbers, Bloemfontein

For the respondents:
R D E Gordan
Instructed by:
Pike Law, Cape Town

Claude Reid Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

8 June 2022

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

Capital Appreciation Ltd v First National Nominees (Pty) Ltd and Others (280/2021)
[2022] ZASCA 85
(8 June 2022)

MEDIA STATEMENT

The Supreme Court of Appeal (SCA) today dismissed the appeal of Capital
Appreciation Ltd (Capital Appreciation) against First National Nominees (Pty) Ltd (First
National), Nedbank Ltd (Nedbank) and Rozendal Partners (Pty) Ltd (Rozendal).

Capital Appreciation announced by way of a circular to shareholders that it
planned to repurchase 245 million of its shares from certain of its shareholders. The
circular informed shareholders that because the repurchase involved more than five
percent of the issued share capital, ss 48, 114, 115 and 164 of the Companies Act 71
of 2008 applied to the transaction. Section 164 allows for the shares of dissenting
shareholders to be bought out by the company at fair value, and creates a mechanism
for a court to appraise the fair value of the shares.
First National objected to the repurchase and voted against the resolution. It
asserted a right, in terms of s 164 of the Act to have its shares in Capital Appreciation
bought by the latter at fair value. Capital Appreciation made an offer for First National’s
shares but the offer was rejected. First National, Nedbank and Rozendal then
launched an application for an order for the appraisal of the value of the shares. At this
point, for the first time, Capital Appreciation changed tack. It asserted that ss 114, 115
and 164 did not apply to the repurchase transaction, with the result that no appraisal
right arose for dissenting shareholders. The court below rejected this argument and
made a detailed order pertaining to the appraisal of the fair value of the shares.
On appeal, the SCA identified the proper starting point to be the interpretation
of s 48, along with ss 114, 115 and 164. It held that a repurchase of shares by a

company above the five percent threshold mentioned in s 48(8)(b) of the Act was
regarded as a fundamental transaction. This triggered ss 114 and 115. Section 115
prescribes how fundamental transactions such as the share repurchase in issue are
to be approved. And s 115(8) makes provision for dissenting shareholders to enjoy the
benefit of an appraisal right in terms of s 164 and thus to opt out of the company. The
appeal was accordingly dismissed with costs.