A company’s board of directors may make certain decisions pertaining to the company, as per section 164(2) of the Companies Act 71 of 2008. The nature of these decisions would be either to amend its memorandum of incorporation (“MOI”) substantially or, to enter into significant business transactions such as disposing a greater part of its assets, an amalgamation or merger, or a scheme of arrangement.
Where a shareholder disagrees with the decision taken, they may exercise their appraisal rights as a dissenting shareholder. Appraisal rights are rights which the shareholder may exercise to ‘opt out’ of a decision taken by the company, by exiting the company completely. These appraisal rights are exercised by demanding that the company buy back their shares at fair value.
THE MEANING OF “FAIR VALUE”
In BNS Nominees (RF) (Pty) Limited v Arrowhead Properties Limited 2022 ZAGPJHC 848 (“BNS”), the Judge tentatively defines fair value as:
“… the value a share would realise in an undistorted market, in the medium term, with free interaction between buyers and sellers with proper information, and without any exceptions being made for minority holdings or the effect of the corporate action which has led to the dissent.”
It was also found that “fair value” must be considered on a spectrum. This means that different amounts can correctly be considered fair value if the aforementioned factors were considered in reaching the conclusion and if accurate appraisal methods were used. This answers the initial question – namely, are some values “more fair” than others – and the answer is no; a discrepancy between amounts suggested by the company and those suggested by dissenting shareholders does not automatically invalidate the lower amount, or render the higher amount fairer.
As discussed, the appraisal right belongs to dissenting shareholders who have followed the procedural requirements of section 164. For clarity, this section does not attempt to exclude minority shareholders from asserting appraisal rights where only one class of shares exists, as held in Hoogeveld Boerderybelleggings (Pty) Ltd v TWK Agriculture Holdings (Pty) Ltd  ZAMPMHC 38.
THE PRACTICAL EFFECTS
This newly established understanding of “fair value” places a heavier burden on companies to consider various factors before arriving at an offer to purchase shares. Similarly, dissenting shareholders cannot merely rely on market value in pursuit of a higher selling price because, as stated by the court in BNS, the section does not intend to simply “enrich a dissenting shareholder”.
This nuanced definition of “fair value” provides clarity for interpretation and creates a stringent standard of fairness for companies and shareholders alike, ultimately promoting the advancement of South African company law.
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