In South African corporate governance, shareholders and directors frequently encounter complex legal questions when major company decisions are made. One such area of significance is the exercise of appraisal rights under the Companies Act 71 of 2008 (“the Act”). Appraisal rights allow dissenting shareholders to exit a company when they disagree with key decisions, by demanding a fair value share buyout.
This article explains appraisal rights, the meaning of “fair value,” and recent case law shaping how these principles are applied in South African corporate law.
Section 164(2) of the Companies Act allows a company’s board of directors to adopt resolutions on substantial matters such as:
The interpretation of “fair value” was clarified in the High Court case of BNS Nominees (RF) (Pty) Ltd v Arrowhead Properties Ltd [2022] ZAGPJHC 848. The court provisionally defined 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.”
Importantly, the court recognised that fair value exists on a spectrum. This means that:
The ruling discourages opportunistic behaviour and clarifies that section 164 is not intended to enrich dissenting shareholders, but to ensure fair exit compensation based on objective factors.
When shareholders disagree with such decisions, they may invoke their appraisal rights. These rights provide an “opt-out” mechanism, enabling shareholders to demand that the company repurchase their shares at fair value, thereby exiting the company on equitable terms.
Appraisal rights are available to any dissenting shareholder who complies with the procedural requirements set out in section 164. A key case affirming this was Hoogeveld Boerderybelleggings (Pty) Ltd v TWK Agriculture Holdings (Pty) Ltd [2021] ZAMPMHC 38, where the court held that minority shareholders are not excluded from asserting these rights, even if only one class of shares exists.
This interpretation reinforces the protective intent of appraisal rights and confirms their applicability in a wide range of shareholding structures.
The evolving legal interpretation of “fair value” imposes a higher level of due diligence on boards of directors and valuation professionals when making fair value determinations. Companies must:
Likewise, shareholders must substantiate any counter-valuations and cannot rely solely on speculative or inflated market prices.
The enforcement of appraisal rights under the Companies Act and the refined understanding of fair value promote fairness, transparency, and accountability in corporate transactions. For companies, the takeaway is clear: major decisions that affect shareholder rights must be approached with careful legal and financial scrutiny. For shareholders, exercising appraisal rights is a powerful, but procedurally strict, remedy that ensures protection without unjust enrichment.
Whether you are a corporate director, investor, or legal practitioner, staying informed about these corporate law developments in South Africa is essential for compliance and governance.