Under section 164(2) of the Companies Act 71 of 2008, a company’s board of directors holds the authority to make high-level decisions on behalf of the company. These may include substantial amendments to the Memorandum of Incorporation (MOI) or entering into transactions that materially alter the company’s structure such as mergers, amalgamations, schemes of arrangement, or the disposal of a significant portion of its assets.
However, when shareholders disagree with such resolutions, they are not without recourse. The Act provides dissenting shareholders with appraisal rights, enabling them to exit the company by compelling it to repurchase their shares at a fair value.
What Does “Fair Value” Mean?
The interpretation of “fair value” was considered by the Gauteng High Court in BNS Nominees (RF) (Pty) Ltd v Arrowhead Properties Ltd [2022] ZAGPJHC 848. In that matter, the court provisionally defined fair value as:
“…the amount a share would fetch in a fair and undistorted market over a reasonable timeframe, involving informed buyers and sellers transacting at arm’s length, without adjustments for minority status or the impact of the transaction that triggered dissent.”
Importantly, the court emphasised that fair value should be assessed along a range, meaning there is no single definitive value. So long as proper valuation methodologies are applied and relevant market conditions are taken into account, differing conclusions on share value may still fall within the bounds of fairness. A higher value proposed by a shareholder does not necessarily make a lower offer from the company unfair, or vice versa.
Who May Rely on Appraisal Rights?
Section 164 safeguards the rights of dissenting shareholders, provided they comply with the prescribed procedures. Notably, the provision does not limit these rights only to minority shareholders. As held in Hoogeveld Boerderybelleggings (Pty) Ltd v TWK Agriculture Holdings (Pty) Ltd [2021] ZAMPMHC 38, appraisal rights remain accessible even in companies with only one class of issued shares.
Implications for Shareholders and Companies
This judicial interpretation of fair value raises the bar for boards when presenting buyback offers. Companies must ensure their valuations are well-reasoned, market-aligned, and procedurally sound. On the other hand, shareholders seeking to exit cannot simply assert market value as justification for a premium, they must substantiate their claim with proper valuation principles.
The BNS judgment affirms that the aim of section 164 is not to unjustly benefit dissenting shareholders, but to ensure a balanced and fair exit route grounded in objective financial reality.
By refining the concept of fair value, the courts have provided valuable direction for corporate stakeholders and advanced clarity in the interpretation of appraisal rights under South African company law.
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