Minority shareholders achieved a milestone victory when Mr Justice Frans Malan ruled on Friday, 28 August 2009, in favour of Brait and the Securities Regulation Panel's opposition to a scheme of arrangement that would have resulted in the delisting of Verimark from the JSE. Business law firm, Cliffe Dekker Hofmeyr acted for Brait in the matter.
The trustees of the Brait Ruby Fund and the Brait Multi Strategy Fund, minority shareholders in Verimark, joined the Securities Regulation Panel recently in opposing the sanctioning of a scheme of arrangement proposed by the majority shareholders of Verimark.
The majority shareholders of Verimark had offered to buy out the minorities as part of a strategy to delist Verimark from the JSE. Those majority shareholders erroneously believed that they were entitled to vote in their own scheme and pursued an application to court for the sanctioning of the scheme of arrangement, despite the fact that 69.1% of the minority shareholders were opposed to the scheme.
Brait's lawyers, Cliffe Dekker Hofmeyr, said they thought the judgement had vindicated the Brait Funds strong opposition to the scheme.
According to Ian Hayes, national director of the firm's corporate and commercial practice, "The ruling is a great victory for minority shareholders in Verimark specifically and for minority shareholders generally."
He said that although the new Companies Act will prevent a situation like this arising in the future, it was particularly gratifying that in reaching his decision, Judge Malan took care to analyse all of the relevant law in order to achieve what is clearly a carefully reasoned and sound conclusion.
In his judgement in the South Gauteng High Court, Judge Malan found that the offer, on a true analysis, was made only to the minority shareholders and only the minority shareholders should have been allowed to vote on it.
He accordingly dismissed the application for the sanctioning of the scheme of arrangement with costs.
The issue that the High Court was called upon to decide was whether, in a scheme of arrangement in terms of Section 311 of the Companies Act, the proposer of the scheme and parties unaffected by the scheme, should be entitled to vote in a single scheme meeting. Although the law on this matter, prior to this judgement, has not been settled, it has been generally accepted that only the recipients of an offer in a scheme of arrangement are entitled to vote on that offer.
Judge Malan has now settled this question and our law is now clear that an offeror is not entitled to vote on its own offer and the only parties entitled to vote are those parties to whom the offer is directed.