Fundamental Transactions Flashcards
what are fundamental transactions?
- changes concerning the nature of the company
2. changes concerning the nature of your investment
What is a consequence of unregulated fundamental transactions?
Shareholders in particular minority shareholders could be significantly prejudiced
Why is a special resolution or S & L test not efficient when it comes to fundamental transactions?
- S/H could still be outvoted by the majority
- They would be stuck in a company that looks different to what they initially invested in
- or they are stuck with a different investment to what they initially made
What chapter of the companies act regulates fundamental transactions
Chapter 5
did the new legislation introduce significant changes to fundamental transactions?
it was comprehensively reformed to facilitate the creation of business combinations
What are the 3 significant changes the 2008 Act introduces?
- amalgamations and mergers
- the appraisal remedy
- tries to eliminate statutory arbitrage
What is the appraisal remedy briefly?
S164 = a protective measure for shareholders, allows shareholders to have their shares acquired by the company under certain circumstances
What is statutory arbitrage
this is where a transaction is disguised as something else to apply a different section of the act that is less onerous or suits the person better
Is the statutory merger an additional procedure or does it replace the 3 types of transactions
Statutory mergers are an additional procedure for the 3 existing method for companies wanting to effect business combinations and fundamental transactions
do fundamental transactions require court oversight
very little court oversight required
What does s112 cover
disposal of all or a greater part of the company’s assets
What does a company have to do to have “disposed” of an asset?
The act does not define dispose or tell us what transaction is a disposal.
What does Standard Bank v Hunkydory Investments tell us about what disposal under S112 is?
A disposal is a permanent transfer of ownership and not a mere encumbrance of assets
What is meant under S112 by all or a greater part of the assets
S1 of the act:
- more than 50% of its gross assets fairly valued irrespective of liabilities
- more than 50% of the value of its entire undertaking fairly valued
What are the requirements for S112 disposal of all or greater part of the assets
- Disposal approved by s/h special resolution for specific transaction
- Notice including provisions of s115 and s164
- Assets given fair market value
- if a shareholder has a personal interest they cannot participate
What must a notice under S112 contain for disposal of assets
- prescribed time and manner
- summary of precise terms of transactions
- provisions of S115 and S164
What happens when a company is a subsidiary of another company and wants to dispose of its assets under S112?
It may be necessary to obtain a special resolution from the s/hs of the company to protect them.
What transactions are exempt from the provisions of S112
- business rescue
2. intragroup transactions
What section regulates mergers and amalgamations?
S113
Why must a merger be a balancing act?
the transaction must be simple and have no delays to ensure economic growth and efficiency but minority shareholders and creditors of both entities have to be protected
what policy shifts occur under S113 on mergers and amalgamations?
- requires no court involvement
2. Minority rights are protected through the appraisal remedy and other procedural mechanisms
What are the two types of amalgamations or mergers that S1 envisages
- the merger results in an entirely new company and dissolves both old ones
- one company absorbs the other company leaving a surviving company
What happens if the merger agreement or one of the contracts that is being transferred, says it cannot transfer?
The automatic transfer will be prevented byS116 (6), the merger/ amalgamation takes effect subject to conditions set out in the agreement
What does S116 (7) (a) determine?
When a merger agreement is implemented, the property of each merging company becomes the property of the surviving merged company/ new company. The disappearing company needs to be wound up and deregistered. The new company is liable for the debts subject to the solvency and liquidity test.
Which company will be liable for the obligations of each company?
The surviving company by default becomes liable for the obligations
What is the effect on immovable property during the merger
A formal transfer by the deeds office will have to be effected
What is the advantage of a merger agreement
- surviving company acquires immediate and full control of the target company
- each merged company must be solvent and liquid upon implementation of merger
what are the disadvantages of a merger agreement
- company becomes automatically liable for debts and obligation of the disappearing constituent companies
- merging companies and their directors may still be criminally prosecuted despite the fact that the company may have dissolved
What is a new company merger structure
A merges with T to become a new company. The shareholders of A and T are the shareholders of the new company. A and T are dissolved. All prop and debts transfer to new company.
What is a surviving company merger structure
A absorbs T - A is a surviving company
What is a pooling merger
A absorbs T. The assets of A and T are pooled and they are distributed to the s/h of A and T who are now the s/h of A. S/h of the company may change - accommodates shareholders, terms set out in the merger agreement.
What is a cash merger?
usually found in the USA - A absorbs T , but s/h of T paid out with cash and do not become s/h of A
What is a triangular merger?
A holding company merges a subsidiary/shell with a target company. H is the only s/h, no more s/h of S and T. Used to avoid liabilities. Safety net merger.
What is a reverse triangular merger
Holding company merges T and S but T absorbs S , used in instances where T may have specific rights attached which does not allow their structure or identity to be changed.
What is the merger procedure
- agreement
- S & L test
- Requisite approval
- notice to creditors
- implementation
What does S115 regulate
schemes of arrangement
what does a scheme of arrangement refer to
Any agreement between the company and holders of any class of its securities
What does the scheme of arrangement usually have to do with
The reorganisation of share capital
Who proposes a scheme of arrangement in S115
The board of the company unless
- it is in liquidation
- in the course of business rescue proceedings
What is the process for a scheme of arrangements
- company gets independent expert to compile a report
- Prepares a report with all prescribed info on scheme for the board
- Expert distributes the report to all holders of the company’s securities
what is the minimum requirements of the expert’s report in a scheme of arrangement
- all info relevant to value of securities and proposed arrangement
- identify evert type or class of holder affected by proposed arrangement
- describe the material effects and adverse effects on holders of securities who will be affected
- notice must contain provisions S115 and S116
what does S115 do
sets out all the procedural requirements that have to be followed in the 3 fundamental transactions
what are the main requirements under S115
- approved ito of S115
- compliance notice if applicable
- special resolution ( quorum of 25%)
- notice to s/h contain s115 and S164
Under what circumstances can the company not implement a transaction despite obtaining a special resolution as set out in S115?
In the cases where the resolution was apposed by at least 15% of voting rights that were exercised on the resolution or any one person who voted requires the company to seek out approval
What does the company have to do in the case where a special resolution is opposed by 15% of the voting rights in a special resolution for a fundamental transaction?
The company has to seek court approval and bear costs of the application
or the company has to treat the resolution as a nullity
What happens in cases where the court grants a shareholder leave to apply to the court to review the transaction
The application is allowed if s/h acting in good faith and appears prepared and able ito S115 (7) The court will set aside the resolution if it is manifestly unfair to a class of s/h or if the vote was tainted by a conflict of interest etc.
why was the takeover regulation panel set up
- to ensure the integrity of the marketplace and fairness to s/h
- to regulate affected transactions undertaken by regulated companies
what is the takeover regulation panel
a juristic person created by S129 of the act who issued compliance certificates to regulated companies before they are allowed to proceed with fundamental transactions
what is the main aim of the takeover regulation panel provision
a transparent process where all s/h are treated equally
what is a regulated company
Usually a public company however some private companies can also be refulated
can a regulated company proceed with an affected transaction if the takeover regulation panel has not issued a clearance notice with respect to the transaction
no
can the takeover panel grant exceptions to the compliance requirement
yes they can
where could an example of statutory arbitrage arise
the interaction between S48 and S114
