Re-Acquisition by a Company of Own Issued Shares under Sections 48 and 114(1) of the Companies Act 71 of 2008: A Critical Assessment through Capprec

Re-Acquisition by a Company of Own Issued Shares under Sections 48 and 114(1) of the Companies Act 71 of 2008: A Critical Assessment through Capprec

Author: Simphiwe S. Bidie

ISSN: 1996-2185
Affiliations: Senior Lecturer, Nelson R. Mandela School of Law, University of Fort Hare
Source: South African Mercantile Law Journal, Volume 34 Issue 1, 2021, p. 52 – 87
https://doi.org/10.47348/SAMLJ/v34/i1a3

Abstract

Since the Companies Act 2008 came into being, there has been no clear direction regarding the interpretation to be given to the provisions regulating buy-back transactions. Recently, the provisions finally received some concrete attention in the judgment of Windell J in First National Nominees (Pty) Limited v Capital Appreciation Limited (Capprec). The judgment is important because it has since provided a measure of clarity on the potent interdependence between sections 48 and 114 of the 2008 Act, and how these must be interpreted. What is of interest is how Windell J set out and interpreted the operation and interdependence between section 48(2)(a), section 48(8)(b) and section 114 of the 2008 Act. Overall, the arguments from both parties in Capprec presented Windell J with a solid foundation that enabled the court to proffer a succinct and illuminating direction on the interpretation and operation of the provisions. This article attempts to extricate whether the course Windell J adopted in her judgment is consistent with what the 2008 Act contemplates, and if not, what would have been the appropriate course to take. The article demonstrates that Windell J did not seize the opportunity to thoroughly engage with section 114(1)(e) regulating buy-back schemes of arrangement and to ascertain what a scheme entails. This is despite the fact that in Capprec both parties’ arguments were underpinned by whether or not the proposed arrangement was a scheme. In this regard, Windell J’s approach is disappointing and is criticised because her interpretation means that the provisions of the 2008 Act have still not been clarified, although we have been waiting for 13 years for clarification. This is an unnecessary oversight by the judge.

South Africa’s Exchange Control Regulations and ‘Loop Structures’: The Income Tax Implications of the Removal of the Restrictions with Effect from 1 January 2021

South Africa’s Exchange Control Regulations and ‘Loop Structures’: The Income Tax Implications of the Removal of the Restrictions with Effect from 1 January 2021

Author: Annet Wanyana Oguttu

ISSN: 1996-2185
Affiliations: Professor, Department of Taxation and the African Tax Institute in the Faculty of Economic and Management Sciences, University of Pretoria
Source: South African Mercantile Law Journal, Volume 34 Issue 1, 2021, p. 88 – 117
https://doi.org/10.47348/SAMLJ/v34/i1a4

Abstract

This article analyses the implications of the income tax provisions introduced to address the potential tax avoidance that could arise from the lifting of the exchange control restrictions on ‘loop structures’ which were effected from 1 January 2021. Most South Africans and foreign investors do not quite understand the operation and implications of exchange controls due to the complexity of these regulations, and the perception that it is difficult to move money in and out of South Africa. Since the removal of exchange control restrictions on loop structures does not apply to existing unauthorised loop structures, this paper also provides a broader understanding of the operation of exchange controls regarding loop structures. The article first explains the administration of exchange controls and how the restrictions of exchange controls on loop structures have been relaxed over the years, and then it explains the 2021 removal of the restriction on loop structures as well as the amendments to the Income Tax Act to curtail tax avoidance risks.

Case Notes: An Exploratory Analysis of Central Bank Digital Currencies – Some Considerations

Case Notes: An Exploratory Analysis of Central Bank Digital Currencies – Some Considerations

Author: Vivienne Lawack

ISSN: 1996-2185
Affiliations: University of the Western Cape
Source: South African Mercantile Law Journal, Volume 34 Issue 1, 2021, p. 118 – 134
https://doi.org/10.47348/SAMLJ/v34/i1a5

Abstract

The history of central banking began with payment services. Ever since then, payment-related innovation has always been an integral part of central banking (BIS Committee on Payments and Market Infrastructures and Markets Committee Report, ‘Central Bank Digital Currencies(2018) iii). Payments have evolved extensively over the years with the emergence of various technologies, from the development of real-time gross settlement (‘RTGS’) systems, to electronic money and mobile money, to name a few. The arrival of financial technologies or ‘fintech’ has led to cryptocurrencies and now central bank digital currency (‘CBDC’) (on cryptocurrencies, see Reddy & Lawack, ‘An overview of the regulatory developments in South Africa regarding the use of cryptocurrencies’ (2019) 31 SA Merc LJ 1–28; see also Deloitte, ‘Are Central Bank Digital Currencies (CBDCs) the money of tomorrow?’, available at https://www2.deloitte.com/ie/en/pages/financial-services/ articles/central-bank-digital-currencies-money-tomorrow.html, accessed on 3 May 2021). A CBDC represents another potential innovation in the area of an evolving branch of the law called ‘fintech law’. This exploratory analysis provides an overview of the meaning of CBDC and the legal nature of money and CBDC. In addition, it provides a broad overview of some legal implications, policy considerations and regulatory issues. Challenges and risks are also highlighted.

Case Notes: Jurisdictional Quandaries Triggered by a New Variant for Dismissal

Case Notes: Jurisdictional Quandaries Triggered by a New Variant for Dismissal

Author: Tumo Charles Maloka

ISSN: 1996-2185
Affiliations: University of Limpopo
Source: South African Mercantile Law Journal, Volume 34 Issue 1, 2021, p. 135 – 151
https://doi.org/10.47348/SAMLJ/v34/i1a6

Abstract

While the imperative tone of the Constitutional Court (CC) in Steenkamp v Edcon Ltd (2016) 37 ILJ 564 (CC) (Steenkamp I) leaves no doubt that the Labour Relations Act 66 of 1995 (LRA) does not contemplate invalid dismissals or an order declaring a dismissal invalid, or of no force or effect, the extent of the Labour Court’s (LC) jurisdiction to grant appropriate relief declaring dismissals unlawful and invalid because they constitute encroachment of the applicants’ fundamental rights is a vexed question. In Steenkamp I it was decided that when an applicant alleges that a dismissal is unlawful (as opposed to unfair), there is no remedy under the LRA. What this means is that the LC lacks jurisdiction to make any determination of unlawfulness. A multi-layered and complex jurisdictional problem arose in Chubisi v SABC (SOC) Ltd (2021) 42 ILJ 395 (LC) (Chubisi) where the question was whether Ms Chubisi could obtain a declaratory order that the termination of her contract of employment was unconstitutional, unlawful, invalid and of no force and effect. At issue was the termination of employment pursuant to non-recognition of the employee’s contract by the public broadcaster ostensibly to give effect to the Public Protector’s remedial actions. There is no doubt that the remedial actions of the Public Protector have a binding effect, unless, of course, they are reviewed and set aside (EFF v Speaker of the National Assembly 2016 (3) SA 580 (CC); see also Mhango & Dyani-Mhango, ‘The powers of the South African Public Protector: A note on Economic Freedom Fighters v Speaker of the National Assembly’ 2020 African Journal of Legal Studies 1). The court held in Chubisi that the termination of the applicant’s contract of employment by the South African Broadcasting Corporation (SABC) was unlawful, invalid and of no force and effect. The question that arises, therefore, is whether the LC in granting a declaratory order to the effect that the termination of employment was unlawful and invalid misinterpreted and misconstrued the ratio of Steenkamp I. To answer this question, the reasoning of Tlhotlhalemaje J in addressing jurisdictional difficulties requires close scrutiny and analysis. In effect, the resolution of the issues emerging from Chubisi allows for a detailed examination of the import of Steenkamp I. This also provides a platform for examining the fundamental but somewhat tenuous distinction between the jurisdiction and the powers of the LC. In legal parlance, the critical task for the court in any given case is to decide whether the statutory provision on which an applicant relies to found jurisdiction is indeed one that confers jurisdiction. At a more general level, Chubisi implicates corporate governance malaise at the SABC with the unfortunate reality of retrenchments. Therefore, a concise discussion of the corporate governance challenges is merited.

Regterlike herverdelingsdiskresie vir batedeling by egskeiding beleef ’n heropstanding ondanks grondwetlike bedeling téén arbitrêre ontneming sonder vergoeding

Regterlike herverdelingsdiskresie vir batedeling by egskeiding beleef ’n heropstanding ondanks grondwetlike bedeling téén arbitrêre ontneming sonder vergoeding

Author: JC Sonnekus

ISSN: 1996-2207
Affiliations: Professor in Privaatreg, Universiteit van Johannesburg
Source: Tydskrif vir die Suid-Afrikaanse Reg, Issue 4, 2022, p. 603-639
https://doi.org/10.47348/TSAR/2022/i4a1

Abstract

The recognition of and respect for the party autonomy of every legal subject of majority not limited by any personal cognitive handicap is part and parcel of the foundation of an orderly legal community governed by the rule of law. “Making rules of law discretionary or subject to value judgments may be destructive of the rule of law” (Bredenkamp v Standard Bank of South Africa Ltd 2010 4 SA 468 (SCA) 481E).
The discretionary power of a divorce court under section 7(3) of the Divorce Act 70 of 1979 stems from before the current constitutional dispensation. Almost thirty years after the acceptance of the constitutional values of the current system, it was hoped that as time went by, the transitional exception dating to 1984 that exhibits clear elements of arbitrariness would be relied on with declining frequency. There is only a limited number of marriages still in existence concluded before November 1984 with an ante-nuptial contract providing for the proverbial “cold exclusion of all benefits” that could potentially at this late stage in the spouses’ lives be expected to end in the divorce court justifying a reliance on this section. The act limits the discretionary power to explicit conditions: it can be considered only where the divorce concerned a marriage concluded before the commencement of Act 88 of 1984 with an ante-nuptial contract that excluded accrual sharing and any form of asset sharing and in the absence of any agreement at any time between the erstwhile spouses regarding the division of their assets. Provided these conditions are met, the court can order that such assets, or such part of the assets of the other party as the court may deem just, be transferred to the first-mentioned party (s 7(3)).
In all these circumstances a valid ante-nuptial contract exists to which both parties agreed in the presence of a notary public and the applicant in reality never acquired any claim to the other party’s assets. The applicant in addition represented to the other spouse, the notary public and the public at large a claim would never be made to any of the respondent’s assets. “Reasonableness and fairness are not freestanding requirements for the exercise of a contractual right. … Acceptance of the notion that judges can refuse to enforce a contractual provision merely because it offends their personal sense of fairness and equity will give rise to legal and commercial uncertainty” (Potgieter v Potgieter NO 2012 1 SA 637 (SCA) 650F-H).
In Greyling v Minister of Home Affairs ((40023/21) 2022 ZAGPPHC 311 (11 May 2022)) the court regarded the upholding of the claim of the applicant contrary to the explicit misrepresentation by the applicant that she is in agreement with the terms contained in the notarially registered ante-nuptial contract of 1989 governing the marriage, potentially fair. The court ordered the first condition in section 7(3) of Act 70 of 1979, limiting its application to pre-November 1984 marriages, unconstitutional.
This judgment may be popular and in line with what the woman in the street might regard as fair, presumably abandoning the principle of pacta sunt servanda as well as the principles underlying estoppel, but does not bode well for the upholding of the rule of law. “The court does not as yet sit, as under a palm tree, to exercise a general discretion to do what the man in the street, on a general overview of the case, might regard as fair” (Springette v Defoe 1992 2 FLR 388 391).

It is argued that legal certainty will not be enhanced should the constitutional court confirm this judgment. An alleged reliance on principles or policy exclusively based on common law jurisdictions as justification for the recognition of such a discretionary power under these circumstances, without any consideration of the position under civil law systems which indeed share common roots with specifically the South African private law system is once more an example of the demise of our jurisprudence where legal professionals seem to be unable to do proper, relevant and reliable comparative legal research.
Since the husband in the Greyling case did not even oppose the claim of his spouse (all prior to a divorce application) and chose to abide by the court’s decision, it is indeed strange that the court refrained from referring to and recognising that the parties could at any stage since 1989, have relied on section 21(1) of Act 88 of 1984 to have effected a change in their matrimonial property regime. It reeks of misuse of the court process for the court, under these circumstances, to hold as unconstitutional that part of section 7(3) as being the only possible remedy for the claimant against the perceived injustice she would be suffering on divorcing her husband because of their matrimonial property regime, is mind-blowing. The only benefit of not relying on section 21(1) would be to not be bound by the requirements contained in section 21(1)(a-c) – there are sound reasons for the proposed change; sufficient notice of the proposed change has been given to all the creditors of the spouses; and no other person will be prejudiced by the proposed change – and that would constitute misuse. Section 36(1)(e) of the constitution provides that the rights in the bill of rights may be limited but only in terms of a law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom (party autonomy), taking into account all relevant factors, including less restrictive means to achieve the purpose. It is clearly not the case in instances like these.