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The art of law - the complexities inherent in the 'disposal' of a share.

Companies Act 2008: what is a 'disposition' of shares and at what juncture does it occur?

What constitutes the disposition of a share and the juncture at which the law regards that disposition as having taken effect is of critical importance where an insolvent company is being wound up.

This is because the transitional arrangements of the Companies Act 2008 (as set out in Schedule 5 to the Act) provide that, in relation to the winding-up of insolvent companies, Chapter XIV of the now-repealed Companies Act 1973 remains in force. Included in Chapter XIV of the Companies Act 1973 is section 341(2) which provides that -

'Every disposition of its property (including rights of action) by any company being wound-up and unable to pay its debts made after the commencement of the winding-up, shall be void unless the Court otherwise orders.'

This provision is thus explicit that any disposition of a company's property (which would include a disposition of shares held by that company) that occurs after the commencement of the winding-up of the company is void - and consequently, the person to whom the property was purportedly disposed of by the company does not acquire title to the property (does not acquire ownership); but the sub-section is also explicit that the court has a discretion to order otherwise, in other words, to make an order that the disposition is not void.

What is the date of the disposition of a share

Section 341(2), quoted above, raises the question - at what juncture does the disposition of a share occur?

The sale or donation of a share - or the alienation of a share for any other reason - is usually followed by registration of the acquirer's name in the company's securities register.

But, for purposes of section 341(2) of the Companies Act 1973, quoted above, what is the date on which the disposition of the share occurs? In particular, does disposition occur immediately there is agreement between the party disposing of the share and the party acquiring the share, or does disposition occur only when the acquirer's name is entered in the company's securities register?

It is clear that, given the provisions of section 341(2), this is a critical issue in circumstances where the winding up of a company, on the grounds of its insolvency, commences in the interval between the entering into of such an agreement and the date on which the name of the acquirer of the shares is entered in the company's securities register.

For if, as a matter of law, the disposition of the share in question occurred before the winding-up commenced, then the disposition is not void in terms of section 341(2); but if the disposition occurred after the winding up commenced, it is void unless a court orders otherwise.

The various meanings of 'disposition'

What does disposition mean for the purposes of section 341(2)?

Neither the Companies Act 1973 nor the Companies Act 2008 defines this expression, but the Insolvency Act 24 of 1936 is of some assistance in defining disposition in section 2 as follows -

'"Disposition" means any transfer or abandonment of rights to property and includes a sale, lease, mortgage, pledge, delivery, payment, release, compromise, donation or any contract therefor, but does not include a disposition in compliance with an order of the court; and "dispose" has a corresponding meaning.'

In Inland Property Development Corporation (Pty) Ltd v Cilliers 1973 (3) SA 245 (A) the court said apropos the meaning of transfer in relation to shares that -

'In regard to shares, the word 'transfer', in its full and technical sense, is not a single act but consists of a series of steps, namely an agreement to transfer, the execution of a deed of transfer and, finally, the registration of the transfer.'

It was contended by counsel in the Niemcor judgment, discussed below, (see para [22]), that the disposition of a share requires not only an agreement to transfer the share but also entails the execution by the parties of a deed of transfer and registration of the share in the company's securities register in the name of the acquirer.

If this interpretation is correct, then where a company sells or otherwise disposes of shares and is thereafter placed in winding-up on the grounds of insolvency before the shares are registered in the name of the acquirer - as occurred in the Niemcor case - the transfer of the share will be void in terms of section 341(2), quoted above, unless a court, in its discretion, orders otherwise.

This indeed was the interpretation of section 341(2) that was adopted by Basson J in Niemcor Africa (Pty) Limited v Bushveld Chrome Resources (Pty) Limited [2014] ZAGPPHC 468 where judgment was delivered by the Pretoria High Court on 20 June 2014. (Leave to appeal has since been granted.) Basson J declined to exercise the discretion granted to him by section 341(2) to order that the disposition not be void.

Section 341 of the Companies Act 1973 remains in force where an insolvent company is being wound up

As was noted, above, despite the enactment of the Companies Act 2008, section 341 of the Companies Act 1973 remains in force in the winding-up of an insolvent company, and its interpretation therefore remains an important issue of on-going relevance.

The judicial interpretation of this provision in the Niemcor case, above, will carry greater weight when the pending appeal is heard by the Full Court (that is to say, by a panel of three judges in the Pretoria High Court) but the interpretation will be resolved in a manner binding on all High Courts only when this case, or a similar case, is taken on appeal to the Supreme Court of Appeal.

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