The appraisal right may be described as the right of dissenting shareholders to have their shares bought out by the company in which they hold shares, in cash and at fair value when they do not approve of certain triggering events by the company.
Appraisal rights are not general rights held by shareholders, but are rights which are triggered in 4 (four) specific circumstances, 3 (three) of which relate to fundamental transactions. The reasoning for the inclusion of appraisal rights is that the nature of the company as well as the rights of shareholders could be drastically altered. It is thus a measure which balances the rights and interests of minority shareholders against those of the majority.
In terms of the section 164 of the Companies Act, Act 71 of 2008 (“Act”), appraisal rights are triggered when a company proposes to pass a special resolution relating to the:
- amendment of its “… Memorandum of Incorporation (“MOI”) by altering the preference rights, limitation or other terms of any class of its shares in any manner materially adverse to the rights or interests of the holders of that class of shares”;
- disposal of all, or the greater part, of its assets or undertaking (section 112 of the Act);
- entering into an amalgamation or merger (section 113 of the Act); or
- implementation of a scheme of arrangement (section 114 of the Act).
Notice of a shareholders’ meeting to consider any of the above resolutions, require the company to inform the shareholders of their appraisal rights in terms of the Act. It is then the obligation of a dissenting shareholder to provide the company with prior written notice objecting to the respective resolution. The shareholder should further vote against the proposed resolution at the meeting.
The company is obliged to inform dissenting shareholders, who sent a written notice of objection, whether the special resolution was adopted. A dissenting shareholder who sent a written notice of objection which was not subsequently withdrawn, and then voted against the adoption of the special resolution, may then demand that the company pay fair value for all the shareholders’ shares in the company.
Should the written notice of objection be in relation to the amendment of the MOI, the shareholder may only demand fair value if his / her / its shares have been materially and adversely affected by such amendment. Notice of the demand should not only be sent to the company but also to the Takeover Regulation Panel. Strict timeframes are provided in the Act in terms of which the notices and demands must be delivered.
It must be noted that the dissenting shareholder who sent a demand to be paid fair value of his / her / its shares, has no further rights in respect to those shares, other than to receive payment at fair value. There are, however, certain exceptions to the aforementioned which are not specifically dealt with herein.
Taking the rights of dissenting shareholders and the strict timeframes to be complied with in respect thereof into account, it is advisable to approach specialist advisors / practitioners to assist a dissenting shareholder to adequately enforce his / her /its rights.