IN THE SOUTH GAUTENG HIGH COURT 
JOHANNESBURG 

	CASE: 2009/22928

In the matter between:	
Verimark Holdings Limited	Applicant
and
Brait Specialised Trustees (Pty) Limited NO	First Respondent
Brait Multistrategy Trustees (Pty) Limited NO	Second Respondent
Securities Regulation Panel	Third Respondent

Judgment
Malan J;

[1] On 4 June 2009, the applicant applied for leave to convene a meeting in terms of s 311 of the Companies Act 61 of 1973. In terms of the proposed scheme of arrangement, the Van Straaten Family Trust (VSFT), the majority shareholder in the applicant, offered to acquire all the minority shares (being 37% thereof) in the applicant, a company listed on the JSE, for 50 cents per share. On 15 June 2009, Gildenhuys J granted an order convening a meeting of the ordinary shareholders of the applicant to be held on Monday, 13 July 2009 for the purpose of considering the scheme proposed by VSFT.
[2] The scheme meeting was held on 13 July 2009 under the chairmanship of Mr David Leibowitz. As appears from the chairman's report, the results of the poll taken at the meeting of 'scheme members' reflect that 80,06% of 'scheme members' voted in favour of the scheme; 19.93% of 'scheme members' voted against the scheme; and .01% of "scheme members' abstained from voting. It is common cause that VSFT and what are defined as 'excluded members' under the scheme voted in favour of it.
[3] The three respondents having been granted leave to intervene all oppose the sanctioning of the scheme essentially on two grounds: first, that VSFT and the 'excluded members' are not 'scheme participants' and should not have been permitted to vote; and, secondly, VSFT and the 'excluded members' are a class of
ordinary shareholders different from the remaining 37 per cent of the shareholders and should not have been permitted to vote. In addition, the adequacy of the offer price is challenged.
[4] The order of court made on 15 June 2009 makes reference to a scheme of arrangement proposed by the proposer between Verimark 'and its ordinary shareholders substantially in the form attached to the founding affidavit in this matter'. The scheme circular to Verimark shareholders describes the scheme of arrangement as one between Verimark
'and the shareholders of Verimark (other than the excluded members) in terms of which VSFT will acquire ail of Verimark's issued shares held by the scheme participants on the consideration record date...',

[5] The 'excluded members' is defined as, collectively, Prime Rentals CC (a ciose corporation, an associate of the proposer holding 7% of the issued share capital in Verimark and which close corporation is beneficially owned by Mr MJ Van Straaten and his family); Mirror Ball investments 49 (Pty) Limited (a Black Economic Empowerment entity holding 6,6% of the shares in Verimark) and Selcovest 35 (Pty) Limited (an employee entity holding 3,5% of the shares in Verimark).

The 'scheme participants' is defined as:
'Verimark shareholders, other than the excluded members, recorded in the register on the scheme consideration record date, who will dispose of [their] scheme shares and become entitled to receive the scheme consideration, if the scheme becomes operative;

The 'scheme shares' is defined as:
'42 272 328 shares, representing 37% of the shares in the issued share capital of Verimark held by scheme participants on the scheme consideration record date,'

'Scheme members' is defined as
'Verimark shareholder[s] recorded in the register on the scheme voting record date, who are entitled to vote at the scheme meeting:

'Scheme meeting' is
'the meeting of scheme members convened in terms of an Order of the Court, to be held at 09:00 on Wednesday, 8 July 2009 at the registered office of Verimark ... or any adjournment thereof... at which scheme members will consider and vote on the scheme, the notice of which is attached to and forms part of this circular.'

The 'scheme' or 'scheme of arrangement' is
'a scheme of arrangement in terms of section 311 of the Companies Act, proposed between VSFT and the shareholders of Verimark (other than the excluded members), in terms of which VSFT will acquire all of Verimark's issued shares held by the scheme participants on the consideration record date in exchange for the scheme consideration, the terms and conditions of which are contained in the scheme of arrangement

[6] The scheme is therefore one directed at the proposer's acquiring the 37 per cent shareholding held by the 'scheme participants' (ie 'shareholders, other than the excluded members, recorded in the register on the scheme consideration record date, who will dispose of [their] scheme shares and become entitled to receive the scheme consideration, if the scheme becomes operative'). The proposer is not a 'scheme participant' because, although a shareholder, it is not envisaged that VSFT will dispose of any of its shares and receive the scheme consideration, albeit a 'scheme member' it holds no 'scheme shares'. However, the scheme envisages that the offer contained in the scheme documents be accepted, not by the 'scheme participants' (the holders of 37 per cent of the shares) to whom the offer was addressed, but by the 'scheme members' (all the shareholders) at the 'scheme meeting'.

[7]    Section 311 provides;
'(1) Where any compromise or arrangement is proposed between a company and its creditors or any class of them or between a company and its members or any class of them, the Court may, on the application of the company or any creditor or member of the company ... order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the Court may direct (2) If the compromise or arrangement is agreed to by-
(a)	a majority in number representing three-fourths in value of the creditors or class of creditors; or
(b)	a majority representing three-fourths of the votes exercisable by the members or class of members, (as the case may be) present and voting either in person or by proxy at the meeting, such compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors or the class of creditors, or on the members or class of members (as the case may be) and also on the company..."

[8] At common law an offer may be accepted by the addressee only. An offer for a composition, at common law,
'to be binding and effective ... must be accepted by all to whom it is proposed. Whilst the composition may or may not have to be accepted by all debtor's creditors to whom the proposal is addressed and for whom it is intended; if any such creditor(s) refuse or reject the offer, it is an end to the matter.'
[9] Because the number of creditors and members of a company are often large making it difficult to negotiate with each individual to secure his or her consent, s 311 and its predecessors were enacted. In Re The Dominion of Canada Freehold Estate and Timber Company Limited Chitty J said:

'[O]ne of the difficulties that there always is in dealing with matters of this kind when the company gets into difficulty, and when more money is required, is to deal with the debenture holders as a class. That is the difficulty which the Legislature itself felt when it passed the Act of 1870, allowing a majority, and a sufficient majority - that is to say, not a mere absolute majority, but a majority that is larger than that ~ to bind the minority. Then it was known that, before the legislation of 1870, any particular individual could hold out against a scheme, however meritorious and however beneficial if might be, in order that he might get, generally speaking, some special advantage for himself, or because he was a person who did not even get a fair view of the advantages to be gained. It was for the purpose of preventing that the Legislature passed the Joint Stock Companies Arrangement Act, 1870 …’
[10] In defining what is meant by a 'class' in s 311, our courts have generally followed the statement of Bowen LJ in Sovereign Life Assurance Co v Dodd:
The word "class" used in the statute is vague, and to find out what it means we must look at the general scope of the section, which enables the court to order a meeting of a "class of creditors" to be summoned. St seems to me that we must give such a meaning to the term "class" as will prevent the section being so worked as to produce confiscation and injustice, and that we must confine its meaning to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.'
In the cases that have followed since Sovereign Life, this passage has virtually hardened into law. It became well established that the categorisation of a class of either members or creditors for the purposes of s 311, involves a determination of the similarity of rights and not the similarity of interests.
[11] The proposer, the 'excluded members' and minorities are all ordinary shareholders in the applicant. Their rights, or the 'bundle, or conglomerate, of personal rights entitling the holder thereof to a certain interest in the company, its assets and dividends', are identical and they all belong, it seems to me, to the same class of shareholder. This, however, is not the issue. The inquiry whether separate meetings should be held arises only after determination of the identity of the offeree, The relevant question, 'at the outset, is 'between whom is it proposed that a compromise or arrangement is to be made?' It was remarked that:
'in order to determine what the rights of creditors are and indeed whether they are bound at all, one looks to the terms of the contract. Although the Act apparently enjoins that all creditors are bound by a duly sanctioned offer, the cases explain, at least by necessary implication, that this only applies to those creditors who were parties to it, that is to say, to those to whom the offer was intended to be directed.'
[12] The reference to 'all' the creditors or members in s 311(2) is thus a reference to those creditors or members to whom the offer is made. Only when this primary question has been answered does the question whether one or several classes are involved arise. In Re Hawk Insurance Co Ltd Chadwick JL said:
[13] The question whether to summon more than one meeting - and, if so, who should be summoned to attend which meeting - has to be made at the first stage. If the matter were free from authority, i would have regarded the basis upon which that decision has to be made as self-evident The relevant question is: between whom is the proposed compromise or arrangement to be made? There are, as it seems to me, three possible answers to that question. Which answer is correct in any particular case will depend upon the circumstances peculiar to that case,
[14] First, there will be cases where it is plain that the compromise or arrangement proposed is between the company and all its creditors. In such a case, s 425(1) of the 1985 Act provides for the court to order a single meeting of all the creditors,
[15] Second, there will be cases where it is plain that the compromise or arrangement is proposed between the company and one distinct class of creditors; for example, unsecured trade creditors whose debts accrued before (or after) a given date. Or it may be plain that there are two (or more) separate compromises or arrangements with two (or more) distinct classes of creditors; for example, one compromise with unsecured trade creditors whose debts accrued before a given date and a separate compromise (on different terms) with unsecured trade creditors whose debts accrued after that date. In such a case, the section provides for the court to order a meeting of each class of creditors with whom the compromise or arrangement is to be made, that is the plain meaning of the words in the section: "Where a compromise or arrangement is proposed between a company and itscreditors, or any class of them, .. the court may order a meeting of the creditors or class of creditors, (as the case may be)"...
[16] Cases which fail into one or other of the two categories which I have described above are likely to be recognised without difficulty. More difficult to recognise are cases in a third category. Those are cases where what appears at first sight to be a single compromise or arrangement between the company and all its creditors (or all creditors of a particular description; say, unsecured creditors) can be seen, on a true analysis, to be two or more linked compromises or arrangements with creditors whose rights put them in several and distinct classes. The compromises and arrangements are linked in the sense that each is conditional upon the other or others taking effect. In such a case, the section provides for the court to order - and the court should be asked to order -that there be summoned separate meetings of each of the distinct classes of creditors.'
[13] The offer in question, 'on a true analysis', was made to the minority shareholders, ie the 'scheme participants', It was not made to the proposer, nor to the 'excluded members'. Only the 'scheme participants', as defined, were entitled to accept or reject it. Only they should have been allowed to vote on it. It follows that I do not have the power to sanction the scheme of arrangement.

The application that the proposed scheme of arrangement be sanctioned is dismissed with costs including the costs of two counsel.

Malan J

Judge of the High Court

Counsel for the applicant: DM Fine SC and J Blou 
Attorneys for the applicant: Glyn Marais Inc 
Counsel for first and second respondents: A Subel SC and AJ Eyles 
Attorneys for first and second respondents: Cliffe Dekker Hofmeyr Inc 
Counsel for third respondent: WGH van der Linde SC and T Massyn 
Attorneys for third respondent: Edward Nathan Sonnenbergs Inc 
Date of hearing: 7 August 2009 
Date of judgment: 28 August 2009