Sale of asset and sale of business agreements are commonly found in the South African commercial landscape and the provisions of the Companies Act No. 71 of 2008 (“Act”) are closely linked with such agreements. More specifically, there are specific provisions of the Act which require the parties to obtain consent, or a waiver of the consent requirement, from the Takeover Regulation Panel (“TRP”) when implementing such agreement in order to protect the interests of minority shareholders.

This article shall explore the instances when TRP’s approval is required for purposes of implementing a sale of asset and/or sale of business agreement.

Disposal of a greater part of a company’s assets or undertaking:

In terms of section 112 of the Act, a transaction or series of transactions amounting to the disposal of all or the greater part of assets or undertaking of a regulated company, is an affected transaction in terms of which the consent from TRP is required. In order to better understand when TRP approval is required, it is necessary to unpack the relevant terminology pertaining thereto.

The term ‘dispose’, according to Henochsberg, means that the company must be required to depart permanently with ownership of the asset(s) or undertaking involved. This would exclude instances where a right of first refusal is granted, or a pledge or a cession in security is provided. It would however include an option to purchase as well as an out-and-out cession.

The ‘greater part of the assets’ of the company would amount to the transfer of more than 50% of the gross assets of the company, fairly valued, irrespective of its liabilities. The ‘greater part of the undertaking’ of a company would amount to a disposal of more than 50% of the enterprise of the company. A regulated company is a company which has transferred, other than by way of transfer between or among related or inter-related persons, more than 10% of its issued securities within a period of 24 months immediately prior to the date of the particular transaction.

If it is concluded that all of the above requirements have been met, consent from TRP would need to be obtained by the parties to the transaction. However, should the transaction in question be pursuant to a business rescue plan, between a wholly-owned subsidiary and its holding company, between or among two or more wholly-owned subsidiaries of the same holding company, or a wholly-owned subsidiary of a holding company on the one hand and its holding company and one or more wholly owned subsidiaries of that holding company on the other hand, TRP approval will not be required.

Concluding remarks:

In circumstances where a company intends to conclude a sale of asset and/or sale of business agreement whereby it alienates the majority of its assets or enterprise and has recently transferred more than 10% of its shares, the company in question must have regard to the possibility of needing to obtain consent from TRP in order to implement the transaction in question.

VDMA’s team of experts are available to assist you and your business with any legal requirements pertaining to the drafting of sale of asset and/or sale of business agreements, including providing expert advice in respect of TRP consent which might be required in order to implement the transaction.

Published 01 June 2022