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Court case: executor claims against company for “oppressive conduct” – Armitage NO v Valencia Holdings 13 (Pty) Ltd and Others

Armitage NO v Valencia Holdings 13 (Pty) Ltd and Others [2023] ZASCA 157

The second to fifth respondents (the respondents) and the deceased were co-shareholders in, and directors of, the first respondent (Valencia). Valencia was a holding company with no other assets than its shareholding in two trading companies, and had no bank account. The deceased and the respondents agreed in their shareholders agreement that their personal skills mainly contributed to the value of the trading companies. They agreed to extend loans to each of them as interest free shareholder loans as and when they were in need of funds, and regarded these as advance payments of dividends to be declared. When dividends were declared, these were first applied against the outstanding shareholder loans. Payments were made from one or both of the subsidiaries and these were accounted for once a year in the books of Valencia. They also agreed in the shareholders agreement how the shares will be bought over by the remainder of them in case of the death or permanent disability of one or more of them and took out buy-and-sell insurance to assist with the funding of this. After the death of the deceased in 2013 the respondents negotiated with the surviving spouse, who is the executor in the deceased estate and also the appellant in this case (the appellant). The negotiations were unsuccessful, inter alia because the appellant demanded that the full payout of the insurance should be paid into the deceased estate in exchange for the deceased’s shares in Valencia. The appellants argument was that the deceased estate should have benefited from the profits of Valencia and that the directors refused to make further loans to the estate while they extended further loans to themselves. The appellant instituted action against Valencia and the respondents in the Johannesburg High Court on the basis that there was an oral agreement between the shareholders that the proceeds of the policy would be the purchase price for the deceased’s shares, the respondents were delinquent directors, that they acted in contravention of the provisions of section 45 of the Companies Act, 71 of 2008 (the Act), in that no solvency test was executed before the loans were extended, and that their behaviour amounted to oppressive or unfairly prejudicial conduct towards a minority shareholder, i.e. her in her capacity as executor of the deceased estate. The Johannesburg High Court rejected the first three grounds, but found there was oppressive and unfair conduct and ordered the payment of the R6.7m payout of the policy to the deceased estate under section 163 of the Act. On appeal to a full bench, the respondents succeeded and the court (Adams J, with Fisher and Malindi JJ concurring) found that there were no oppressive or unfairly prejudicial conduct on the part of the respondents. The appellant then appealed to the Supreme Court of Appeal (SCA).

The SCA (Siwendu AJA, with Dambuza, Meyer, Goosen JJA, and Kathree- Setiloane AJA concurring) held that the deceased agreed in the shareholders agreement to the way in which the value of the shares would be determined in case of the death or permanent disability of a shareholder. The outstanding shareholders loan of the deceased (money he owed to Valencia) was set off over time after his death by the deceased estate sharing in further dividends. There was therefore no agreement that the total proceeds of the policy would be paid in exchange for the deceased’s shares. The court also held that there was no grounds for the trial court to have found that there was oppressive or unfair prejudicial conduct on the part of the respondents. Mere allegations of such behaviour is not enough and it is an objective test that has to be satisfied before the court can make a “just and equitable” order of compensation in favour of a minority shareholder.

The court dismissed the appeal with costs.