Western Cape High Court: Butters TRP R499m Mandatory Offer Dispute Proceeds

• Shareholder Craig Butters is challenging a Takeover Regulation Panel (TRP) settlement in the Western Cape High Court, alleging a R499 million discount on a mandatory offer price.
• Butters claims four companies acted in concert to bypass mandatory offer rules, exploiting target companies and prejudicing minority shareholders.
• Judge Derek Wille upheld a non-joinder argument but granted Butters the opportunity to include additional interested parties in his review application.
• The core legal challenge asserts the TRP abandoned its investigative duties for an unauthorized, confidential settlement that harmed minority shareholders.
• The dispute highlights judicial scrutiny of the TRP's role in protecting shareholders and enforcing the Companies Act's 35% mandatory offer rule.

The core legal challenge posits that the TRP respondents "abandoned their investigative duties in favour of an unauthorised, confidential settlement agreement that materially prejudiced minority shareholders."

A significant legal challenge has emerged in the Western Cape High Court, where shareholder Craig Butters is seeking to overturn a 2022 investigation, report, and subsequent settlement agreement by the Takeover Regulation Panel (TRP). Butters' application names the TRP, its former executive director Andile Nikani, deputy executive director Zano Nduli, and four companies as respondents. At the heart of the dispute is Butters' allegation that the TRP granted these companies a substantial R499 million discount on a mandatory offer price, to the detriment of minority shareholders.

In a recent development, Judge Derek Wille, with the concurrence of acting judges Dawn Norton and Zuko Mapoma, upheld a non-joinder argument presented by the company respondents. This ruling acknowledged that not all relevant parties had been included in Butters' initial application. However, the court provided Butters with an opportunity to rectify this by joining additional parties identified by the TRP respondents as having a direct and substantial interest in the outcome of the main review application.

Butters' application stems from a TRP investigation initiated after complaints surfaced that the four companies acted in concert to seize control of target entities without fulfilling mandatory offer obligations to minority shareholders. He contends that these companies deliberately concealed their 'acting in concert' status, thereby circumventing the mandatory offer requirements stipulated by the Companies Act. This alleged scheme, purportedly orchestrated by Warren Chapman, allowed the companies to gain control of four target entities—Zarclear (delisted), African Phoenix Investments (delisted), eXtract (which initiated a delisting process), and ENX—without paying a fair control premium.

Furthermore, Butters claims that the companies' failure to disclose their concert-party status denied minority shareholders equal access to crucial information and enabled the exploitation of the target companies' balance sheets and cash flows for their own commercial gain. He asserts that the TRP's eventual 'remedial action,' which involved a mandatory offer based on 2020 share prices, was grossly inadequate. Butters characterized this settlement as merely 'tying a ribbon' around an unlawful arrangement, designed solely to benefit the companies involved, and effectively granting them a R499 million discount on the required mandatory offer price.

The Companies Act mandates a compulsory offer to all shareholders when an entity acquires more than 35% of a company's shares. The TRP's investigation confirmed that certain investigated parties indeed acquired control over Zarclear and African Phoenix Investments by January 1, 2020, and over Extract and ENX by May 18, 2020, exceeding this 35% threshold and triggering mandatory offers.

Judge Wille highlighted that Butters' core grievance points to an alleged systematic failure by the TRP respondents to protect market integrity against the conduct of the company respondents. The judge noted that the central legal challenge posits that the TRP respondents "abandoned their investigative duties in favour of an unauthorised, confidential settlement agreement that materially prejudiced minority shareholders." Despite evidence of wrongdoing uncovered during its investigation, the TRP concluded the matter with a settlement agreement. A notice published on the Stock Exchange News Service (SENS) by the TRP on April 12, 2023, mentioned the four target companies and stated that an estimated aggregate value of R680,534,155.26 would be offered to shareholders through mandatory offers, but notably did not name the investigated parties.

This ongoing legal battle, centered on the Butters TRP R499m mandatory offer dispute, underscores the critical importance of the Takeover Regulation Panel's role in safeguarding minority shareholder interests and ensuring fairness in the marketplace. The Western Cape High Court's decision to allow Butters to expand his Takeover Regulation Panel review application by joining additional parties signals a judicial emphasis on comprehensive participation from all directly affected entities and scrutiny over the TRP's settlement practices.

The case highlights the potential for challenging TRP decisions that are perceived to grant significant discounts on mandatory offer prices or to otherwise cause minority shareholder prejudice. It reinforces the need for transparency and accountability in corporate control transactions, particularly when allegations of acting in concert mandatory offer circumvention arise, and where the Companies Act 35% mandatory offer rule is at stake. The court's stance suggests a commitment to ensuring that regulatory bodies like the TRP fulfill their mandate to protect all shareholders.

This case highlights the judicial scrutiny of the Takeover Regulation Panel's (TRP) settlement practices and its role in protecting minority shareholders during mandatory offers. Lawyers advising on M&A transactions or corporate governance should note the court's emphasis on proper joinder and the potential for challenging TRP decisions that appear to prejudice minority interests or grant significant discounts on mandatory offer prices.

Source: Original reporting via Moneyweb