Peters NO and Others v Schoeman and Others

The appellants, acting as trustees of two family trusts, were the sellers of shares in Carpe Diem Properties (Pty) Ltd. The respondents were the purchasers. The parties concluded a written deed of sale in 1997 aimed at ultimately enabling the respondents to acquire members’ interests in a close corporation after the company was converted into a close corporation. The transaction structure was designed to avoid contravening section 38 of the Companies Act 61 of 1973, which prohibits a company from giving financial assistance for the purchase of its own shares. The purchase price of R1 000 000 was to be paid partly by deposits and partly through a bank loan secured only after the company had been converted into a close corporation. The respondents later refused to proceed, alleging that the transaction contravened section 38 and was void ab initio. The court a quo agreed and dismissed the appellants’ claim. The appellants appealed to the Supreme Court of Appeal.

The appeal was upheld with costs. The order of the trial court was set aside and substituted with an order directing the respondents to pay R450 000 within 20 days, to comply with their remaining obligations under the memorandum of sale, and to pay the costs of the application.

The case clarifies the interpretation and scope of section 38 of the Companies Act 61 of 1973, particularly in complex, multi-stage transactions involving conversion of companies to close corporations. It confirms that courts will look to the substance of a transaction but that careful structuring to avoid statutory prohibitions is permissible where no mischief is caused. The judgment is important authority on financial assistance, simulated transactions, and the protection of company creditors.