SA Mohair Brokers Ltd v Louw and Others

SA Mohair Brokers Ltd (the appellant) wished to sell its 66% shareholding in its operating company, CMW Operations (Pty) Ltd, to Oos-Vrystaat Kaap Operations Ltd. This required a special resolution under s 228 of the Companies Act 61 of 1973. BKB Ltd, a competitor in the mohair industry, sought to prevent this sale and instead purchased shares in SA Mohair Brokers from certain shareholders. The sellers concluded sale agreements with BKB, provided signed blank transfer forms and irrevocable proxies authorising BKB to vote their shares against the special resolution, and were paid in full. The company’s articles of association required prior director approval for the sale of shares. At the shareholders’ meeting on 4 December 2009, the chairman, acting on legal advice, ruled the proxies invalid on the basis that the share sales were void for lack of director approval, and consequently refused to allow the proxy holder to vote. The special resolution was therefore passed. The respondents challenged the validity of the meeting and resolutions.

The appeal was dismissed with costs, including the costs of two counsel. The setting aside of the resolutions taken at the shareholders’ meeting of 4 December 2009 was confirmed.

The case clarifies the effect of restrictions on the transfer of shares contained in a company’s articles of association. It confirms that a sale of shares in breach of such restrictions is not void but merely unenforceable against the company in relation to registration. It also affirms the principle that registered shareholders retain voting rights, including the right to appoint proxies, until a transfer is registered.