Neo Doreen Mosalakae & others v Nomsa Matlala & Others

In 1997, groups of black women formed entities to participate in Black Economic Empowerment ventures. Seven entities (represented by the appellants and respondents) each paid R2,000 to become equal shareholders in Gundo Investments (Pty) Ltd, a BEE company. Gundo was selected to acquire shares in Phumelela Gaming through Dihla Investments. A R52,500 deposit was required by November 2002. The third and fourth appellants (Sedimoza and Ntombisi) attempted to pay this deposit on 12 November 2002, but the payment was not accepted as Nafhold had already paid on 25 October 2002. The appellants claimed this payment entitled them to increased shareholding based on a purported 'rights offer' made at a meeting on 5 October 2002. In December 2007, the first appellant, Ms Mosalakae, backdated the share register to reflect only Sedimoza and Ntombisi as 50% shareholders each, excluding the respondent entities. The respondents launched an application under section 115 of the Companies Act 61 of 1973 to rectify the share register to reflect all seven entities as equal shareholders.

• Whether a valid contract for a 'rights offer' was concluded between Gundo and Sedimoza/Ntombisi that entitled them to increased shareholding
• Whether the payment made by Sedimoza and Ntombisi on 12 November 2002 entitled them to increased shares when it was not accepted
• Whether the share register should be rectified under section 115 of the Companies Act 61 of 1973 to reflect all seven entities as equal shareholders
• What certainty of terms is required for a valid rights offer and share allotment
• Whether partial execution of an invalid agreement can create enforceable rights

The appeal was dismissed with costs, including costs of two counsel. The order of the Gauteng Division of the High Court, Pretoria, rectifying the share register to reflect the five respondent entities and the two appellant entities (Sedimoza and Ntombisi) as equal shareholders in Gundo Investments (Pty) Ltd was upheld.

For a valid share allotment contract (rights offer) to be concluded, there must be certainty as to material terms, specifically the number of shares offered and the price per share. A share allotment is a contract requiring offer and acceptance like any other contract. An attempted payment that is not accepted by the company cannot form the basis for share allotment. Payment alone, without a valid underlying agreement for share allotment that has been accepted by the company, does not entitle a party to increased shareholding but at best creates a loan account. Unilateral backdating of a share register by one shareholder without proper authorization and in contradiction of the actual shareholding structure is invalid. Under section 115 of the Companies Act 61 of 1973, courts have wide equitable powers to rectify share registers to reflect the true state of shareholding, and the party seeking to establish a shareholding structure different from what was originally agreed bears the onus of proving the validity of any subsequent changes.

The court made observations about the conduct of Ms Mosalakae, noting that her evidence that contact was lost with other shareholders was 'untruthful' given she had their contact details and attorneys were involved on both sides. The court noted this lent credence to the respondents' contention that from 2002 the appellants embarked on a scheme to 'hi-jack' Gundo. The court observed that the appellants' failure to call Mariette (the auditor's employee who allegedly advised on the 'regularisation') as a witness warranted a negative inference, as she would have been a material witness. The court commented that Ms Mosalakae's claim that she blindly accepted Mariette's advice to ignore the R2,000 contributions was 'both legally and morally wrong'. The court noted that a benevolent interpretation of contracts must not be taken too far, and courts cannot find consensus ad idem by mere conjecture or make contracts for the parties. While the court assumed for purposes of the judgment that proper notice was given and statutory requirements were met (as the trial court had found), it noted there was dispute about these matters.

This case is significant in South African company law for several reasons: (1) It clarifies the requirements for a valid rights offer and share allotment, emphasizing that the same certainty of terms required in ordinary contracts applies - specifically, the number of shares and price per share must be clearly determined. (2) It demonstrates the wide equitable discretion courts have under section 115 of the Companies Act 61 of 1973 to rectify share registers, and confirms that appellate courts are in as good a position as trial courts to exercise this discretion (it is a discretion in the broad sense). (3) It illustrates that attempted unilateral actions by one shareholder or faction to manipulate the share register, particularly through backdating entries, will not be upheld. (4) It reinforces that payment alone, without a valid underlying agreement and acceptance by the company, does not create shareholding rights - at best creating a loan account. (5) The case has particular relevance in the BEE context, protecting the rights of women's groups participating in economic empowerment ventures from attempts by some participants to exclude others and consolidate control.