Stand 242 Hendrik Potgieter Road Ruimsig (Pty) Ltd v Göbel NO

On 30 January 2009, the second appellant (Mr N van Zyl) acting for Stand 242 Hendrik Potgieter Road Ruimsig (Pty) Ltd (Stand 242), purchased immovable property from Bubesi Investments 196 (Pty) Ltd (Bubesi) for approximately R31 million. The property was Bubesi's sole asset. Bubesi was represented by two directors, Mr Karl-Heinz Göbel and Mr V Wilken. On 2 February 2009, the two directors signed a document certifying that the sale had been approved by shareholders in a general meeting in terms of section 228 of the Companies Act 61 of 1973, or alternatively that the property did not constitute the whole or greater part of the company's assets. Both statements were false - the property was Bubesi's sole asset and the other trustees of the shareholding trusts (who owned Bubesi's shares in equal shares through two trusts) asserted they were not aware of the sale. No special resolution authorizing or ratifying the sale was passed by Bubesi's shareholders. After disputes arose, Bubesi let the property to a third party for three years. Stand 242 brought an urgent application for an interdict, which Jajbhay J granted. The trustees and Bubesi then sought to have that order set aside on the basis of non-compliance with section 228.

• Whether the Turquand rule applies to obviate the requirements of section 228 of the Companies Act 61 of 1973
• Whether the 2006 amendment to section 228 requiring a special resolution affects the application of the Turquand rule
• Whether estoppel can operate to preclude reliance on section 228 of the Companies Act
• Whether a contract for disposal of a company's sole or major assets is enforceable without shareholder approval as required by section 228

The appeal was dismissed with costs. The order of Lamont J in the South Gauteng High Court declaring non-compliance with section 228 and that the sale was unenforceable was upheld.

The Turquand rule does not apply to section 228 of the Companies Act 61 of 1973. A contract for the disposal of the whole or greater part of a company's assets entered into without the required shareholder approval by special resolution is unenforceable until such approval or ratification is obtained. The purpose of section 228 is to protect shareholders by ensuring they retain control over disposal of major company assets; applying the Turquand rule would defeat this statutory purpose and render the section meaningless. Estoppel cannot operate to allow contravention of a statutory requirement such as section 228.

The court noted that the 2006 amendment requiring a special resolution for shareholder consent was designed to protect minority shareholders, especially in takeover situations, but does not materially change the position regarding application of the Turquand rule. The court observed that even with the special resolution requirement, third parties are in no better position to ascertain compliance if the resolution has not yet been registered or if it ratifies a decision after enquiries are made. The court also noted that if a special resolution is not registered within six months of its passing, it lapses under section 202 of the Act. The court mentioned that Stand 242 had instituted an action for specific performance or damages against Wilken and Göbel for R10.2 million, where questions of knowledge and consent would likely be tested.

This judgment definitively resolved a long-standing debate in South African company law regarding whether the Turquand rule applies to section 228 of the Companies Act 61 of 1973. It confirmed that shareholder protection under section 228 takes precedence over the commercial convenience rationale underlying the Turquand rule. The case clarifies that third parties dealing with companies cannot rely on the Turquand rule to enforce contracts for disposal of a company's major assets without proper shareholder approval. It reinforces the protective purpose of section 228 and confirms that the 2006 amendments requiring a special resolution strengthen rather than weaken shareholder rights. This decision is important for corporate governance, particularly in protecting shareholders from unauthorized disposals of major company assets by directors.