Commissioner for the South African Revenue Service v Executors of Estate Late Sidney Ellerine (142/2017) [2018] ZASCA 39; 2019 (1) SA 111 (SCA); 80 SATC 389 (28 March 2018)

Commissioner for the South African Revenue Service v Executors of Estate Late Sidney Ellerine (142/2017) [2018] ZASCA 39; 2019 (1) SA 111 (SCA); 80 SATC 389 (28 March 2018)

The Supreme Court of Appeal held that the deceased, by virtue of his overwhelming voting power, was entitled to convert the preference shares to ordinary shares in terms of Article 7.1.10 of the Articles of Association. The conversion did not require the approval of 75% of the holders of each class of shares, as neither special condition 5.8 nor Article 4.2 applied to a conversion that did not amend the rights attached to the shares but merely affected their commercial value. The court distinguished between a variation of rights and a diminution in commercial value, finding that only the latter occurred in this case. Accordingly, the preference shares must be valued on the basis that they...

Citation
[2018] ZASCA 39
Parties
Appellant: Commissioner for the South African Revenue Service; Respondent: Executors of Estate Late Sidney Ellerine
Court
Supreme Court of Appeal
Jurisdiction
South Africa
Judgment Date
28 March 2018
Case Number
142/2017
Procedural Posture
Civil Appeal / Appeal From Gauteng Tax Court, Johannesburg
Outcome
Appeal upheld with costs, including costs of two counsel. The order of the Tax Court is set aside and replaced.
Judges
Navsa, Wallis, Mbha, Davis, Hughes
Legal Topics
Capital Gains Tax, Share Valuation, Company Articles Interpretation, Variation of Share Rights
Tax Law Commercial and Corporate Capital Gains Tax Share Valuation Company Articles Interpretation Variation of Share Rights

Case Brief

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Parties

Commissioner for the South African Revenue Service

Appellant

Executors of Estate Late Sidney Ellerine

Respondent

Procedural Posture

Civil Appeal / Appeal From Gauteng Tax Court, Johannesburg

Legal Issues

  1. 1 Whether the deceased was entitled, on the date of his death, to convert the preference shares to ordinary shares without the approval of 75% of the holders of each class of shares.
  2. 2 Whether the preference shares should be valued on the basis that they could be converted to ordinary shares for capital gains tax purposes.
  3. 3 Whether the conversion of preference shares to ordinary shares constitutes a variation of rights requiring special approval under the company’s articles.

Ratio Decidendi

The Supreme Court of Appeal held that the deceased, by virtue of his overwhelming voting power, was entitled to convert the preference shares to ordinary shares in terms of Article 7.1.10 of the Articles of Association. The conversion did not require the approval of 75% of the holders of each class of shares, as neither special condition 5.8 nor Article 4.2 applied to a conversion that did not amend the rights attached to the shares but merely affected their commercial value. The court distinguished between a variation of rights and a diminution in commercial value, finding that only the latter occurred in this case. Accordingly, the preference shares must be valued on the basis that they...

Court Disposition

Appeal upheld with costs, including costs of two counsel. The order of the Tax Court is set aside and replaced.

Orders

  • The appeal is upheld with costs, including the costs of two counsel.
  • The order of the Tax Court of 11 October 2016 is set aside and replaced with the following order: 'The deceased was entitled, on the date of his death, to convert the preference shares to ordinary shares and the preference shares must be valued, for the purposes of paragraph 40 read with paragraph 31(3) of the...