Legal insights into South Africa's concert party relationships

Apart from cases where concerts are presumed to be factual (as explained below), assessments of whether concert parties exist or not require subtle assessments of potentially opaque factors.

Understanding the legal principles surrounding concert party relationships is essential. This is because concert parties' decisions can have a great deal of significance in pursuing the transactions affected and ensuring compliance with the acquisition laws.

What is going on at the concert?

The term “concert act” is defined under section 117(1)(b) of the Act. “An action based on a contract between two or more people or more than one person in that they cooperate with the purpose of entering or proposing an affected transaction or offer.”

To establish that the parties are acting in the concert, the following must exist:

Agreement or understanding between the parties (not necessarily in writing, but merely a meeting of the heart is sufficient). In this context, the common phrase “nod and wink” works regularly. The purpose of the contract or understanding must be to enter into the affected transaction. acquiring the securities for the purposes of planning, masterminding, initiating, ensuring cooperation, or payment of the securities.

“Affected Transactions” (pursuant to Section 117(1)(c) of the Act) includes:

Certain transactions considered basic transactions (e.g., all or most of all or most of the assets of a company or its group that is regulated under section 112, statutory mergers or mergers under section 113 of the Act, and contract schemes under section 114 of the Act). A mandatory offer under Section 123 of the Act. Public/open offer to shareholders under section 117(1)(c)(v). Narrowing based on section 124 of the Act.

The acquisition law assumes that these estimates are as follows, unless a particular relationship is specifically proven:

It is presumed that relevant or interrelated individuals will act in concert unless there is sufficient evidence that they acted independently. It is estimated that the company is acting in cooperation with the directors, the company managed by one or more directors, and the trust in which the director is the trustee or beneficiary. And it is estimated that a company's pension, accrual, or equity incentive schemes are acting in concert with each other.

Section 118(5) of the Act estimates the relationship between the concert party between the grantee and the grantee, which grants a choice over voting securities, unless the suspect maintains his right to vote.

Importantly, simply voting for a vote in favour of an affected transaction did not establish concert party relationships in itself.

What does acting at a concert mean?

If it is found that the parties are acting at the concert, there will be some legal consequences.

Notification requirements

Concert Party must notify the Panel within five business days of forming or suspending the concert party relationship and announce it to all shareholders.

Voting restrictions

If a basic transaction is proposed (such as a scheme for arrangements and disposal of most of the company's assets), the parties acting in cooperation with the acquisition party or the parties associated with the acquisition party will be prevented from voting for a resolution approving the transaction.

Obligation to make mandatory offers

If the concert party, or any of them, acquires securities and the concert party group collectively holds 35% or more of the voting rights of a company regulated by the acquisition, the concert party must make an obligatory offer to the remaining shareholders, as discussed in Section 123 of the Act.

This obligation arises when:

The parties were not yet entitled to exercise at least 35% of their voting rights. One or more people will then acquire securities, combine voting rights meetings, or cross the 35% threshold.

Without a securities acquisition, the concert party will simply enter the concert in a situation where they collect and hold securities at 35% or more of their voting rights, which themselves cause mandatory offers requirements.

Limitations during the period of application

Those who act in cooperation with the Offer during the “Offer Period” and for six months after the expiration of that period are limited in their ability to trade in the Offer company's securities. They are also prohibited on more favorable terms from arrangements with the Offere Company securities holders or making further offers to those securities holders.

Provides price results

In many cases, the real stab wound of the tail brought about by the discovery of coordination is that if you acquire securities of the regulatory company six months before the offer period, if you acquire securities with the regulatory company six months before the offer, the highest price paid in that six months will correct the minimum consideration of the subsequent offer.

Panel approach to assess whether concert party relationships exist

Determining whether parties are acting in the concert requires subtle fact-specific analysis. This is illustrated in the issues involving Novus Holdings Limited (Novus) and DK Trust in connection with Novus forced offers for Novus Limited (Mustek) shares. The panel had to determine whether the DK Trust was acting in cooperation with Novus in the context of a mandatory offer made by Novus from Mustek shareholders, including DK Trust.

The key question was whether the “purpose” element of the definition of “acting at a concert” was met. DK Trust had an irrevocable business that would not accept mandatory offers or dispose of its Mustak shares until the offer was completed. In reality, it is very widely accepted that irreparable businesses are not collaborative to accept offers, but not accepting (and therefore staying) is an irrevocable effort as it can be in the gray area.

The parties argued that the DK Trust's promise not to accept compulsory offers was a matter of convenience aimed at reducing the bank's financial obligations.

The panel opposed and concluded that the irrevocable effort and the resulting reduction in Novus' financial exposure are essential to helping Novus proceed with its essential offer. Additionally, the panel found it combined with DK Trust's irrevocable business and another share sales transaction entered into prior to the offer. By doing so, DK Trust agrees to sell shares of Novus from Mustek through its wholly owned subsidiary. Therefore, the panel found that DK Trust's business was not a subsidy, but a “significant enabler” of forced offers that had a great weight on the panel's certification that the requirements for the “purpose” element were met. Therefore, we found that the DK Trust is working in cooperation with Novus.

Of particular interest are factors that the panel considered when testing whether the elements of the definition of “concert action” were met. These factors include (i) the level of involvement of the parties in advance deliberations. (ii) certain auxiliary transactions and party implementation prior to the transaction in question; (iii) the financial and strategic benefits that the parties had endured to obtain from such previous transactions, and how this affected the conduct prior to the implementation of the transaction in question. (iv) Overall consistency of submissions made to the panel. (v) General possibilities for the version of the event presented to the panel, given that the individual submitting to the panel was an experienced businessman. The panel's ruling also implies that it suggests management's acquisition hints.

While the panel's judgments do not create binding legal precedents, they provide important insights into how the panel analyzes the facts and circumstances of a particular case, that is, how the panel often goes beyond formal arrangements to assess the true entities and intent of the parties' actions. However, the panel's decision may probably not be authority due to the proposition that the inability to exercise the “remain” itself corresponds to cooperation. Rather, all facts need to be considered.

Novus then urgently challenged the High Court Panel's ruling in April 2025. The High Court declared the panel's decision to be illegal and unconstitutional and set it aside accordingly. The reasons for the ruling have not yet been made public, and it will be particularly interesting to see the basis for the panel's decision being overturned.

Conclusion

Determining whether parties are acting in concerts is rarely easy and requires both a solid grasp of the relevant legal principles and a practical understanding of the assessment measures applied by the panel. Novus' judgment provides interesting insight into the types of factors the panel considers to determine coordination.