Introduction

The case of Msibithi Investments (Pty) Ltd v African Legend Investment (Pty) Ltd[1] involves a complicated legal dispute over control of African Legend Investments (Pty) Ltd (“ALI”). There were two main factions involved namely the Ramano Group, headed by Mashadu Romano, and the Ahmed Group, led by Abdoolrawoof Ahmed. The Supreme Court of Appeal (“SCA”) had to resolve three major legal disputes following a high court ruling.

• The Validity of the 2020 Share Issue (the main application)
• The Delinquency of Mashadu Ramano (the counter-application)
• Validation of Historical Shares (the expanded counter-application)

The case raises important principles in South African company law, particularly regarding directors’ fiduciary duties and the requirement that they exercise their powers for a proper purpose under section 76(3)(a) of the Companies Act 71 of 2008[2]. It also examines the circumstances under which a director may be declared delinquent under section 162, as well as the court’s discretionary power to validate irregular share issues where it would be just and equitable to do so. Through its judgment, the SCA clarified the application of the “dominant purpose” test in evaluating directors’ decisions and reinforced standards of accountability in corporate governance.

The Validity of the 2020 Share Issue (The Main Application)

This issue arose when the Ramano group sought to invalidate a board resolution passed on 25 February 2020 that authorised ALI to issue new shares to the Astron Trust in exchange for R24 million. The core of the legal battle was whether the directors acted for a proper purpose as required by S76(3)(a) of the Companies Act 71 of 2008.

The Ramano group argued that the sole purpose was to dilute their 51% voting majority, two days before a meeting, which they intended to use to remove the Ahmed-aligned directors. The Ahmed group argued that the primary purpose was to raise R23 million in capital to allow ALI’s subsidiary, OTS56, to exercise its pre-emption option to acquire shares, which had been granted to them under the framework agreement.

The SCA established that when a board has multiple purposes for a decision, the court must apply the “dominant purpose” test. If the primary purpose is proper, meaning it is in the best interest of the company, the action is valid even if it has a secondary purpose that would be improper if it were the main goal.

The court concluded that the dominant purpose was to raise capital. The court decided this based on a few reasons. Firstly, the option to purchase shares in Astron Botswana stemmed from a 2017 framework agreement that had long been supported by the board, including Ramano. Secondly, no other funding options had been proposed or identified, and the company required the capital to exercise the option.

Thirdly, obtaining the additional shares was clearly beneficial for both OTS56 and ALI. Lastly, the court noted that the resolution would not have been taken but for the need to fund the option. In contrast, the dilution of voting rights was simply an unavoidable consequence of raising the necessary capital through issuing new shares.

The Delinquency of Mashadu Ramano (the counter-application)

The Ahmed group filed a cross-appeal seeking a declaration that Mashadu Ramano is a delinquent director under section 162 of the Companies Act. The High Court originally dismissed this on the grounds of factual disputes, but the SCA majority overturned that decision, finding that Ramano’s conduct constituted gross negligence and wilful misconduct.

He falsely told the board that he had obtained legal advice confirming that a specific letter from Glencore created a binding “option” to purchase shares, even though no such legal advice had been given and no binding option actually existed.

He also intentionally delayed and frustrated a major transaction with Glencore by providing misleading information to the Competition Commission, thereby acting in breach of the company’s binding contractual obligations. After his removal as chairperson, he continued to hold himself out as the chair and attempted to call unauthorised shareholder meetings.

The court thus declared him a delinquent director for seven years, meaning he cannot serve on any corporate board during that period.

Validation of Historical Shares (the expanded counter-application)

The validation of the historical shares was the subject of the “expanded counter-application”, which dealt with a share restructuring process that occurred between 1998 and 2000. In 1998, the directors of ALI decided to restructure the company’s shareholding to motivate Ramano to grow the business. The arrangement granted Ramano 40% of the voting rights, even though he held only a 7% economic stake, while other directors received 20% of the voting rights despite holding 13% of the economic interest.

The Ahmed group argued that the allocation of these shares was legally invalid. At the time the resolution was meant to be carried out in 1999, ALI lacked sufficient authorised capital to issue the shares. Although a special resolution in 2000 increased the authorised capital, the pricing terms were still based on the 1998 arrangement.

Despite this, the Ramano group successfully applied to have the shares validated under S97(1) of the Companies Act, which allows a court to confirm an invalid share issue if it is just and equitable to do so. The High Court exercised its discretion and validated the shares. The SCA refused to overturn this decision, stating that the High Court properly exercised its decision.

Conclusion

The decision in Msibithi Investments v African Legend Investments clarified key principles in South African company law. The SCA confirmed that when directors exercise their powers, courts must apply the dominant purpose test to determine whether those powers were used for a proper purpose. The court upheld the validity of the 2020 share issue, whose primary aim was to raise capital; declared Ramano a delinquent director for misconduct; and allowed the validation of historical shares where it was just and equitable to do so. Overall, the judgment reinforces accountability, proper governance and the responsible exercise of directors’ powers.

For further assistance, consult an attorney at SchoemanLaw.

[1] Msibithi Investments (Pty) Ltd and Others v African Legend Investment (Pty) Ltd and Others 2026 (1) SA 394 (SCA).

[2] Companies Act 71 of 2008.