By 
BLOEMFONTEIN — The Supreme Court of Appeal (SCA) has ordered a corporate divorce between the shareholders of premier hotel management group Legacy Hotels and Resorts (Pty) Ltd. However, in a landmark ruling on the intersection of corporate law and international sanctions, the court held that any buyout of minority investor Ensemble Hotel Holdings (Pty) Ltd remains strictly conditional on ministerial approval due to anti-money laundering and sanctions legislation.
The appellate court set aside a previous Gauteng Division of the High Court order that had directed a private auction of Legacy Hotels’ share capital. The SCA determined that because Ensemble is ultimately owned by Libyan sovereign wealth entities subject to United Nations Security Council (UNSC) asset-freeze resolutions, any unapproved handling or transfer of its shares breaches South Africa’s Financial Intelligence Centre Act (FICA).
Escalating Boardroom Deadlock
Legacy Hotels, incorporated in 1989, operates and manages a prominent portfolio of luxury hotels across South Africa and Namibia. Ensemble—whose ultimate parent entity is the Libyan Investment Authority (LIA) via the Libyan African Investment Portfolio (LAIP) and LAICO—has held a $39.79\%$ stake in the company since 1999. The remaining shares are held by Swanvest 328 ($19.39\%$) and Legacy Management Holdings ($40.84\%$).
Relationships between the shareholder groups ruptured following disputes over governance and the potential diversion of lucrative management contracts. Ensemble alleged that majority-nominated directors excluded its representative, Mr Ziad Jamal Ali El-Barag, from financial information and attempted to shift operations to third-party entities. Conversely, the majority shareholders argued that Ensemble’s ties to Libyan state entities burdened the group with severe reputational and commercial friction under global sanctions frameworks.
By late 2022, both factions conceded that their business relationship had broken down irretrievably and sought judicial intervention under section 163 of the Companies Act 71 of 2008, which provides remedies against oppressive or prejudicial conduct.
The FICA and Sanctions Impediment
While the High Court originally ordered an inter partes auction of Legacy Hotels’ share capital, the SCA found that order to be a fundamental misdirection of law.
Delivering the unanimous judgment, Judge of Appeal KE Matojane emphasized that Ensemble’s indirect ownership by LIA and LAIP places its asset holding directly under UNSC Resolutions 1970 (2011), 1973 (2011), and 2009 (2011). Under section 26A(1) of FICA, these international sanctions take immediate effect in South African law. Furthermore, section 26B(2) strictly prohibits any person from entering into, facilitating, or executing transactions in connection with frozen property.
“A court’s discretion to make any equitable order cannot extend to making an unlawful order, as it cannot, in the exercise of a statutory discretion, override a statutory prohibition,” the judgment stated.
The court noted that neither an auction of the share capital nor a sale of Legacy Hotels’ underlying business could bypass FICA, as both mechanisms would result in proceeds flowing to a frozen entity without regulatory oversight.
Valuation Buyout and Conditional Terms
To achieve complete separation while safeguarding international compliance, the SCA ordered Legacy Hotels to repurchase Ensemble’s $39.79\%$ stake at fair value.
Key elements of the substituted order include:
- Valuation Mechanism: The value and purchase price of Ensemble’s shares will be determined as at 29 January 2021 by an independent expert professional valuer.
- Independent Valuer: If the parties fail to agree on a valuer within 15 days, the President of the South African Institute of Chartered Accountants (SAICA) will nominate a chartered accountant of at least 15 years’ standing from the valuation divisions of EY, KPMG, PwC, or Deloitte.
- Adjustments: The valuer is empowered to consider appropriate adjustments, including a minority discount and a marketability discount, to determine a “fair price”.
- Ministerial Permission: Implementation of the share repurchase is strictly subject to and conditional upon the parties obtaining written authorization from the Minister of Finance pursuant to section 26C of FICA.
- Six-Month Window: If no application for ministerial exemption is brought within six months, or if such permission is refused, the parties must approach the court for further directions.
- Board Resignation: Ensemble director Mr Ziad Jamal Ali El-Barag is ordered to tender his written resignation from Legacy Hotels’ board within five days.
Upon successful transfer and payment, Ensemble’s shares will be cancelled and returned to Legacy Hotels’ authorized share capital, completing the corporate split.
Given that both parties achieved partial success across the appeal and cross-appeal, the SCA ruled that each party bear their own costs in the appellate proceedings.
