Commercial pressure does not excuse a company from complying with regulatory safeguards, even where delaying a transaction could jeopardise the underlying business, the Financial Services Tribunal has found.
The Tribunal made the finding in upholding a public censure and R5-million penalty imposed by the JSE on Trustco Group Holdings.
Trustco implemented a transaction that reduced its interest in a diamond mine from 65% to 19.5% before obtaining the required shareholder approval.
In dismissing Trustco’s challenge to the sanction, the Tribunal also rejected the absence of proven investor harm as sufficient mitigation, emphasising that compliance processes are intended to protect shareholders, investors, and market integrity, regardless of whether a breach results in measurable losses.
Nature of the transaction
The transaction dates to August 2022 and involved Meya Mining, a Mauritius-registered company that operated a diamond mine in Sierra Leone. Trustco held 65% of Meya through two subsidiaries, while Germinate held the remaining 35%.
The Tribunal said Meya and Germinate entered a term-sheet agreement with SJSC Investment Limited under which the investment company obtained an option to subscribe for enough shares in Meya to acquire up to 70% of the company for a maximum subscription amount of $50m. As part of the arrangement, Trustco’s subsidiaries were to dispose of part of their shareholding in Meya to the investment company.
Trustco’s portion of the transaction was worth R460m, equivalent to 89% of its market capitalisation. The company undertook to issue a circular to shareholders setting out the details of the transaction and to convene a general meeting to obtain their approval.
However, the two subsidiaries through which Trustco held its Meya interest had already begun disposing of their shares before the circular was distributed and shareholder approval was obtained.
Trustco’s 2022 annual financial statements subsequently showed that its interest in Meya had fallen from 65% to 55.75%. Its 2023 results recorded a further reduction to 19.5%.
The JSE became aware of the contravention in March 2023 and concluded that the transaction had been implemented before shareholder approval, in breach of paragraph 9.20(b) of the Listings Requirements.
Trustco did not dispute the breach before the Tribunal. Its challenge concerned the public censure and R5m penalty imposed by the JSE.
Commercial pressure
Trustco argued the transaction had to be viewed in the context of Meya’s need for substantial capital to continue developing its mining operations.
It said the time required to complete the regulatory and shareholder-approval process created a commercial difficulty. In its submissions to the Tribunal, Trustco argued that delaying implementation could have jeopardised the mine and would have been commercially irrational.
The Tribunal rejected this argument. Its decision, delivered on 20 August 2026, noted that Trustco had begun implementing the transaction before the subsequent issues concerning the JSE’s categorisation of the transaction arose. Trustco therefore could not rely on those issues, or the mine’s funding requirements, to justify proceeding without first complying with the Listings Requirements.
The Tribunal found that the practical and commercial context could not serve as a defence to the contravention. Nor did it consider that context sufficient mitigation when assessing whether the JSE had exercised its discretion properly in imposing the sanction.
Indeed, the Tribunal regarded Trustco’s decision to proceed despite the compliance problem as aggravating rather than mitigating. The company’s attempts to find a workable compliance solution did not justify interference with the JSE’s exercise of its discretion in imposing the sanction.
No investor harm
Trustco also argued that the breach had not caused investor harm. It pointed out that shareholders ultimately retained their voting rights, and the situation was capable of being remedied.
The Tribunal rejected this as an excuse, saying the fact that shareholders could still vote on the transaction did not diminish the seriousness of its premature implementation. The Tribunal was particularly concerned that implementing the transaction before approval could create the impression that shareholders had approved it when they had not.
The fact that shareholders could still vote on the transaction did not diminish the seriousness of its premature implementation. The Tribunal was particularly concerned that implementing the transaction before approval could create the impression that shareholders had approved it when they had not.
It described Trustco’s reliance on the retention of shareholders’ voting rights and the possibility of remedying the breach as concerning, warning that treating these considerations as an excuse could set a bad precedent.
The absence of demonstrated financial loss therefore did not diminish the importance of the compliance process. The shareholder-approval requirement was intended to protect shareholders and investors before the transaction was implemented, and subsequent steps could not undo the fact that this safeguard had been bypassed.
Subsequent disclosure did not cure the breach
Trustco also relied on its subsequent disclosure of the transaction and its co-operation with the regulatory process as mitigating factors.
It argued that the market had been kept informed of the transaction and its status through subsequent SENS announcements. The Tribunal was not persuaded. By then, the transaction had already been implemented without complying with the requirement for shareholder approval.
The Tribunal said the disclosure requirements serve an important purpose. Openness and compliance with the Listings Requirements are intended to protect shareholders, investors, and the integrity of entities participating in JSE activities. Subsequent disclosure therefore did not diminish the seriousness of the original non-compliance.
Trustco also pointed to its co-operation with the regulatory process. The Tribunal said it was speculative to suggest that the JSE had failed to consider this co-operation when imposing the penalty. In any event, the co-operation occurred only after the transaction had been implemented and the non-compliance had taken place.
R5m penalty upheld
Trustco also challenged the R5m penalty as disproportionate, arguing the JSE had provided no discernible methodology or benchmark for determining the amount.
The Tribunal rejected the argument. The materiality of the transaction, the duration of the non-compliance, the need for deterrence, and Trustco’s previous regulatory history were among the considerations relevant to the sanction.
It also rejected Trustco’s reliance on comparisons with penalties imposed in other cases, saying benchmarking could never be a “size-fits-all” exercise. The circumstances of each case had to be considered when determining an appropriate sanction.
The Tribunal noted that Trustco itself accepted that the contravention was serious. It said the penalty had to reflect that seriousness, warning that it would otherwise be a “free-for-all”.
It consequently found no basis for concluding that the JSE’s public censure and R5m penalty were disproportionate or irrational. It dismissed Trustco’s reconsideration application.
