Battle for SA’s iconic Legacy Hotels will set precedent for future foreign investment disputes

9 Mar 2025

Court case outcome could mean Libya’s sovereign wealth fund gets control of the hospitality group.

Legacy Hotels & Resorts, a cornerstone of South African luxury hospitality for more than 25 years, is at the centre of a shareholder dispute that raises questions about corporate governance, international sanctions and the future of foreign sovereign investment in domestic assets.

The case, which was heard in the High Court in Johannesburg and will now move to the Supreme Court of Appeal, pits local management against Ensemble Hotel Holdings, a South African subsidiary ultimately held by the Libyan African Investment Company (Laico), which falls under the Libyan Investment Authority (LIA), Libya’s sovereign wealth fund.

The LIA was established in 2006 to manage Libya’s oil revenue surplus. Its investments are spread across sectors, including hospitality. In the early 2010s, Laico acquired a 39.79% minority stake in Legacy Hotels.

After the 2011 uprising in Libya, the UN imposed asset freezes on the LIA as part of broader sanctions aimed at preventing Libya’s sovereign wealth from being diverted or misused during the internal conflict.

With a significant portion of Legacy’s shares held by Ensemble, Legacy’s board – led by founder Bart Dorrestein – decided to withhold dividends owed to Ensemble and reinvest those funds in the business. The rationale was clear: distributing dividends to a sanctioned entity risked breaching both UN sanctions and South Africa’s own compliance framework.

To ensure Legacy could continue trading without breaching financial regulations, Legacy agreed to a compliance mechanism aligned with both UN sanctions and South Africa’s Financial Intelligence Centre Act (Fica). Under this framework, Legacy could trade normally in South Africa, but any funds linked to Ensemble’s stake would have to remain in the country unless explicitly authorised by relevant regulatory bodies such as the South African Reserve Bank (SARB) and the Financial Intelligence Centre.

This solution kept Legacy operational and compliant, but it also left Ensemble’s South African investment effectively ringfenced, unable to freely repatriate funds to Libya. A structural tension was thus created, setting the stage for the legal confrontation that followed.

Escalation to the courts

By late 2022, the slow-brewing shareholder dispute landed in the high court. Ensemble, together with LIA-appointed director Ziad Jamal Ali El-Barag, sought to trigger a shareholder auction designed to sever the relationship entirely. This mechanism, embedded in Legacy’s shareholder agreement, would allow each shareholder to bid for the other’s stake, with the winner gaining full control.

Ensemble’s position was that the relationship had become unworkable and the auction was the fastest, fairest way to resolve the impasse. Dorrestein’s side objected, arguing that an auction would unfairly favour Ensemble, given its connection to sovereign-level resources. In court, Dorrestein described facing a state-owned fund in a private auction as a scenario bordering on “suicidal”.

Ensemble countered that both sides would enter the auction under equal terms, and any winning bid would have to stand on its own financial legs. That argument, however, glossed over the complications created by Ensemble’s sanctioned status.

A deeper complication sits at the core of Ensemble’s strategy – one that ties directly to the continuing sanctions regime governing the LIA. When pushing for the auction, Ensemble framed the process as a share sale governed by the shareholder agreement, with Dorrestein’s camp potentially buying Ensemble’s stake directly.

But when addressing the sanctions overlay, Ensemble’s legal submissions shifted focus, describing the transaction as a sale of the business as a going concern. In this formulation, Legacy’s underlying hotels, properties and operations would be sold, rather than Ensemble’s shares being directly transferred.

This distinction matters because under South African law, Fica and international sanctions protocols, the sale of shares held by a sanctioned entity – particularly one linked to the LIA – requires explicit regulatory oversight. That includes compliance steps through the Financial Intelligence Centre and the SARB.

A sale of assets, on the other hand, would typically follow a different compliance path. However, the proceeds of any such sale would still be subject to South African exchange control regulations, which means they could not automatically be repatriated to Libya or transferred to any sanctioned entity without the necessary authorisations from South African regulators.

The LIA remains under UN sanctions, although they have been partially eased since 2018. The US Treasury, through its Office of Foreign Assets Control, continues to maintain stricter financial controls over Libyan sovereign wealth. Even if the assets themselves are sold, the proceeds – particularly if linked to Ensemble’s stake – would still require clearance before any cross-border movement.

This unresolved sanctions-and-compliance question sits at the heart of the dispute’s complexity. It means that whether Ensemble exits through a share sale or a business sale, the final transaction cannot simply be treated as a private corporate matter. The regulatory overlay ensures that any outcome involving Ensemble’s stake triggers a broader compliance process that stretches from Sandton to Washington.

Foreign capital vs local control

Legacy occupies a strategic position in South Africa’s hospitality landscape. Its flagship properties, including the Michelangelo Towers and The Leonardo, are not just high-profile assets – they anchor key tourism precincts. Legacy’s roughly 1,000 employees are tied directly into South Africa’s travel and hospitality value chain, making the ownership uncertainty far more than a boardroom issue.

Both sides acknowledge the importance of stability. Ensemble argues that a competitive auction is the only clean resolution, whereas Dorrestein’s camp favours a structured, independently verified buyout, avoiding the asymmetric risks of an open bidding war against a sovereign entity.

The case is becoming a test case for how South Africa handles disputes involving foreign sovereign wealth funds, particularly when those funds come from jurisdictions under some form of sanctions. It also exposes a structural vulnerability in shareholder agreements: when one party is a state investor operating under complex international legal constraints, exit clauses can become legal minefields.

Detailed questions were put to Ensemble and Legacy, but no official response had been received by the time of publication.

The outcome of the case will shape how South Africa balances foreign capital, domestic control and sanctions compliance for years to come. Whether the appeals court endorses Ensemble’s auction push or supports Dorrestein’s call for an independently valued buyout, the ruling will set a precedent for future foreign investment disputes in South Africa’s strategic sectors.

As the court prepares to hear arguments, Legacy’s future sits at the intersection of corporate governance, sanctions law and South Africa’s evolving investment environment. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

Categories:

Tags:

DM is much better if you are signed in...

Politics

Escalation to the courts

Foreign capital vs local control