AUE1601 Exam Pack

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EXAMINATION PACK
AUE 1601 Exam pack
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AUE 1601 Exam pack
MAY/JUNE 2018
Question One
1.1) Circumstances when an individual will be related to a juristic person include the following,
 If the individual indirectly controls the juristic person
 If the individual directly controls the juristic person
Relationship between AAA and XYZ;
Mr Xolani (the marketing director of AAA Hospitals Ltd) has a son who owns XYZ Motors.
1.2)
Public Companies Private Companies

1 Listed on the Johnsonburg stock of Exchange Not listed
2 Minimum of three directors Minimum of one director
3 Ends with Ltd Ends with (Pty) Ltd
4 Mandated to appoint external auditors Not mandated but may appoint
5 Mandated to appoint a company’s secretary Not mandated but may appoint
Only one difference was enough for two marks
1.3)
Reckless trading means managing the business with gross negligence, with intent to defraud any person
or for any fraudulent purpose; or trade under insolvent circumstances.

Yes the purchase of vehicles will constitute reckless trading because the company is insolvent as its non-
current liabilities (110 000 000) are greater than its non-current assets (102 000 000).
1.4)
 Must disclose the interests before the meeting

 Must disclose to the meeting any material information relating to the matter
 May disclose any observations relating to the matter if requested to do so by other directors
 If present at the meeting, must leave the meeting immediately after making disclosures
 Must not take part in the consideration of the matter (must not vote)
 Must not execute any document on behalf of the company.
 Must be regarded as present at the meeting even though he will be absent for the purpose of
determining whether sufficient directors are present to constitute the meeting.
1.5)
The purchase is illegal.
Reasons:
The company is not satisfying solvency and liquidity tests.

- The company is insolvent as its non-current liabilities (R110 000 000) are greater than its non-
current assets (R102 000 000).
- The company does not meet liquidity test as its current assets (R105 000 000) are less than
current liabilities (R112 000 000).

The decision to purchase vehicles was made in the presence of a director (Mr Xolani) who has personal
financial interests which is non-compliance in terms of the company’s act.
There is no special resolution passed by shareholders to approve the directors to use the company’s
vehicles.
1.6)
Ineligible
- An emancipated minor
- A juristic person
- A person not meeting the requirements of the MOI
Disqualified
- Prohibited by the court order

- Unrehabilitated insolvent
- Declared delinquent by a court order
1.7)
The most important statutory duties that directors owe to their company are to:
 Act in good faith and for a proper purpose
 Act in the best interests of the company
 Avoid using their position as director or using corporate information to their own advantage or
knowingly cause harm to the company or its subsidiary
 Convey the company information that may be of importance to the company
 Exercise reasonable care, skill and diligence in the performance of their duties
 Declare any personal financial interest in a matter in which the company is interested
Only two points from any of the above were required.
2.1)
Public interest score

Aspect Quantity /Amount Public interest scores

Employees 40 40
Turnover R169.5 million 169.5
Third party liabilities R201 million 201
Shareholders 5 5
Total scores 415.5= 416
The company must be audited and not independently reviewed because its public interest scores are
greater than 350.
3.1)
Individual Eligible or Not eligible Reason

OHM Inc eligible At least one employee or partner must be
the resident of SA and must have required
knowledge and experience
Mr Opperman Not eligible He was disqualified from acting as a
director when declared an unrehabilitated
insolvent.
Mr Tetto eligible Five years have lapsed after committing a
criminal offense.
He is a resident of SA.
4.1)
Requirements to be met to issue additional shares.
 The board of directors has power to determine the consideration of additional shares.
 There must be director’s resolution if the shares are issued to existing shareholders.
 Notice and quorum requirements must be adhered to regarding the board meeting and resolution
 If the board of director’s issue shares above the authorized shares, they must obtain a special
resolution of shareholders.
 A special resolution of shareholders must increase the authorized shares from 150 000 shares to
170 000 shares or above

 The MOI must be amended in terms of authorized shares before or after the issue of additional
shares
2
4.2) Shares to be issued to Living
 After issuing shares to Living, all subsidiaries must not hold more than 10% of the shares of AAA
Ltd. 30 000 shares/170 000 shares x 100%/1 = 17.65%. For this reason, the issue will be illegal
in terms of the company’s act.
 If the shares are issued to the directors of Living ,there must be a special resolution of
shareholders.
 If the shares are issued to the directors of Living , there is need for directors resolution.
 Meeting and quorum requirements must be met
 The total number of shares to be bought by Living must not allow it to have voting rights.
4.3) Shares to be issued to Mr Yaseen
 Mr Yaseen is a director of AAA Ltd and therefore the board of directors does not have power to
issue additional shares to directors.
 The board of directors must seek for a special resolution of shareholders before issuing shares to
Mr Yaseen.
 When shareholders vote for the issue, meeting and quorum requirements must be met.
 If the board of directors issue shares without an approval of shareholders, the issue will be
considered illegal.
4.4) Consideration of the shares (section 40)
 The board of the company may issue authorized shares only for adequate consideration to the
company, as determined by the board.
 The board must determine the consideration for which and terms and conditions of the issue.
 There is no basis to challenge the consideration.
 The name of the holder must be entered in the company’s securities register after the shares are
fully paid.
5.1)
The sale of non-current assets worth 85 million (83.33%) out of a total of 102 million constitutes a sale of
greater part of assets because the company will be left with a percentage of 16.67%.

The following are the requirements which are not found ,
 The notice of a shareholder’s meeting to consider a resolution to approve the special resolution in
the first point must be made .
 The special resolution must be accompanied by a written summary of the precise terms of
director’s explanation
 A special resolution of the shareholders was adopted by the majority, in accordance with section
115.
 The company has satisfied all other requirements set out in section 115, to the extent that those
requirements are applicable to such disposal by that company since ‘directors explanation showed
that the decision would not have any negative impact on turnover.
 Shareholders’ meeting requirements must be met (quorum must have 25% and above).
 Terms and conditions must be fair and reasonable to the company
 Written summary of the transaction
6.1)
Circumstances are,
 Faces a financial crisis, but
 There must still be a reasonable chance that the company can be rescued
6.2) General powers and duites of the business rescue practioner are ;
 consult the creditors, other affected persons and the management of the company
 prepare a business rescue plan for consideration
 Do a meeting to determine the future of the company
 Inform parties present at the meeting whether there may be a reasonable prospect of the company
being rescued.
7.1) In terms of the company’s act, pre-incorporation contracts:
 Must be in writing

 After incorporation the directors have three months to ratify or reject the contract\
 After three months have expired the contract automatically ratified
 If the company is not incorporated, the person who entered into the contract will be personally
liable
 If the contract is rejected, the person who entered into the contract will be liable but may also
claim any benefits already received from the company.
 If a company rejects an agreement, a person who bears any liability for that reject agreement or
action may assert a claim against the company for any benefits it has received, or is entitled to
receive, in terms of the agreement or action.

OCTOBER NOVEMBER 2017

QUESTION 1
1.1) It is not legal because the company’s act (Section 48 (2(b)(i) states that all the subsidiaries of the
company may not, in aggregate, hold more than 10% of the shares of the company. Since Mats is not
the only subsidiary of Arms, aggregation of its shares and a third party [ (10 000+5000)/115 000] 1 x
100%) = 13,04 % which exceeds 10%
1.2.1) List six of the requirements of the standards of director’s conduct in terms of section 76
of the company’s Act (6)
Answer
The most important statutory duties that directors owe to their company are to:

 Declare any personal financial interest in a matter in which the company is
interested (refer to sec 75).
1.2.2) In terms of section 71 of the company’s Act, the following must be considered when
removing a director from his position (7)
Answer
 Ordinary resolution of shareholders (unless stated otherwise in the MOI)

 Director must be given notice
 Notice must include reference to the resolution to remove him/her

 Director must be afforded opportunity to make a presentation
However, if a shareholder or a director alleges that a director

 Became ineligible or disqualified
 Incapacitated to perform his duties
 Neglected his duties or became derelict as a director (abandoned his duties)
Then…
 The board of directors may vote to remove the director
 The director in question may not vote
 Director must be given notice
 Notice must include reference to the resolution to remove him/her
 Director must be afforded opportunity to make a presentation
NB! This does not apply to companies with fewer than 3 directors!
1.2.3) Answer
He was not legally removed because of the following reasons,

The reason for his removal is not specified as given in the case study. This can only happen if according
to the company’s act David, Richard or Peter alleges that Andre Akita
 Became ineligible or disqualified
 Incapacitated to perform his duties
 Neglected his duties or became derelict as a director (abandoned his duties)
Furthermore, there is no evidence of the board of directors voting for the removal of Andre Akita
Although the directors mentioned that they were going to formally advise him, their notice was not going
to include reference to the resolution to remove him.
And finally, Andre Akita was not afforded opportunity to make a presentation
1.3)
1.3.1) Describe the company’s Act requirements, in terms of section 44, that need to be compiled
with in order to provide financial assistance for the subscription of its shares (6)

Answer
 It should be approved by the board (directors’ resolution)

 Any restrictions in the company’s MOI must be complied with; a special resolution should have
been passed within the previous two years, which approved such assistance either for the specific
recipient or generally for a category of potential recipients, and the particular recipient(s) should
fall within this category
 The board should be satisfied that the solvency and liquidity tests have been satisfied immediately
after providing the financial assistance
 The board should be satisfied that the terms under which the financial assistance is to be given are
fair and reasonable to the company
 The board must ensure that if the company’s MOI includes any conditions or restrictions
regarding the giving of financial assistance, they must have been complied.
1.3.2) It is not legal,
Reasons
 It was not approved by the board of directors but was rather approved by one director David
Doberman.
 Liquidity tests are not satisfied by directors before and after providing financial assistance.
Although solvency tests are satisfied, liquidity test has to be satisfied again. Solvency Assets
fairly valued =/> liabilities fairly valued, that is (34 000> 32 000) Liquidity Test -A company can
pay its debts as they become due in the normal course of business for a period of 12 months.
Current assets fairly valued=/> current liabilities fairly valued.
 There is no evidence that terms and conditions of the loan meets company’s MOI conditions or
restrictions.
However, since the loan interest rate of 13,5% exceeds a prime lending rate of 10 %, board may be
satisfied that the terms under which the financial assistance is to be given are fair and reasonable to the
company which can make it legally permissible
1.4)
1.4.1) Answer
He will be offered protection as a whistle blower because he is acting in good faith and David a director
has caused environmental damage

Type of protection offered to whistle blower

- Job security
- Life protection
1.4.2) The requirements that must be met in order to put Peter Pit-bull on probation include the following,
Section 162 (7)
- When Peter was present at a meeting and failed to vote against a resolution despite the inability of
the company to satisfy the solvency and liquidity test, contrary to this test.
- When Peter acted in a manner materially inconsistent with the duties of a director
David Doberman is not permitted to put Peter under probation because he is not allowed by the
company’s Act to punish Peter for whistle-blowing.
Question 2
2.1)
2.1.1) Describe the Company’s Act requirements that need to be considered when entering into a
pre-incorporation contract in the name of a company. (6)
Answer
In terms of the company’s act, pre-incorporation contracts:
liable
receive, in terms of the agreement or action
2.1.2)
 If the board rejected before three months, Mr. Fever will be liable for the consequences in terms
of the company’s act. However, if the board rejected the contract after three months, the contract
would have automatically ratified.

 Although Mr. Fever will be liable, he may also claim any benefits already received by the
company from deliveries made before rejection of the contract.
 The decision by the board of directors to judge that Regal Robusta became unreliable in terms of
deliveries must be clear that an informed person or reasonable person can make the same
judgement, otherwise the contract would not be rejected and Mr Fever may not be reliable.
2.2)
2.2.1) Answer
 Must be resident of RSA
 Must have required knowledge and experience
2.2.2) It is not legal.
Reasons:
 He is not a resident of Republic of South Africa
2.3)
2.3.1) and 2.3.2)
Number/Amount Agree/Not Agree PI SCORE
Average number of employees 55 Agree 55
Long-term liabilities R12 million Disagree
Third party liabilities R3,8 Million Agree 4
Number of Directors 5 Disagree
Number of shareholders 10 Agree 10
Turnover 10,3 million Agree 11
Total 80 points
Reasons:
Companies should calculate their Public Interest Score
 1 point for every R1m in Turnover, or part thereof
 1point for every R1min 3rd party liabilities, or part thereof (NB! Not ALL liabilities should be
included, only 3RD PARTY liabilities)
 1 point for every known security holder (such as shareholders)
 1point for every1employee employed on average during the year

2.4) Answer
Requirement/Provision Alterable or Reason
unalterable
(i) Unalterable Par value cannot be changed
(ii) Alterable Changes may be made through ordinary and special
resolution
(iii) Alterable Notice of a shareholders ‘meeting should be issued at
least 10days before the meeting is to
be held OR A Company’s Memorandum of
Incorporation may provide for longer or shorter
minimum notice periods than required by
subsection (1)” [sec 62(2)].
(iv) Unalterable Solvency and liquidity tests are mandatory
requirements according to section 47 of the company’s
Act
(v) Unalterable In terms of the section 41 this issue of shares must be
approved by a special resolution of the
shareholders because its intended that some of the
shares be issued to the directors
(vi) Unalterable Only a special resolution of directors may be altered
(vii) Alterable Special resolutions – “A company’s Memorandum of
Incorporation may permit 1(a) a lower percentage of
voting rights to approve any special resolution; or
2(b) one or more lower percentages of voting rights to
approve special resolutions concerning one or more
particular matters, respectively,
provided that there must at all times be a margin of at
least 10 percentage points between the highest
established requirement for approval of an
ordinary resolution on any matter, and the lowest
established requirement for approval of a special
resolution on any matter” [sec 65(10)].
2.5.1)

 Company secretary
 The chief audit executive (head of internal audit)
2.5.2) A resolution at a directors’ meeting will be approved if 50% of the directors vote in favor of the
resolution
2.5.3) The board of directors can propose the amendment to the Memorandum of incorporation.
Authorization required is to change the authorization, classification, or number of shares through a special
resolution.
2.5.4) She is not eligible.

Reason
She is not independent as her mother is one of company’s directors.

MAY/JUNE 2017
QUESTION ONE
1.1.1) Susan is related to Gold Products (Pty) Ltd after share transfer
Reasons:
 Her son, David holds 100 % of shares in GP

 For this reason, the relationship falls under the category of relationship between individual and
juristic person (company)
1.1.2) Yes, they are related to each other
Reasons:
There is affinity”, which is a relationship that exists due to a valid marriage (David is married to Katy
who is Kelvin’s sister). In terms of the Act, a person is related to another if such a person is related to the
other person, within the second degree of “affinity”.
1.2.1) Yes it qualifies.

Reasons:
It meets the requirements of section (Sec 10) namely;
 It is formed for a public benefit purpose that is supporting children’s home

 The income and goods of the company is not distributable to incorporators but is applied towards
the children’s home
 It is applying its assets and income to advance its objectives.

 Every NPC must have a minimum of three incorporator and Giving Hope NPC has three
incorporators.
 Every NPC must have a minimum of three directors and Giving Hope NPC has three directors.
1.2.2) In terms of the company’s Act,
 Directors must be appointed by incorporators

 Directors must be voted on individually
1.2.3).
Part 1: The requirements of the company’s Act are as follows
In terms of the company’s act, pre-incorporation contracts:
liable
receive, in terms of the agreement or act
Part 2: Application of the requirements of the company’s Act
 Since the board rejected before three months (18 January to 2 March 2017, Bernie Els will be
liable for the consequences in terms of the company’s act.
 Although Bernie Els will be liable, he may also claim any benefits already received by the
company from deliveries made before rejection of the contract if they exist.
 The decision by the board of directors to judge incorrect selling price must be clear that an
informed person or reasonable person can make the same judgement, otherwise the contract
would not be rejected and Bernie Els may not be reliable.
1.3.2) Calculation of the public interest score for the year ended 30 April 2017


Share capital R2 million Disagree
Third party liabilities R6 Million Agree 6
Number of Directors 4 Disagree
Turnover 10 million Agree 10
Total Assets 20 million Disagree
Total 49 points
Reasons:
1.3.3) Should not be audited but reviewed because public interest score is less than 100 (49)
1.3.4) It must keep company’s records in written format for seven years since the company’s act requires
all companies to keep records.
1.3.5) It may appoint if it’s a requirement of its Memorandum of Incorporation although it is only a
mandatory requirement to public and state-owned companies.
1.3.6) Duties of a company secretary are:
 Provide guidance to directors regarding duties, responsibility, powers

 Make directors aware of relevant law
 Report failure of company/director to comply with the Actor MOI
 Record minutes of meetings
 Certify in AFS that returns and notices have been filed, are true, correct and up to date
 Distribute copy of AFS to all entitled to receive it

QUESTION TWO
2.1.1) Financial assistance to a director
It is legal
Reasons
 It was approved by the board of directors
 Liquidity and solvency tests are satisfied by directors before and after providing financial
assistance. Solvency Assets fairly valued =/> liabilities fairly valued, that is (R80 million > R55
million) Liquidity Test -A company can pay its debts as they become due in the normal course of
business for a period of 12 months. Current assets fairly valued=/> current liabilities fairly valued
in a period of 12 months.
 There is evidence that terms and conditions of the loan meets company’s MOI conditions or
restrictions.
 Using a prime lending rate makes the board to be satisfied that the terms under which the
financial assistance is to be given are fair and reasonable to the company which can make it
legally permissible.
2.1.2) Issuing of shares to a director
It is not legal.
Reasons:
The board of directors has the power to issue shares in terms of section 38(1).
However, such a share issue must be approved by a special resolution if the issue is to a director. Since
there is no approval by shareholders, this becomes illegal in terms of the company’s act.
2.2.1) It is legal
Reasons:
Requirements of Section 112(2) are met which include the following

the first point above was made in terms of section 62
 The special resolution included or was accompanied by a written summary of the precise terms of
in director’s explanation
 A special resolution of the shareholders was adopted by 80 %, in accordance with section 115. A
special resolution is required in order to protect minority shareholders in particular by ensuring
that a significant minority can block large disposals.
 Shareholders’ meeting requirements are met since the quorum has more than 25% (32%)
2.3.1) It is not legal.

Reasons:
 Mr. Wilson has a financial interest
 Mr. Wilson must disclose the general nature of the interest
 Mr. Wilson must disclose any material information
 Mr. Wilson if requested, must disclose other observations or insights
 Mr. Wilson must leave the meeting before voting commence
 Mr. Wilson must not vote
2.3.2) List six of the requirements of the standards of director’s conduct in terms of the company’s
Act (6)
Answer
The most important statutory duties that directors owe to their company, are to:


 Declare any personal financial interest in a matter in which the company is

interested (refer to sec 75).
2.4.1) Yes it can voluntarily begin provided it faces a financial crisis, but there must still be a
reasonable chance that the company can be rescued
2.5.1) The companies act provides protection for

 Certain persons who in good faith make disclosures
 When a company or director might be guilty of certain misconduct or non-compliance

MAY/JUNE 2016
QUESTION 1
1.1)
Company Designation Number of Is a company Is an audit
directors secretary committee
required required required
JMM “proprietary” and Minimum of Not required but Not required to

(Private “limited” or one and no may appoint one appoint an audit
Limited (Pty)ltd maximum limit committee unless
Company) its
(MOI) indicates
Channing “proprietary” or Minimum of Must appoint a Must appoint an

(Public “limited” three and no company audit committee
Limited maximum limit secretary. annually.
Company)
1.2.1).
Calculation of the public interest score of JMM for the year ended 28 February 2016

Current and long term creditors R3.5 million Disagree
Board of Directors 5 Disagree
Turnover 15 million Agree 15

Non-Current Assets and Current

Assets 25 million Disagree
Total 41 points
Reasons:
1.2.2). Should not be audited but reviewed because public interest score is less than 100 (41)
1.2.3).
 Reports presented at an annual general meeting (for seven years)
 Annual financial statements (for seven years)
 Accounting records (for the current year and the seven years prior to the current year)
 Notices and minutes of all shareholders’ meetings (for seven years)
 Copies of all communications to shareholders (for seven years)
 Minutes of all meetings and resolutions of directors ‘meetings (for seven years)
1.2)
Hint “Consanguinity”, which means “blood relationship”, generally speaking, and “affinity”, which is a
relationship that exists due to a valid marriage. In terms of the Act, a person is related to another if such a
person is related to the other person, within the second degree of “consanguinity” or “affinity”.
1.3.1) Consanguinity
1.3.2) Second degree
1.3.3). Trainee auditors, Management and the audit firm
1.3.4) Each year, a company must prepare annual financial statements within six months
after year-end [sec 30(1) to (7)].

1.4.1) Requirements for a person to be appointed as an auditor:

 Must be a registered auditor
Must not be
 A director or prescribed officer of the company
 An employee or consultant who has been engaged for more than one year in maintenance of
financial records or preparation of financial records
 A director or officer or employee of the company secretary
 A person involved in perfuming duties of an accountant/bookkeeper or secretarial work for the
company
 A person who at any time during the five financial years preceding the date of appointed was any
of the above
 A person related to any of the above
1.4.2)
Name Eligible or Not eligible Reason
William Fair Not eligible Independence is impaired or compromised
Mark Smith Not eligible Independence is impaired because he has personal
or self-interests with Bev Smith
George Simon Not eligible Independence is impaired because he will suffer
self-review threat by auditing his previous work
Lauren Sinclair Eligible He is a registered auditor and his degree of
objectivity and independency is likely to be high
due to absence of threats
1.5.1) Reasons
 It is a requirement of Section 71 (3) which guides removal of directors

 To avoid conflict of interests which can arise when a director is making a decision which affects
her
1.5.2) The process to be followed
1. A director must allege that Deviya Patel has become ineligible or is incapacitated.

2. The board must consider this allegation

3. The board may vote on the removal of Deviya Patel
4. Deviya Patel must be given notice and an opportunity for representation
1.5.3) the process was not followed.

Reason - Deviya Patel was not given notice and an opportunity for representation
QUESTION TWO
2.1.1).
 The board of directors has the power to issue shares in terms of section 38(1).
 If the board of director’s issue shares above the authorized shares, they must obtain a special
resolution of shareholders. A special resolution of shareholders must increase the authorized
shares.
2.1.2)
Impact:
Issued shares will exceed authorized shares by [(60 000+50 000)-80 000] = 30 000 shares
Proposed Amendments:
The board of director’s must obtain a special resolution of shareholders. A special resolution of
shareholders must increase the authorized shares by 30 000 shares or more so that authorized shares will
not be less than issued shares
2.1.3) Authorization required is a directors’ resolution.
2.1.4)
The board of directors has the power to issue shares in terms of section 38(1). However, such a share
issue must be approved by a special resolution if the issue is to a director. And therefore authorization
required is a special resolution of shareholders.
2.1.5) Board of directors will be responsible to determine the consideration but once additional shares
cause issued shares to exceed authorized shares, shareholders have to consider through a special
resolution.
2.1.6) They may be issued for adequate consideration when the company is having financial constraints

Disposal of greater part of assets

2.2.1)
Reasons:
Requirements of Section 112(2) are met which include the following
the first point must be made .
 The special resolution must be accompanied by a written summary of the precise terms of
director’s explanation
 A special resolution of the shareholders was adopted by the majority, in accordance with section
115.
 Shareholders’ meeting requirements must be met (quorum must have 25% and above)
2.2.2) It is not legal

Reasons:
Requirements of Section 112(2) are not met which include the following
the first point above was not made in terms of section 62
 There is no explanation made to shareholders by directors in order for them to consider the
decision
 There is no special resolution of the shareholders was adopted in accordance with section 115. A
special resolution is required in order to protect minority shareholders in particular by ensuring
that a significant minority can block large disposals.
 There is no evidence that the company has satisfied all other requirements set out in section 115,
to the extent that those requirements are applicable to such disposal by that company since
‘directors explanation showed that the decision would not have any negative impact on turnover.
2.3.1)
Declaration of dividends

Declaration of a dividend
In terms of section 46, a company must not make any proposed distribution unless:
 The distribution is pursuant to an existing legal obligation of the company or a court order and
the board of the company by resolution has authorized the distribution
 It reasonably appears that the company will satisfy the solvency and liquidity test immediately
after completing the proposed distribution
 The board of the company by resolution has acknowledged that it has applied the solvency and
liquidity test and reasonable concluded that the company will satisfy the solvency and liquidity
test immediately after completing the proposed distribution.
2.3.2)
Application to theory
Frozen-berry did not comply with the Company’s Act requirements.
Reasons:
 The distribution is not pursuant to an existing legal obligation of the company or a court order.
 It does not reasonably appear that the company will satisfy the solvency and liquidity test
immediately after completing the proposed distribution. Before the distribution is made, solvency
test is not met. Solvency tests -Assets fairly valued =/> liabilities fairly valued. In this case (R20
million for assets is less than R26 million for liabilities). This shows that in the near twelve
months, Frozen-berry will not be able to pay its liabilities or debts out of its assets
 The board of the company did not calculate and consider the financial impact on the financial
statements by applying the solvency and liquidity test and reasonable concluded that the company
will satisfy the solvency and liquidity test immediately after completing the proposed distribution.
Business Rescue
2.4.1)
According to section 129(1), the board of a company may resolve that the voluntarily begin business
rescue proceedings if the board has reasonable grounds to believe that:
 the company is financially distressed [sec 128(1)(f)]

 there is a reasonable prospect that the company can be rescued
2.4.2) It can proceed because it is financially distressed as its debts or liabilities exceed assets meaning it
will not be able to pay its debts out of its assets.

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