NAME: NNNNNNNNNNNNN

STUDENT NUMBER:

MODULE NAME: COMPANY LAW

MODULE CODE: LML4806

EXAM PERIOD: OCTOBER / NOVEMBER 2023

EXAM DATE: 3 NOVEMBER 2023

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Question 1.1
The ideas and values that guide the conduct of business operations are derived from
the constitution and frequently represent African ideals that are embodied in the idea
of ubuntu. Ubuntu implies that humans are made of other people. An essential idea
of Africanism is ubuntu. Ubuntu is a collection of principles grounded in the idea that
"a person is a person through other people," or "umuntu ngumuntu ngabantu." The
highest court in our jurisprudence, in S v. Makwanyane 1995 (6) BCLR 665 (CC),
explicitly applied Ubuntu. The court determined that Ubuntu promotes fairness and
social justice in this particular circumstance. The court characterises Ubuntu in New
Clicks South Africa (Pty) Ltd v. Minister of Health and Others 2005 3 SA 238 (SCA).
In Mpofu case paras 62, 64 and 66, the values of ubuntu must inform the way that
directors take corporate decisions. Proper, constructive dialogue requires the
infusion of the culture of ubuntu to promote social cohesion. One of the purposes of
the Companies Act is to promote compliance with the Bill of Rights in the application
of company law. The Bill of Rights is contained in Chapter 2 of the Constitution
section 7 (a). It enshrines the rights of all people and affirms the fundamental
democratic values of human dignity, equality and freedom. In addition, it regulates
the relationship between economic citizens and thus may have fundamental
implications for company law.
Section 7 (e) of the Companies Act of 2008 also aims to continue to provide for the
creation and use of companies in a manner that enhances the economic welfare of
South Africa as a partner within the global economy.
According to section 71 of the Companies Act of 2008\, directors of companies can
be removed by means of an ordinary resolution. This is despite any agreement that
may have been concluded to the contrary, and no special resolution is required. This
may appear drastic. However, the law requires that before any such action may be
taken, certain requirements should be met to ensure ubuntu and fairness. Certain
procedural requirements must be adhered to before a removal can be lawfully
effected.
• The Companies Act of 2008 also provides protection for minority shareholders. This
demonstrates the element of ubuntu and requires parties to be fair to one another.
• Principles of majoritarianism feature strongly throughout the legislation. Notably,
collectively or solidarity is also an element of ubuntu.
The Companies Act of 2008 provides for a system of informal dispute resolution
before the Commission for Intellectual Property and Companies the Takeover
Regulation Panel where appropriate, and other accredited forums. This is similar to
the African practice where a dispute is referred to a kgoro that will attempt to resolve
the matter. During this process, the audi alteram partem principle is applied.
• Ubuntu is also evident in light of the fact that humanity is promoted, in that
agreements must be respected and honoured by those who concluded them. This is
evident in various types of contracts: partnership agreements, contracts concluded
for the formation of trusts, shareholders' agreements, the Memorandum of

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Incorporation, which is the constitutive document of a company, and association
agreements in close corporations. Fairness also plays an important role in the
interpretation of shareholder’s agreements.
The law attaches certain consequences to misconduct committed in different
business enterprises. This reflects an element of ubuntu and fairness and supports
the principle that one reaps what one sows. It clearly discourages conduct which
would be to the detriment of outsiders and participants in the business. Although
companies are recognised as separate legal persons, it is possible in certain
circumstances to disregard the juristic personality of a company to hold individuals
inside the company liable in terms of section20(9) of the Companies Act.
As a strategic attempt to curb corruption, the Protected Disclosures Act 26 of 2000
was enacted. This piece of legislation provides protection in all types of business.
Additionally, section 159 of the Companies Act has introduced protection against
civil, criminal or administrative liability for making a disclosure or
Different persons are involved in and affected by the commencement of business
rescue. One of the purposes of the Companies Act is to provide for the efficient
rescue and recovery of financially distressed companies in a manner that balances
the rights and interests of all relevant stakeholder’s section 7(k) of the Companies
Act of 2008 Business rescue proceedings recognise, among others, the interests of
employees. This is the first time that stakeholders other than the shareholder and
company creditors have received direct protection in the Companies Act of 2008
Question 1.2.1
Sections 19(1) and 20(1)(a) of the Companies Act 71 of 2008 are relevant to this
question. The ultra vires doctrine has been abolished under the Companies Act 71 of
2008. In terms of section 19(1), a company has all the legal capacity and powers of a
natural person, except to the extent that a juristic person is incapable of exercising
any such power, or having such capacity, or the company’s Memorandum of
Incorporation (MOI) provides otherwise. The capacity of a company is not limited by
its main or ancillary objects or business (which need not even be mentioned in the
MOI). Under section 20(1)(a), even though a company’s MOI may limit, restrict or
qualify the purposes, powers or activities of the company (in other words, impose
restrictions on the legal capacity of the company); any such restrictions would not
render invalid any contract that conflicts with these restrictions as contained in
section 19(1)(b)(ii).
The ultra vires doctrine would not apply in this case as it has been abolished. In
terms of section 19(1), CH Adventures (Pty) Ltd, has all the legal capacity and the
powers of a natural person, except to the extent that a juristic person is incapable of
exercising any such power or having any such capacity. It is not stated in the facts
that the Memorandum of Incorporation (MOI) CH Adventures (Pty) Ltd, has altered
this legal position. CH Adventures (Pty) Ltd, capacity is not limited by its main
business. Even if CH Adventures (Pty) Ltd, MOI were to limit, restrict or qualify the
purposes, powers or activities of the company, any such restrictions would not
render invalid any contract that conflicts with such restrictions. On the given case

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above therefore a contract concluded by John and Aqua Equipment Ltd for the
purchase of ski-boats would be binding and enforceable against CH Adventures
(Pty) Ltd.
Question 1.2.2
Even though an ultra vires transaction will be binding on the company, the
shareholders are provided with recourse to claim back their losses from the person
who acted beyond the scope of the company9s capacity. Unless ratified by a special
resolution in terms of section 20(2) of the Companies Act, section 20(6) of the
Companies Act provides that each shareholder has a claim for damages against any
person who intentionally, fraudulently, or due to gross negligence, causes the
company to do anything inconsistent with the Companies Act, or a limitation,
restriction or qualification on the powers of the company as stated in its
Memorandum of Incorporation. When directors act beyond the scope of a
company9s capacity they are in breach of their fiduciary duties.
In terms of section 20(4) of the Companies Act of 2008 if the company or directors
have not as yet performed the planned action e.g. concluded the contract, that is
inconsistent with a limitation or qualification of the company9s powers contained in
the Memorandum of Incorporation, one or more shareholders may obtain a court
order restraining the company or directors from doing so. However, a director who is
in breach of his fiduciary duties may be held personally liable for any damages or
costs suffered by the company. The liability of the directors in this case is provided
for in section 77(3)(a) of the Companies Act. Therefore, the directors can be held
personally liable by the shareholders in terms of section 20(6) and by the company in
terms of section 77 of the Companies Act.
The purchase of the ski-boats from Aqua Equipment Ltd is in contravention of the
Memorandum of Incorporation of the company. It has not been ratified by special
resolution of the shareholders. Therefore, Lindiwe will have a potential claim for
damages if successfully prove that the company intentionally or due to gross
negligence purchased five ski-boats from VIP Aqua Equipment Ltd.
Question 1.2.3
Question 2.1
Section 76 (3) (a) and (b) Companies Act of 2008 states that a director of a
company, when acting in that capacity, must exercise the powers and perform the
functions of director
i) In good faith and for a proper purpose; and
ii) In the best interest of the company
At common law, the duty to act in good faith and in the best interests of the company
is the paramount and overarching fiduciary duty of directors from which all the other
fiduciary duties flow.
In Punt v Symons & Co Ltd the directors had issued shares to their friends and
supports with the object of creating a sufficient majority to enable them to pass a
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special resolution to alter the constitution of the company to deprive certain
shareholders of special rights conferred on them by the company’s constitution.
Company directors are under a fiduciary duty to avoid placing themselves in a
position in which their duties to the company conflict with their personal interests.
Directors may not, without the informed consent of the company, make a profit in the
course of and by means of their office as directors, that is, while performing their
duties as directors. This duty ensures that such profits made by the director from his
position as director are disgorged by him and restored to the company. The duty to
avoid conflict of interest is undoubtedly the core duty of a fiduciary. It requires the
director to account for any profit he or she has received in breach of this fiduciary
duty. The reason for the ‘strict ethic’ in this area of law is that the fiduciary duties are
meant to be preventative and deterrent. The objective of the non-profit rule is to
preclude directors from making improper use of their positions as directors for their
own personal advantage.
Directors may also not, without the consent of the company, place themselves in a
situation in which they have conflicting duties to some other person. This may arise
in multiple directorships, where a director is also a director of another company, or in
the case of a nominee director. The rule (that is duty to avoid a conflict of interest)
does not depend on fraud or absence of good faith, or on whether the company has
incurred a loss as a result if a breach of fiduciary duty. The liability to account arises
from the mere fact of a profit having been made by the director for him-or herself.
Section 76(2)(a) of the Companies Act 71 of 2008 state that Tebogo Mbali and
Dominique as a directors Jenkins Investments Ltd (‘the Company’) must not use
their position as a director, or any information obtained while acting in the capacity of
a director, to gain an advantage for themselves or for another person other than the
company or wholly-owned subsidiary of the company, or to knowingly cause harm to
the company or a subsidiary of the company.
The Act imposes liability on a director for any loss, damages or costs sustained by a
company as a consequence of the director having done some act in the name of the
company, signed anything on behalf of the company, or purported to bind the
company or authorise the taking of any action by or on behalf of the company
despite knowing that he lacked the authority to do so.
If directors exceed the powers conferred on them by the company, they will be liable
to the company for breach of their fiduciary duty. Both Tebogo, Mbalii and Dominique
have breached their fiduciary duties therefore they liable.
Question 2.2
In terms of section s 76(4) Companies Act of 2008 provides that a director will have
satisfied the duty to act in the best interests of the company and the duty to act with
the degree of care, skill and diligence, provided the three elements of the business
judgment rule are present.
They had to refer to the three elements. Secondly, they had to provide that a director
may rely on the performance and advice of employees, professional persons and the

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board or a board committee. Thirdly, they had to provide that the effect of the
business judgment rule is that a director will not be held liable for decisions that lead
to undesirable results if the director has complied with the requirements of section
76(4) of the Companies Act 71 of 2008.
Lastly, they had to provide, in support of the business judgment rule, that it serves
as motivation for capable persons to accept directorships, and that it encourages
directors to engage safely in risktaking activities. On arguments against the business
judgment rule they had to provide that it could result in accepting a standard of
conduct that is below acceptable standards that ought to be required of directors.
Upon the given facts above the directors acted in good faith by trying to increase the
company shares by acquiring the 10%. They were not acting on their own interests
as per the Judgment rule.
Question 2.3
In terms of section 162 (1) of the Companies Act 71 of 2008 a court must make an
order declaring a person delinquent director if: a person while being a director: -
grossly abused the position of director took personal advantage of information or an
opportunity, contrary to section 76(2)(a) intentionally or by gross negligence inflicted
harm upon the company or a subsidiary of the company, contrary to section 76(2)(a)
acted in a manner that amounted to gross negligence, wilful misconduct or breach of
trust in relation to the performance of the director’s functions within and duties to the
company; or acted in a manner contemplated in sections 77(3)(a), (b) or (c).
In Gihwala v Grancy Property Ltd two directors of a company had also appropriated
financial benefits for themselves. The court held that this conduct entailed gross
abuse of the position of a director. In this case it appears that Sifiso and Timothy
grossly abused the position of a director by redirecting company funds to their
personal accounts. They have also intentionally inflicted harm upon Khubo (Pty) Ltd.
In addition, they have acted in a manner that amounted to wilful misconduct and
breach of trust in relation to the performance of their functions in the company. On
these grounds the board of directors of Khubo (Pty) Ltd could successfully obtain a
delinquency order against Sifiso and Timothy.
On the given case shareholders would have novalid grounds to make an application
to have the directors of Jenkins Investments Ltd declared delinquent because
according to section 162(1) of the Act the directors have not acted in a manner that
could make them being declared delinquent.
Question 3.1
This transaction would constitute an amalgamation or merger in terms of section
113(2) of the Companies Act 71 of 2008 provided it that the amalgamation or merger
of the three profit companies would result in the formation of a new company,
Catalyst Holdings Ltd and Tyrex Properties Ltd.
Question 3.2

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In terms of section 2(1)(c) of the Companies Act: 8a juristic person is related to
another juristic person if
 either of them directly or indirectly controls the other, or the business of the
other, as determined in accordance with subsection (2);
 either is a subsidiary of the other; or
 a person directly or indirectly controls each of them, or the business of each
of them, as determined in accordance with subsection (2).
Catalyst Holdings Ltd and Tyrex Properties Ltd, are related as Catalyst Holdings Ltd
controls 70% of shares Tyrex Properties Ltd.
Question 3.2
Since a merger is a fundamental transaction, a special resolution is required to
approve the transaction at a meeting called for that purpose. This could enable the
shareholders who are against the resolution to prevent the approval of the proposed
merger if those who are in favour of the proposed merger are not present in large
numbers.
in terms of section 115(3) of the Act, even if a resolution is adopted to proceed with
the amalgamation or merger, the company may not proceed without the approval of
the court if
 the resolution was opposed by persons holding at least 15% of the voting
rights.
 any person who voted against the approval requires the company to seek
court approval.
 the court grants a person who voted against the approval leave to apply for a
review of the transaction.
The group of shareholders who might be opposed to the amalgamation or merger
hold between 10% and 20% of the voting rights. If at the adoption of the resolution,
at least 15% of them are opposed to the merger. Since Robyn have only 3% of the
shares she is qualified as any person who voted against the approval who can seek
court approval. Yes, Robyn will be able to vote.
Question 4.1.1
In section 155, the Companies Act of 2008, compromise may be used for this
purpose. Compromise is an agreement between a company and its creditors in
terms of which the creditors agree to accept less than their full claims against the
company. Since Kerusha , is considering entering into an agreement with the
creditors of Style Trends (Pty) Ltd in terms of which Style Trends (Pty) Ltd offers to
pay 75% of all creditors’ claims against the company in full and final settlement, the
definition is therefore describing what Kerusha is intending.
Question 4.1.2
According to section 155 of Companies Act 66 of 2008 the new act, the provisions
relating to a compromise apply to a company, irrespective of whether the company is

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financially distressed or not, but do not apply to a company that is ‘engaged in
business rescue proceedings’ or is a company contemplated in the act. In terms of
section 155(2),
• The board of a company
• The liquidator of the company if the company is being wound up
May propose an arrangement or a compromise of its financial obligations to:
• All of its creditors
• To all of the members of any class of its creditors
By delivering a copy of the proposal and notice of a meeting to consider the proposal
to:
• Every creditor of the company
• Every member of the relevant class of creditors whose name and address is known
to or can reasonably be obtained by the company
• The commission
A proposal for compromise must contain all information reasonably required to assist
creditors in deciding whether or not to accept or reject the proposal:
The proposal must contain the following information:
• A list of all the material assets of the company •
A list of creditors of the company as on the date of the proposal, including an
indication as to which creditors qualify as secured, statutory preferent and concurrent
creditors
• The probable dividend that would be paid to creditors if the company was placed in
liquidation
• A list of the holders of the securities issued by the company and the effect the
proposal will have on them
• Whether the proposal includes a proposal made informally by a creditor of the
company.
Must include at the following:
• The nature and duration of any proposed debt moratorium
• The extent to which the company will be released from the payment of its debts and
the extent to which any debt is proposed to be converted to equity in the company
• The treatment of contracts
The property of the company that will be made available for the payment of creditors’
claims

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• The order of preference in terms of which the proceeds of property will be applied
to pay creditors once the proposal is adopted
• The benefits of adopting the proposal as opposed to the benefits that would be
received by creditors if the company was placed in liquidation.
 The delivery of a copy of the proposal and a notice of meeting to consider the
proposal to the CIPC and every creditor, or class of creditor, whose name and
address is known to the company and can be reasonably obtained by the company.
 The proposal must contain the minimum prescribed information.
 The proposal must be adopted by the majority of creditors.
 Thereafter, an application must be made to court for the sanctioning of the
compromise.
If the compromise is sanctioned by a court, the compromise is final and binding on
all creditors or the specific class of creditors the compromise applies to, from the
date a copy of the order is filed. It is important that the sureties of a company are
unaffected by the sanctioning of the compromise.
Question 4.2.1
Insider trading is the trading of securities based on information that is not yet made
public which if obtained as public knowledge, would have a material effect on the
price or value of the security. There is no definition of insider trading in section 1 of
the Financial Markets Act. Section 78 of the Financial Markets Act 19 of 2012
provides that an insider who knows that he has inside information and, who deals
directly or indirectly in the securities listed on a regulated market to which this
information relates, commits an offence. According to section 78 Hennie has
committed an offence of Insider Trading.
Question 4.2.2
In terms of section 82 of the Financial Markets Act 19 of 2012 if a person commits
the disclosure offence he will be liable to pay an administrative sanction not
exceeding:
- the equivalent of the profit that the other person made or would have made if he
had sold the securities or
- the loss avoided if the recipient of the information or such other person dealt in the
relevant securities
- an amount of up to R1 million to be adjusted annually to reflect the Consumer
Price Index
- plus three times the amount of the profit or loss referred to above
- interest
- cost of suit including the investigation costs.

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- any commission or consideration received for such disclosure
 Any commission or consideration received for such disclosure
What must first be determined is whether the information is inside information.
Considering the lack of public announcements and the confidentiality of the auditor’s
comments, it could be considered inside information was obtained by Hennie.
Hennie commits an offence in terms of section 78(4)(a) by disclosing information
contained in the meeting of the Auditors to another person.

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