INSTITUTE OF CHARTERED SECRETARIES

AND ADMINISTRATORS IN ZIMBABWE

EXAMINATION QUESTION PAPER

SUBJECT: CORPORATE SECRETARIAL PRACTICE

PART: D (PROFESSIONAL PROGRAMME II)

DATE: MAY 2021 TIME: 09:00 to 12:30 HOURS

DURATION: 3 hours 30 minutes: plus 15 minutes reading time

INSTRUCTIONS TO CANDIDATES
This question paper consists of Seven (7) questions.
Each question carries 20 marks.

Questions 1 to 3 are based on the case study. Questions 4 to 7 are not based on
the case study.

Section A - Answer any two (2) questions.

Section B - Answer any three (3) questions.

The examination script is the property of ICSAZ and is not to be removed from the examination
venue.
 SECTION A
(Answer any TWO (2) questions from this section)

CASE STUDY
You are the Company Secretary of CCP Pharmaceutical Company (CCP), which is listed on
the Stock Exchange. CCP is a leading drug manufacturing company, which supplies drugs to
hospitals and pharmacies.

The Board of CCP comprises eight directors. Mary Meda is the new Chairperson who was
appointed on 1 December 2019, and is preparing for her first board meeting. There is no
deputy chairperson, even though the company’s Articles of Association provides for the
appointment of assistant or deputy chairperson. Although Mary Meda has extensive
knowledge in the pharmaceutical industry, she has limited experience of being a director. She
has indicated that she will rely mostly on the Company Secretary for guidance and advice. As
Company Secretary, you have arranged to meet the Chairperson as part of your ongoing
practical briefings with her on matters of good governance. The next board meeting is to be
held in a week’s time and she needs advice on a number of issues.

The Finance Director ( FD) and three of the other directors have tested positive for the
Coronavirus and cannot attend the next board meeting. The Chairperson is also feeling unwell
and is not sure whether she will be able to attend. The following are her concerns:
i) the procedure to be followed to select a chairperson for the board meeting if she is
absent.
ii) whether there are options available to her in respect of the board meeting taking into
account the absences.

Two of the directors have contacted the Chairperson to report that, at the last board meeting,
they had not agreed with some of the decisions to expand into the hospital equipment
business. The chairperson is not sure as to:
i) where certain directors do not agree with a proposal, what procedure needs to be
followed.
ii) important aspects of the role of the Chairperson before and during a board meeting.

For the financial year ended 31 December 2019, CCP recorded an operating profit of $314
million. This was an improvement on the prior financial year, which showed an operating
profit of $254 million.

The share capital of CCP consists of 500 million ordinary shares of $1 each nominal value and
150 million 10% cumulative preference shares of $1 each nominal value. There are 5 000
ordinary shareholders and 40 preference shareholders. There are two dividend payments a
year in respect of the ordinary shares and in respect of the preference shares. These consist
of a final dividend which is paid in June and an interim dividend which is paid in September.
For year ended 31 December 2019, the FD proposes that a final dividend of 25 cents per share
be considered by the directors after having paid an interim of 15 cents per share on ordinary
shares. The share price of CCP has shown good growth in recent years, particularly following
an increase in the final dividend paid in previous financial years to ordinary shareholders. CCP

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has previously announced its intention to increase dividend payments above the rate of
inflation over the next few years.

As Company Secretary, you are responsible for managing elements of CCP’s corporate
calendar and you are planning for the next AGM which will be held virtually due to the
Coronavirus pandemic. You note the following:
- The 2020 Annual General Meeting will be held on 11 May 2020.
- Global Chartered Accountants, the company’s auditors , will seek re-appointment at the
AGM after having served the company for two years
- Messrs James Moyo and Andrew Dube retire by rotation in terms of the company’s
Articles of Association, but being eligible, they offer themselves for re-election.
- The Chairperson’s appointment to be confirmed at the AGM
The Annual Report will be available on the company’s website fourteen days before the
AGM date.

The ordinary share register for CCP is very active and some shareholders have recently built
up material holdings in CCP. Currently, the largest ordinary shareholders in CCP are Life
Pension Fund and NGM Insurance Company, which hold 15 % and 10 % of the issued ordinary
share capital respectively. Both are very keen to see the business continue to succeed and
they have sought regular updates from the board of CCP. The two largest shareholders have
made it very clear to the Board that, where possible, they wish to be consulted in advance on
any matter which require shareholder approval. The shareholders look forward to a steady
dividend pay-out particularly the two major shareholders as they need to pay pensioners as
well as boost their reserves.

By contrast, however, the preference shareholders have not demonstrated good engagement
with the board and rarely contact the company or participate in any investor or analyst
briefings. The Board is not sure if they will have a quorum at all if they had to call a class
meeting. The FD suggests that a proposal should be put to the holders of preference shares
so that the shares may be converted, at the company’s sole discretion, into ordinary shares
and he would like to present this idea to the board.

Imports of drugs and other medical supplies has put pressure on the business which means
the directors need to continuously review their business strategy and look for new ways
to grow the business. As a result, a growth plan has been devised which is expected to
increase the business’ profitability.

As part of the growth plan, CCP has recently decided to move into the manufacture and
distribution of hospital equipment. This new venture has not been smooth and the board has
had disagreements on the next steps to continue the expansion of this part of the business.
CCP has formed Mediquip (Pvt) Limited (Medquip) with a secured investment from Medical
Equipment Engineering (Pvt) Limited (MEE), which has the knowledge required to expand the
business. The relationship with MEE has, however, been difficult. For example, there were
extensive negotiations regarding a shareholders’ agreement which defines key operational
aspects of Medquip, including the number of directors to be appointed on the board of
Medquip representing the shareholders.

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The directors and shareholders of Medquip are keen to reduce its administration costs as
much as possible and the following has therefore been agreed:
i) there be no company secretary for the company;
ii) written resolutions of the members be used wherever possible;
iii) the external auditor of the majority shareholder shall audit Medquip’s statutory
accounts.

Medquip was formed with 500 000 ordinary shares of $1 nominal value each and the share
capital has remained unchanged since formation. The number of directors and shareholding
in respect of Medquip is as follows:

Representing shareholders: Number of directors Percentage held of issued capital

MEE: 2 directors 40%
CCP: 3 directors 60%

Questions 1 to 3 are based on the case study.

QUESTION 1

a) You have had a discussion with the FD regarding Medquip. Given the
challenges and difficult relationship between the two shareholders, the
FD is of the opinion that Medquip be converted into a public company
but is concerned that the representatives of MEE may resist.

REQUIRED:
Advise the FD on the conversion process and whether this can be
achieved without the support of MEE, or if MEE abstains from voting
and whether any changes would need to be made in the current
operations of Medquip if the conversion succeeded. (12 marks)

b) The FD suggests that a proposal should be put to the holders of

preference shares so that the preference shares may be converted, at
the company’s sole discretion, into ordinary shares. The FD would like
to present this idea to the board. You inform him that a class meeting of
the preference shareholders will be needed.

REQUIRED:
Discuss the FD’s proposal indicating why a meeting of the preference
shareholders is required, the quorum for convening a class meeting and
explaining whether any of the preference shareholders would be able to
object to the proposal. (8 marks)
[Total: 20 marks]

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Corporate Secretarial Practice: May 2021 Page 4 of 8
QUESTION 2

a) Advise the Chairperson on whether the board meeting could proceed

without her given that there is no deputy chairperson, if so, who will
chair the meeting and what are the alternatives to holding a board
meeting in view of the fact that the meeting may not be quorate. (10 marks)

b) Discuss how the Chairperson should respond to the two directors who
indicated that they did not agree with the decision taken at the last board
meeting regarding expansion into hospital equipment and highlight to
the Chairperson her roles in board meetings in the light of the issue (10 marks)
raised by the two directors.
[Total: 20 marks]

QUESTION 3

The Company Secretary of CCP Limited will be proceeding to go on study

leave and has requested the Assistant Company Secretary to manage the
corporate calendar in her absence. Of importance is the forthcoming AGM
which she wants to ensure the draft notice has been prepared.

The Assistant Company Secretary has been assigned to draft the notice of
the tenth Annual General Meeting to be held on 30 June 2020 for the
Company Secretary’s review. Due to Coronavirus the meeting will be held
virtually.

REQUIRED:
Prepare the draft notice of the Annual General Meeting to be held on 30 June
2020. (20 marks)

SECTION B
(Answer any THREE (3) questions in this section)

QUESTION 4

a) XYZ Limited is a company incorporated under Zimbabwe laws and listed

on the Stock Exchange with subsidiary companies in Southern Africa.
The company has recently appointed three directors from foreign
subsidiary boards to the holding company board. While the three are
very experienced directors, they have requested the Company Secretary
to provide a guidance on the potential liabilities they face in the process
of decision making.

REQUIRED:
Discuss in detail the business judgement rule providing practical
example if necessary. (12 marks)
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b) You are the Company Secretary of CleanCo Limited, a company which is
listed on the Stock Exchange. Mrs Dube has just been appointed
Chairperson but, as this is her first appointment as a director, she is not
sure whether all matters affecting the company have to be decided by
the Board. If so, she wonders then, what will the role of management
be.

REQUIRED :
Advise the Chairperson on the key matters that are specifically reserved
for the decision of Board. (8 marks)
[Total: 20 marks]

QUESTION 5

You are the Company Secretary of MUGS Limited a company which is listed
on the Stock Exchange. A meeting of the board was held on Tuesday, 20
March 2020 at 1000 hours, and the matters below were recorded. You are
in the process of preparing the minutes of the board meeting for the
Chairman to review. The minutes shall include all actions which the directors
do not have the authority to approve which will be proposed at the
forthcoming Annual General Meeting (AGM):

i) The directors who attended the meeting were Mr Bere (Chairman), Mrs
Hama (CEO), Mrs Chandiwana (Finance Director), Ms Foya, Dr Tshuma
and Ms Mora. Mrs Foroma was absent due to illness and had made a
request for the appointment of Dr Hove as her alternate.
ii) Minutes of the meeting held on 5 December 2019 were reviewed and
taken as a correct record on a proposal by Ms Mora seconded by Ms
Foya.
iii) The Board approved the appointment of Mr Tony Simba as a director to
replace Mrs Banda who passed away two months ago.
iv) The meeting received business updates from the CEO and Finance
Director.
v) The audited annual accounts for the year ended 31 December 2019 were
approved. Matamba Chartered Accountants the external auditors, were
proposed to be retained.
vi) A final dividend of 25 cents per ordinary share was proposed to be paid
on 30 May 2020.
After the final dividend had been proposed, the meeting was adjourned
for 45 minutes for lunch.
vii) The Articles of Association for the company will be changed so that the
Model Articles are adopted in their entirety.
viii) The registered office of the business will change from the location of the
company’s factory , 13 Simon Mazorodze Road Harare to its new offices,
Bhora House, 12 Lytton Road Harare

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ix) The AGM will be held on 11 May 2020 at County Hotel Harare and the
notice of AGM was received.
x) The company will change its name from MUGS Limited to CUPS Limited.
However, after a long discussion, the proposal had been put to vote and
Ms Mora and Ms Foya voted against the motion

REQUIRED:
Prepare the minutes of the board meeting. (Note: you are not required to
draft a notice of AGM.) (20 marks)

QUESTON 6

a) You are the Company Secretary of Plascom Limited. The company is

considering introducing scrip dividend. The Chief Executive has
requested you to prepare a board paper for the next Board meeting to
address the following:
i) What are scrip dividends, and do they provide any advantages to the
company or the shareholder?
ii) What procedures need to be followed before and after a scrip
dividend has been made including any documentation for
shareholders, statutory filings and changes to statutory registers?

REQUIRED:
Advise the Chief Executive on how the company can implement scrip
dividend addressing issues raised in (i) to (ii) above. (13 marks)

b) A shareholder approached you as Company Secretary after receiving

notice and proxy form for the forthcoming AGM. She advises that she
will not be able to attend the AGM as she might be travelling out of the
country, although she is not sure yet. She is concerned that as she will
not be able to attend, she will not be able to be heard and vote at the
meeting. You advise her to appoint a proxy but she is not comfortable
with that, her concern being that a proxy does not have the same rights
as her.

REQUIRED :
Assess the rights and limitations of a proxy. (7 marks)
[Total: 20 marks]

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QUESTION 7

a) You are the Company Secretary of ABC Limited, a company listed on the
Stock Exchange. Mrs Shumba has joined the company as the Marketing
Director. She is aware that being in a listed entity, there are certain
guidelines that needs to be followed. She would like to purchase 10 000
ordinary shares in the company. She would like to know if she is
required to seek any permission before she buys and, if so, why such
permission needs to be sought. She has asked if there are any periods
during which she will not be able to purchase the shares and any
disclosures that needs to be made if she buys the shares.

REQUIRED:
Prepare responses to the issues raised by Mrs Shumba. (7 marks)

b) “Contrary to the common wisdom, buybacks don’t create value by

increasing earnings per share. The company has, after all, spent cash to
purchase those shares, and investors will adjust their valuations to
reflect the reductions in both cash and shares, thereby cancelling out
any earnings-per-share effect. If increasing earnings per share were the
only rationale for buybacks, they would have no impact on value which,
as we have seen, is certainly not the case.”

REQUIRED:
Evaluate the above statement in the context of the impact of share buy
backs, highlighting the advantages and disadvantages of share buybacks.
(13 marks)
[Total: 20 marks]

“End of Examination Question Paper”

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