LML4806 Memos

MAY JUNE 2021 unanswered
QUESTION 1 [20]
1.1 TMT Group Limited will be holding its tenth annual general meeting (AGM) next
month. The board of directors is concerned that it will not be possible to hold a
traditional venue-based AGM where the directors, board committee members, auditors,
shareholders and shareholder proxies can all attend in person and participate at the
meeting. This is due to the evolving COVID-19 outbreak and the related measures to
prevent its spread, including the requirements for stringent social distancing, the need
for people to avoid large public gatherings and the banning of all non-essential travel,
which have all impacted the manner in which traditional meetings are held.
With reference to the Companies Act 71 of 2008, advise the board of directors
regarding a possible alternative(s) to holding a traditional venue-based annual general
meeting in this case and indicate whether there are any requirements that must be
complied with. (5)
1.2 The board of directors of Thorstein Retail Group Ltd, a recently incorporated
company, is looking for ways through which the company can raise funds to finance its
business activities. Advise the directors of Thorstein Retail Group Ltd on the two
sources through which a company’s business activities can be financed. Also briefly
explain how the monies are raised from each source. (6)
1.3 Paint Your House (Pty) Ltd has four directors: Samson, Marianne, Adriana and
Tumelo. All of them also hold shares in the company. The Memorandum of
Incorporation of Paint Your House (Pty) Ltd states that the main object of the company
is to buy and sell paint. Despite Tumelo’s objection, the board of directors of Paint Your
House Ltd has entered into a contract to purchase luxury hotel apartments on behalf of
the company from VIP Living & Luxury (Pty) Ltd for an amount of R50 million.
1.3.1 With reference to the Companies Act 71 of 2008, advise the board of directors
whether the contract to purchase the hotel apartments is a valid transaction that can be
legally enforced by VIP Living & Luxury (Pty) Ltd. (5)
1.3.2 In the event that the transaction is found to be beyond the company’s main object,
advise Tumelo on the remedies that would be available to her and to Paint Your House
Ltd in terms of the Companies Act 71 of 2008 against the directors who caused the
company to enter into the transaction. (4)
QUESTION 2 [26]
2.1 Hamba Kahle Ltd has made significant profits in the past financial year. The board
of directors is considering whether the company, and the subsidiaries of the company,
may acquire (repurchase) up to three percent of the shares issued by the company for a
consideration of R250 per ordinary share. The shares are to be acquired from the
ordinary shareholders as well as from some of the directors of the company.
With reference to the Companies Act 71 of 2008, advise the board of directors on the
following:
2.1.1 The formalities and the procedures that must be followed before Hamba Kahle Ltd
and any of its subsidiaries may acquire the shares in this case. (12)
2.1.2 The implications for Hamba Kahle Ltd, its shareholders and its directors if the
company acquires the shares contrary to the required formalities and procedures.
(5)
2.2 Musa, Amos, Sipho and Jimmy are directors of Khubo Limited. Jimmy was
appointed as an executive director of Khubo Limited three years ago under a five-year
contract of employment with the company. Musa has expressed his concerns to the
board of directors that for the past two financial years Jimmy has been failing to ensure
the timely preparation and submission of the company’s annual financial statements,
and that Jimmy omitted to sign the annual financial statements for the previous financial
year as the authorised director, as required. Musa has also informed the board of
directors that, prior to joining Khubo Limited, Jimmy was removed as chairperson of the
board of trustees of the JF Pension Fund after he forged some documents and withdrew
R10 million from the JF Pension Fund’s bank account for his personal use. Advise
Jimmy on the following:
2.2.1 Whether under the circumstances of this case the board of directors of Khubo
Limited will have valid grounds to remove him (Jimmy) as a director of the company.
(4)
2.2.2 The procedure that the board of directors must follow and the rights that Jimmy
has in terms of the Companies Act 71 of 2008 should the board of directors decide to
remove him as a director. (5)
QUESTION 3 [19]
3.1 Xtra Mile Limited recently listed its securities on the Johannesburg Stock
Exchange Limited. Xtra Mile Limited does not have a social and ethics committee.
Explain to the board of directors whether Xtra Mile Limited is legally obliged to appoint a
social and ethics committee.
(4)
3.2 Blueprint (Pty) Ltd specialises in the printing of textbooks. The current trend to move
away from publishing hard copies of textbooks towards publishing textbooks
electronically is threatening its future business prospects. Although Blueprint (Pty) Ltd is
not yet in financial distress, its board of directors is considering whether it can propose
an arrangement with the company’s creditors in terms of which the company will pay 80
percent of all creditors’ claims against it in full and final settlement of the claims. The
board anticipates that most of the creditors will accept its proposal and that only a small
minority of the creditors will reject it.
Advise the board of directors of Blueprint (Pty) Ltd on a specific procedure in terms of
the Companies Act 71 of 2008 that would make the board’s proposal in this case
binding on all creditors if the proposal is accepted by most of them, and indicate the
requirements and formalities that must be complied with when implementing that
procedure. (15)
QUESTION 4 [15]
Thandi is the legal secretary for a large firm of attorneys. One morning while standing
outside the firm’s meeting room, she overhears a conversation between two partners in
the law firm. The partners represent Best Foods Ltd, a listed company. Best Foods Ltd
was summoned before the Competition Tribunal to answer to allegations of price fixing
of foodstuffs. Thandi can gather from the conversation between the partners that their
client will have no choice but to admit to the price fixing, which might mean that Best
Foods Ltd will have to pay 10 percent of their annual turnover to the Competition
Commission. This will have a detrimental effect on the share price of Best Foods Ltd.
Thandi goes to meet her friend, Simon, who is a stockbroker and tells him what she
heard from the partners. Simon immediately sells all shares held in Best Foods Ltd on
behalf of his clients and he instructs all other clients not to buy shares in the company.
Thandi also phones her sister, Tebogo, who is a shareholder of Best Foods Ltd and
says the following to her: “Don’t ask me how I know, but now is not a good time to have
Best Foods shares”. Tebogo does not act on the information.
4.1 Define the terms “insider” and “inside information” in terms of the Financial
Markets Act 19 of 2012. (6)
4.2 With reference to the facts provided in the scenario above, explain whether the
following persons have committed any offence(s) relating to insider trading in terms of
section 78 of the Financial Markets Act 19 of 2012:
4.2.1 Thandi (4)
4.2.2 Simon (4)
4.2.3 Tebogo (1)
OCTOBER NOVEMBER 2020 UNANSWERED

QUESTION 1 [28]
1.1 Discuss the meaning of the term “ubuntu”. (3)

(Your answer must not exceed a half page)
1.2 Discuss the common-law Turquand rule and the formulation of this rule under the
Companies Act 71 of 2008. (10)
(Your answer must not exceed two pages)
1.3 With reference to the Companies Act 71 of 2008, discuss the factors one would
consider in order to determine whether a company is a subsidiary company. (5)
1.4 Mrs Kilian has been identified as a potential candidate for a vacant director position
that needs to be filled at BST Bank Ltd. Mrs Kilian holds a Bachelor of Commerce in
Banking and has several years’ experience in the banking industry in various countries,
including South Africa, Botswana and Zimbabwe. She was so dedicated to her former
employer in Zimbabwe that she forged some documents and offered a bribe to a corrupt
official there to facilitate the establishment of several branches for her previous
employer. Unfortunately, this resulted in her arrest and conviction for fraud, forgery and
bribery in Zimbabwe in 2010. She was sentenced during the same year to eight years’
imprisonment without the option of a fine.
With reference to the relevant provisions of the Companies Act 71 of 2008, advise the
board of directors whether Mrs Kilian may be appointed as a director of BST Bank Ltd.
(10)
QUESTION 2 [12]
TN Engineering Group Ltd (“the company”), a newly incorporated company does not
have a company secretary. The company has been approached by RLV Corporate
Services (Pty) Ltd which has offered to provide it with company secretarial services. In
its Memorandum of Incorporation, RLV Corporate Services (Pty) Ltd describes itself as
a South African business that provides customised compliance, governance and
company secretarial services to the South African corporate community.
2.1 With reference to the Companies Act 71 of 2008, explain whether RLV Corporate
Services (Pty) Ltd can validly be appointed as the company secretary of TN Engineering
Group Ltd. (5) (Your answer must not exceed a half page)
2.2 With reference to the Companies Act 71 of 2008, identify the statutory duties of a
company secretary. (7)
(Your answer must not exceed one page)
QUESTION 3 [20]
3.1 The board of directors of Titans Ltd (“the company”) has determined that the
company will acquire up to 5% of the company’s issued shares from its various
shareholders. Some of these issued shares to be acquired by Titans Ltd are held by its
directors.
Advise the board of directors of the requirements under the Companies Act 71 of 2008
that must be complied with for Titans Ltd to acquire its own issued shares from its
various shareholders and directors. (10)
3.2 Solomon is employed as a driver of Apex Transport (Pty) Ltd. The company is
financially distressed and has just been placed under business rescue. Solomon is
worried because he has not yet been paid his salary for the previous month, before the
business rescue proceedings commenced. He is also concerned that the business
rescue practitioner may change his terms and conditions of employment.
3.2.1 Explain the meaning of the term “financially distressed” in the context of business
rescue proceedings. (2)
3.2.2 Advise Solomon whether he is entitled to be paid his salary for the previous
month, before the business rescue proceedings commenced. (3)
3.2.3 Advise Solomon whether the terms and conditions of his employment may change
now that the company is in business rescue. (5)
QUESTION 4 [20]
Snazzy Boutique (Pty) Ltd is experiencing financial problems. Its revenue has shrunk as
a result of a recession in South Africa which has resulted in consumers spending less
money on upmarket clothing. The company has a number of creditors who are
considering taking legal steps against it. The company is considering entering into a
compromise with its creditors. Advise the directors of Snazzy Boutique (Pty) Ltd on the
following:
4.1 Explain what a compromise is, and whether a company is required to be in financial
distress before it may enter into a compromise. (4)
4.2 Who may propose a compromise? (2)

4.3 Briefly explain how a compromise is to be effected. Do not discuss the contents
of a compromise proposal or the role of the court in a compromise procedure. (6)
4.4 Discuss the role of the court in a compromise procedure and the effect of the
approval of a compromise by a court. (6)
4.5 Discuss whether, in your view, a compromise would be an appropriate option for
Snazzy Boutique (Pty) Ltd to pursue. (2)
MAY JUNE 2020
QUESTION 1 [27]
1.1 The board of directors of Scarrow Iron Ltd wants to convene the annual
general meeting of the company’s shareholders.
With reference to the Companies Act 71 of 2008, advise the board of directors on
the matters that must, at a minimum, be dealt with at the annual general meeting.
(7)
(Your answer must not exceed half a page)
The key issue(s) here are matters that must, at a minimum, be dealt with at a company’s
annual general meeting. The question requires you to refer to the provisions of the
Companies Act 71 of 2008. You should, therefore, identify and state the relevant
section/provision of the Companies Act 71 of 2008. The relevant provision is section
61(8) of the Companies Act 71 of 2008. In terms of this section, the matters that must,
at a minimum, be dealt with at a company’s annual general meeting are the following:
• the presentation of the directors’ report, audited financial statements for the
immediately preceding financial year and the audit committee report,
• the election of directors,
• the appointment of an auditor,
• the appointment of an audit committee, and
• any matters raised by shareholders.
Refer to section 61(8) of the Companies Act 71 of 2008, par 11.6.2 of the prescribed
textbook and par 1.12 of the study guide.
1.2 Thandeka, a shareholder of Scarrow Iron Ltd, has received written notification
from the company that the annual general meeting of the company would be held
in ten days’ time. The notice does not inform the shareholders of the purpose of
the meeting.
With reference to the relevant provisions of the Companies Act 71 of 2008 and the
facts provided, discuss whether the notice of the shareholders’ meeting given in
the above scenario is valid. (7)
The issue in this question relates to the validity of a notice of meeting. The question
requires you to state and refer to the relevant provisions of the Companies Act 71 of
2008. The relevant provisions, in this regard, are contained in section 62 of the
Companies Act 71 of 2008. You should have pointed out that Scarrow Iron Limited is a
public company. In terms of section 62(1)(a) of the Companies Act 71 of 2008, the notice
of a shareholders meeting must be delivered at least fifteen (15) business days before
the meeting is to begin. However, in terms of section 62(2), a company’s Memorandum
of Incorporation may provide for a longer or shorter minimum notice period. Section
62(3)(b) requires that the notice must include the general purpose of the meeting.
Application to the facts:

Since Scarrow Iron Limited is a public company, the notice should have been delivered
at least fifteen (15) business days before the meeting was to commence. In this case,
Thandeka was given only ten (10) days’ notice of the meeting instead of fifteen (15)
business days. Therefore, the notice period given is invalid unless the Memorandum
of Incorporation makes provision for a shorter notice period. Furthermore, the purpose
of the meeting was not stated in the notice, which is contrary to the requirements of
section 62(3)(b) of the Companies Act 71 of 2008. Therefore, the notice provided is
invalid.
Conclusion:
Note that your conclusion should be clear that the notice in this case is invalid.
Refer to section 62 of the Companies Act 71 of 2008, and par 11.8 of the prescribed
textbook.
1.3 The Memorandum of Incorporation of Educat Group Ltd states that the main
business of the company is the development, acquisition and management of
independent schools and tertiary education institutions. The board of directors of
Educat Group Ltd concludes a contract to purchase a luxury yacht on behalf of
the company from Exclusive Yachts (Pty) Ltd.
1.3.1 With reference to the relevant provisions of the Companies Act 71 of 2008
and the facts provided, advise the board of directors whether the purchase of a
luxury yacht is a valid transaction that can be legally enforced by Exclusive
Yachts (Pty) Ltd. (5)
The key issues in this question are the legal capacity of a company and the ultra vires
doctrine. You should have pointed out that sections 19(1) and 20(1)(a) of the
Companies Act 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).
Application to the facts:

The ultra vires doctrine would not apply in this case as it has been abolished. In terms
of section 19(1), Educat Group Limited 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) of Educat Group Limited has altered this legal
position. Educat Group Limited’s capacity is not limited by its main business. Even if
Educat Group Limited’s 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.
Conclusion:
The conclusion is, therefore, that the contract in this scenario is valid and binding on
Educat Group Limited and Exclusive Yachts (Pty) Ltd.
Refer to sections 19(1) and 20 of the Companies Act 71 of 2008, par 7.1 of the
prescribed textbook, and par 4.2 of the study guide
1.3.2 Explain what the doctrine of constructive notice entails, and identify the two
circumstances in which this doctrine would be applicable to a company under the
Companies Act 71 of 2008. (8)
This is a simple and straight forward question. First, you were supposed to explain what
the doctrine of constructive notice entails. Here you should have simply pointed out
that the doctrine of constructive notice provides that third parties dealing with the
company are deemed to be fully acquainted with the contents of the public documents
of the company, for example the Memorandum of Incorporation, whether they have
read them or not.
Secondly, you were expected to identify the circumstances in which the doctrine of
constructive notice would be applicable to a company under the Companies Act 71 of
2008. The section of the Companies Act 71 of 2008 that is relevant, in this regard, is
section 19. Section 19(4) of the Companies Act 71 of 2008 partly abolishes the doctrine
of constructive notice. However, section 19(5) provides for two exceptions:
• Ring-fenced companies
One exception is that of ring-fenced companies. A person is deemed to have
knowledge of any provision of a company’s Memorandum of Incorporation in terms
of section 15(2)(b) or (c) (relating to any restrictive or procedural requirement
impeding the amendment of any specific provision of the Memorandum of
Incorporation or prohibiting its amendment). This is subject to the condition that the
company’s name includes the letters “RF” and the Notice of Incorporation contains
a prominent statement drawing attention to such a provision, as required by section
13(3).
• Personal liability companies

The other exception is that of personal liability companies. A person is regarded as
having received notice and having knowledge of the effect of section 19(3) on a
personal-liability company. Section 19(3) provides that the directors and past
directors of a personal-liability company are jointly and severally liable, together with
the company, for any debts and liabilities of the company contracted during their
respective periods of office.
Refer to sections 15(2)(b) and (c) and 19(4)-(6) of the Companies Act 71 of 2008, par
7.2 of the prescribed textbook, and par 4.4 of the study guide.
QUESTION 2 [23]
You are a legal advisor of Fisher Technology Ltd (‘the company’). The company’s
Memorandum of Incorporation has not changed the default position in terms of
the Companies Act 71 of 2008 regarding the provision of financial assistance or
regarding the declaration and payment of dividends.
The company has shown a significant increase in profits. The board of directors
would, therefore, like to propose a final dividend of R5.50 per share which will be
paid out to the company’s ordinary shareholders. The board of directors would
also like to lend Gareth, the chief executive officer of the company, an amount of
R10 million, interest-free and on condition that he repays such loan within 30
years. The company will not be taking any security from Gareth for the loan.
2.1 With reference to the relevant provisions of the Companies Act 71 of 2008,
discuss the formalities that must be followed before the dividend proposed by the
board of directors may be declared and paid. (8)
The main issue in this question relates to the formalities that must be adhered to before
a company may declare and pay a dividend. Section 46 of the Companies Act 71 of
2008 is relevant. You should have indicated that dividends are distributions. Briefly, a
distribution is any direct or indirect transfer by a company of money or other property
of the company (except its shares) to one or more of its shareholders or beneficial
holders of shares. The required formalities are that the board of directors must
authorise the distribution/dividend by resolution. It must reasonably appear that the
company will be able to satisfy the solvency and liquidity tests immediately after
completing the proposed distribution/dividend. You should have also set out the
requirements relating to the solvency and liquidity tests and then briefly explained what
these tests entail. The dividend/distribution must be made within 120 days after the
solvency and liquidity test was applied, otherwise the resolution by the board must be
taken again and the test must be applied again.
Refer to sections 1 (definition of ‘distribution’), 46 and 4 of the Companies Act 71 of

2008, par 10.2.2, 10.2.3 and 10.2.4 of the prescribed textbook, and par 6.4 of the study
guide.
2.2 Outline the requirements of the Companies Act 71 of 2008 that must be
complied with in order for the company to provide the financial assistance to
Gareth. (12)
This question focuses on the requirements of the Companies Act 71 of 2008 that must
be complied with for a company to provide financial assistance to its CEO. The facts
do not indicate whether Gareth is a director of the company, but he would be a
prescribed officer because he is the CEO of the company. The relevant section here is
section 45 of the Companies Act 71 of 2008. This is a simple and straightforward
question. You should have meticulously set out the requirements in section
45(3)(a)(ii), section 45(3)(b)(i), section 45(3)(b)(ii), section 45(4) and section 45(5) of
the Companies Act 71 of 2008.
Refer to section 45 of the Companies Act 71 of 2008 and par 10.6 of the prescribed
textbook.
2.3 Advise the board of directors whether the loan of R10 million may validly be
given to Gareth. (3)
This question requires the application of the relevant provisions of section 45 of the
Companies Act 71 of 2008 to the facts provided in the scenario regarding the provision
of financial assistance/loan to Gareth. Section 45(3)(b)(ii) requires that the terms
under which the financial assistance is proposed to be given must be fair and
reasonable to the company. Fisher Technology Ltd in this case is unlikely to satisfy
this requirement because it has given Gareth 30 years to repay the loan, the loan is
interest free and the company has not taken any security for the loan from Gareth. The
terms under which financial assistance is proposed are arguably unreasonable and
unfair to the company.
Refer to section 45 of the Companies Act 71 of 2008 and par 10.6 of the prescribed
textbook.
QUESTION 3 [10]
Lexie is a director of Spice Galore Ltd. Spice Galore Ltd needed to appoint a new
marketing agent to market and advertise its products in Gauteng. At a meeting of
the board of directors, Lexie persuaded the board to appoint Premium Marketing
CC by convincing the board that this corporation would be ideal for this task.
However, Lexie did not disclose to the board the fact that her husband, Vishal,
had a substantial member’s interest in Premium Marketing CC. She also did not
disclose to the board the fact that Premium Marketing CC did not have the
necessary capacity and experience to market diverse products for a large
company such as Spice Galore Ltd. Premium Marketing CC was appointed as the
new marketing agent for Spice Galore Ltd, but a few months later it became clear
that Spice Galore Ltd had suffered substantial losses in Gauteng because its
products were not being advertised effectively. A number of shareholders of
Spice Galore Ltd are upset by the loss suffered by the company as a result of the
appointment of an inexperienced close corporation as the company’s marketing
agent.
3.1 With reference to the Companies Act 71 of 2008, explain what the statutory
business judgment rule entails. (7)
This question deals with the business judgment rule and the relevant provision in the
Companies Act 71 of 2008 is section 76(4). You should have set out the essential
elements of the business judgment rule as provided for in this section. The section
provides that a director will be regarded as having acted in the best interests of the
company and with the required degree of care, skill and diligence if the director:
• took reasonable steps to become informed about the matter,
• had no material personal financial interest in the subject matter of the

decision or knew of any related person having a personal financial interest in
the matter, or disclosed his/her interests, and
• made or supported a decision, and had a rational basis for believing, and
did believe, that the decision was in the best interests of the company.
A director is also entitled to rely on the performance of, and any information
provided by, certain persons specified in the Companies Act 71 of 2008.
textbook, and par 3.2.4 of the study guide.
3.2 Advise the shareholders of Spice Galore Ltd whether the business judgment
rule would protect Lexie in the event that the company institutes legal
proceedings to hold her personally liable for the loss suffered by the company.
(3)
This question requires you to apply the requirements of the business judgment rule
(see the feedback on 3.1 above) to the facts provided in this scenario. To be
protected by the business judgment rule, a director must not have had a material
personal financial interest in the subject matter of the decision or knew of any related
person having a financial interest in the matter. Alternatively, the director must have
disclosed his interests. However, Lexie knew that her husband had a personal
financial interest in the matter and did not disclose this as required.
Furthermore, the business judgment rule requires that the director must have had a
rational basis for believing, and did believe, that the decision was in the best interests
of the company. It would be extremely difficult for Lexie to prove that she had a rational
basis for believing, and actually believed, that the decision to appoint Premium
Marketing CC was in the best interests of the company. She knew that Premium
Marketing CC was not ideal for this task. She knew that Premium Marketing CC did
not have the necessary capacity and experience to market the company’s products.
You should have then stated your conclusion: Therefore, the business judgment rule
would not protect Lexie.
textbook, and par 3.2.4 of the study guide.
QUESTION 4 [20]
4.1 With reference to the Companies Act 71 of 2008, outline any five of the
statutory duties of an audit committee. (5)
This is a simple and straightforward question. The statutory duties of an audit

committee are outlined in section 94(7) of the Companies Act 71 of 2008.
textbook, and par 2.14 of the study guide.
4.2 Thabiso is a director of Computer Land International Holdings Ltd (‘the

company’) which is listed on the Johannesburg Stock Exchange of South Africa.
He is informed by Paul, the chairperson of the company’s audit committee, that
the external auditor is refusing to certify the company’s annual financial
statements after detecting serious accounting fraud and inaccurate reporting of
the company’s finances in the statements. Both Thabiso and Paul realise that if
this information were to become public it would have a negative effect on the
company’s reputation and would result in a material drop in the value of the
company’s shares. They therefore agree that they should keep quiet about it for
as long as possible.
Thabiso immediately calls his stockbroker and instructs him to sell 60% of the
shares that Thabiso holds in the company as well as all the shares that Thabiso’s
wife holds in the company. When the stockbroker asks Thabiso why he is selling
so many shares, Thabiso merely tells the stockbroker that he has a reason to
believe that the share price of the company will drop in the next few weeks. The
stockbroker, knowing that Thabiso is a director of the company, realises that
Thabiso must know that something bad has happened in the company and sells
the shares as instructed by Thabiso. Thabiso also calls his brother, John, and
informs him that the external auditor has discovered serious accounting scandals
at the company. He then urges John to sell all the shares that he holds in the
company as soon as possible as he fears that the shares will become worthless
once the situation at the company becomes public.
A week later several newspapers report about the accounting scandals at the
company that have been discovered by the external auditor, and the market price
of the shares in the company drops by 47%.
4.2.1 List and briefly explain the five offences relating to insider trading in terms
of section 78 of the Financial Markets Act 19 of 2012. (10)
The offences relating to insider trading are provided for in section 78 of the Financial
Markets Act 19 of 2012. Briefly, they are as follows:
• The offence of dealing in own account – an insider who knows that

he has inside information and deals directly or indirectly or through an
agent for his own account commits an offence. (see section 78(1))
• The offence of dealing for any other person/ someone else – an
insider who knows that he has inside information and who deals directly
or indirectly or through an agent for any other person, commits an
offence. (see section 78(2))
• The ‘disclosure’ offence – an insider who knows that he has inside
information commits an offence if he discloses that information to another
person. (see section 78(4)(a))
• The ‘encouraging’ offence – an insider who knows that he has
inside information and who encourages or causes another person to deal
or who discourages or stops another person from dealing commits an
offence. (see section 78(5))
• The new offence of dealing for an insider – any person who deals
for an insider directly or indirectly or through an agent, who knew that
such a person is an insider, commits an offence. (see section 78(3)(1))
4.2.2 With reference to the facts provided in the scenario above, briefly explain
whether Thabiso has committed any offence(s) relating to insider trading in terms
of section 78 of the Financial Markets Act 19 of 2012. (4)
This question requires you to apply the relevant offences set out in section 78 of the
Financial Markets Act 19 of 2012 (see the feedback in 4.2.1 above) to the facts given to
you.
• The offence of dealing in own account – Thabiso is an insider who

knew that he had inside information and dealt through an agent (i.e.
stockbroker) for his own account.
• The offence of dealing for any other person/ someone else –
Thabiso is an insider who knew that he had inside information and dealt
through an agent (i.e. stockbroker) for his wife.
• The ‘disclosure’ offence – Thabiso is an insider who knew that he
had inside information and he disclosed that information to his brother,
John. It is immaterial whether or not John committed any insider trading
offence after the disclosure.
• The ‘encouraging’ offence – Thabiso is an insider who knew that he

had inside information and he encouraged his brother, John, to deal in
the company’s securities.
4.2.3 With reference to the facts provided in the scenario above, briefly explain
whether the stockbroker has committed any offence(s) relating to insider trading
in terms of section 78 of the Financial Markets Act 19 of 2012. (1)
The offence of dealing for an insider – The stockbroker has dealt for Thabiso (an
insider), knowing that Thabiso was an insider.
Refer to section 78 of the Financial Markets Act 19 of 2012, and par 11.3 of the study
guide.
MAY JUNE 2019
QUESTION 1 [20]
1.1 Mars (Pty) Ltd, a company based in Limpopo, has five shareholders. The
company wishes to convene a shareholders’ meeting to vote on certain
amendments to the memorandum of incorporation. Three shareholders are
currently overseas and are not able to attend the meeting in Limpopo. Without
these shareholders, Mars (Pty) Ltd will not have a quorum for the meeting.
Mars (Pty) Ltd does not have the facilities to hold the shareholders’ meeting
electronically. Advise Mars (Pty) Ltd of any options available to it in order to
overcome this problem. (10)
One option for Mars (Pty) Ltd would be to have a written resolution instead of a formal
meeting and for the shareholders to vote on the written resolution.
In terms of section 60 of the Companies Act 71 of 2008 the resolution may be voted
on in writing by shareholders by means of a written resolution.
This means that the company does not have to hold a formal meeting.
The written resolution must be submitted for consideration to those shareholders who
are entitled to exercise voting rights in relation to the resolution.
The resolution must be adopted by the same percentage of support as is required to
pass the resolution at a meeting.
The shareholders must vote on the resolution within 20 business days after the
resolution was submitted to them.
The company must deliver a statement to the shareholders describing the results of
the vote within 10 business days after the company has adopted the written resolution.
Another option would be for Mars (Pty) Ltd to hold a formal meeting and for the meeting
to be attended by proxies of the shareholders who are unable to attend the meeting.
This is permissible in terms of section 58 of the Companies Act.
Those shareholders who are unable to attend the meeting may appoint any individual
including an individual who is not a shareholder of the company to participate in and
speak and vote at the shareholders meeting on their behalf.
The proxy appointment must be in writing and must be dated and signed by the
shareholder.
1.2 The directors of Khubo (Pty) Ltd discover that Sifiso and Timothy, two of
their codirectors, have been redirecting company funds from the accounts
of Khubo (Pty) Ltd to their personal accounts. They also discover that these
illicit transactions have been taking place, undetected, for a period of three
years. With reference to the Companies Act 71 of 2008, relevant case law,
and the facts provided, consider whether under the circumstances of this
case the board will have grounds to successfully obtain a delinquency
order against Sifiso and Timothy. (10)
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; (1) or
• acted in a manner contemplated in sections 77(3)(a), (b) or (c).
Students should refer to the case of Gihwala v Grancy Property Limited which is
prescribed. In Gihwala v Grancy Property Ltd two directors of a company had also
appropriated financial benefits for themselves. (1)
The court held that this conduct entailed gross abuse of the position of a director.
Since the actions of the two directors had been intentional the court held further that
their conduct involved a breach of trust in relation to the performance of their duties as
directors.
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.
QUESTION 2 [25]
2.1 Furniture Land (Pty) Ltd (“the company”) is a company incorporated for the
purpose of manufacturing and distributing furniture. In terms of its
memorandum of incorporation, the company is to deal exclusively in
furniture. Since the loss of one of its major clients, the company has been
experiencing financial difficulties. Joseph, one of the company’s directors,
enters into a contract with World-of-Electronics Ltd for the purchase of
laptops. The intention of the board is to venture into the business of selling
laptops, because, according to the board, these laptops are popular and
profitable.
At the time of the conclusion of the contract with World-of-Electronics Ltd,

Joseph was authorised by the company’s board of directors. The
Memorandum of Incorporation of the company specifically prohibits the
company from dealing in any other business that is not related to the
manufacture and distribution of furniture. In reply to a letter, in which a
demand for the payment of the laptops is made by World-of-Electronics Ltd,
the company raises the defence that the contract between the company and
World-of-Electronics Ltd is void because the company’s business is limited
by its MOI to trading in furniture. Answer the following questions with
reference to the Companies Act 71 of 2008 and to the facts provided:
2.1.1 Explain whether the contract between Furniture Land (Pty) Ltd and World-
of Electronics Ltd would be valid and enforceable. (5)
Section 19(1) provides that the company has all the legal capacity and powers of a
natural person as far as it can be applied.
The purposes and powers of the company may be limited, restricted or qualified In the
Memorandum of Incorporation.
However, such a restriction, limitation or qualification on the powers of the company
will not invalidate a contract when concluded with a third party.
The contract between Furniture Land (Pty) Ltd and World of Electronics Ltd is legally
binding and enforceable.
It is irrelevant for purposes of this contract that the contract falls beyond the objects of
the company.
2.1.2 Would Furniture Land (Pty) Ltd or the shareholders of the company be able
to hold the board members of the company personally liable, on any basis,
for the conclusion of the contract? (6)
Section 20(6) provides that a shareholder of the company 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 Act or a limitation, restriction or
qualification contemplated in section 20.
When directors act beyond the scope of a company’s capacity they are in breach of
their fiduciary duties.
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 Act.
Yes, 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.
2.1.3 Explain the circumstances under which a company should have the suffix
“RF” next to its name, and the purpose of this suffix. (4)
When the memorandum of incorporation of a company contains special conditions the

name of the company should be followed by the suffix “RF”.
The suffix “RF” means “ring-fenced”.
The notice of incorporation must contain a prominent statement drawing attention to
the special provisions.
A special condition is a condition which restricts or prohibits the amendment of any
particular provision in the Memorandum of Incorporation of a company.
The purpose of the suffix “RF” is to draw the attention of third parties to the presence
of the special conditions in the Memorandum of Incorporation.
2.2 Beta (Pty) Ltd holds 25% of the voting shares in Lumina (Pty) Ltd, while Cato
(Pty) Ltd holds 20% of the voting shares in Lumina (Pty) Ltd. The remaining
55% of the voting shares in Lumina (Pty) Ltd are held by Lexis (Pty) Ltd.
Explain what is meant by a “group of companies” and discuss the factors
one would consider to determine whether a company is a subsidiary
company. Also explain the concept of a wholly-owned subsidiary. Indicate
by giving reasons for your answer, whether Lumina (Pty) Ltd is a subsidiary
of Beta (Pty) Ltd, Cato (Pty) Ltd and/or Lexis (Pty) Ltd. (10)
A group of companies means a holding company and all of its subsidiaries.
Section 3(1) of the Companies Act 71 of 2008 defines a ‘subsidiary’ company.
A company is a subsidiary of another juristic person if-
That company or one or more of its nominees or subsidiaries alone or in combination
is directly or indirectly able to exercise the majority of the general voting rights or can
directly or indirectly control the exercise of the majority of the voting rights or can
appoint or elect directors who control a majority of the voting rights in board meetings
or can control the appointment of such directors.
A wholly-owned subsidiary is a company in which all of the voting rights are held by
another person or persons.
In the facts provided, Beta (Pty) Ltd and Cato (Pty) Ltd both hold a minority of the voting
shares in Lumina (Pty) Ltd.
Lumina (Pty) Ltd is not a subsidiary of Beta (Pty) Ltd or Cato (Pty) Ltd because these
companies are not able to exercise or control the exercise of the majority of the voting
rights in Lumina (Pty) Ltd.
Lexis (Pty) Ltd holds 55% of the voting rights in Lumina (Pty) Ltd and can therefore
exercise the majority of the voting rights in Lumina (Pty) Ltd.
For this reason, Lumina (Pty) Ltd is a subsidiary of Lexis (Pty) Ltd.
QUESTION 3 [15]
3.1 Themba is a business rescue practitioner of a company that is under

business rescue. Due to complications in the company, Themba applied to
court to extend the duration of the business rescue proceedings for two
additional months. The additional two months have lapsed and the business
rescue proceedings have not ended. Themba wants the business rescue
process to continue as the company is slowly recovering from financial
distress. Advise Themba on what to do under these circumstances. (5)
In terms of section 132(3) (1) of the Companies Act 71 of 2008,

If a company’s business rescue proceedings have not ended within three months after
the start of those proceedings, or such longer time as the court, on application by the
practitioner, may allow, the practitioner must:
• prepare a report on the progress of the business rescue proceedings, and
update it at the end of each subsequent month until the end of those
proceedings; and
• deliver the report and each update in the prescribed manner to each
affected person, and to the court if the proceedings have been the subject of a
court order, or the Companies Commission, in any other case.
In this case both the normal and additional duration applied for in court have lapsed.
Themba must prepare a progress report on the business rescue proceedings and
follow it up with updates at the end of each month until the termination of the business
rescue proceedings.
He must deliver the progress report and each update to each affected person and to
the court if the proceedings were the subject of a court order or the Companies
Commission.
3.2 Rickus, a business rescue practitioner of a company that is under business

rescue, has introduced a business rescue plan for consideration by the
creditors. One of the creditors, Ajax (Pty) Ltd, holding 40% of the creditors’
voting interests, rejects the business rescue plan. Rickus wishes to apply to
court to set aside the vote of Ajax (Pty) Ltd. With reference to case law, advise
Rickus of the factors that a court would take into account in considering such
an action. In addition, discuss the effect of a court setting aside the vote of
Ajax (Pty) Ltd. (10)
In terms of section 153(1)(a)(ii) of the Companies Act 71 of 2008 if a business rescue
plan has been rejected the business rescue practitioner may advise the meeting that
the company will apply to a court to set aside the result of the vote on the grounds
that it was inappropriate. In terms of section 153(7) (1) of the Companies Act, in
such an application a court may order the vote on the business rescue plan to be set
aside if the court is satisfied that it is reasonable and just to do so.
The court will have regard to the following factors:
• The interests represented by the person who voted against the proposed
business rescue plan
• The provision, if any, made in the proposed business rescue with respect
to the interests of that person and
• A fair and reasonable estimate of the return to that person if the company
were to be liquidated.
Students must refer to First Rand Bank Ltd v KJ Foods CC which is prescribed.
In First Rand Bank Ltd v KJ Foods CC the Supreme Court of Appeal held that the vote
would be set aside on the grounds that its result was inappropriate if it is reasonable
and just to do so. The court held that this is a single enquiry and a value judgment
made after consideration of all the facts and circumstances.
The Supreme Court of Appeal held further that the effect of a court setting aside the
result of the vote is that the business rescue plan is adopted by operation of law.
This is because the Companies Act does not envisage another round of voting on the
business rescue plan.
QUESTION 4 [20]
4.1 Discuss the liability which may result, under the Financial Markets Act 19 of
2012, if an insider who knows that he has inside information discloses this
information to another person. (10)
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 (1) including the investigation costs.
- any commission or consideration received for such disclosure.
4.2 Meda, the company secretary of Howls (Pty) Ltd, has heard that, in line with
South Africa’s constitutional democracy, companies now also have a
corporate social responsibility. She must advise the board of directors as
to what corporate social responsibility entails. Explain to Meda what the
principle of corporate social responsibility entails and provide examples of
how this principle is reflected in the Companies Act 71 of 2008. (10)
“Corporate social responsibility” seeks to make companies responsible members of the

community.
It means that businesses have a responsibility towards the societies in which they
operate and that this responsibility needs to be managed.
It is a voluntary commitment by companies to manage their role within society
responsibly. The concept of corporate social responsibility marks a departure from the
traditional perception that the only object of business is to make profits.
Examples:
One of the purposes of the Companies Act is to promote the development of the South
African economy by encouraging transparency and high standards of corporate
governance, given the significant role of enterprises within the social and economic life
of the nation (s 7(b)(iii)).
The Companies Act specifically seeks to reaffirm the concept of the company as a
means of achieving economic and social benefits (s 7(d)).
The Companies Act seeks to promote the development of companies within all sectors
of the economy, and to encourage active participation in economic organisation,
management and productivity (s 7(f)).
The Companies Act also seeks to encourage the efficient and responsible management
of companies (s 7(j)). Sound management of companies prevents corporate collapses
due to mismanagement that may also have dire consequences on society.
The Companies Act provides for non-profit companies that are incorporated for social
activities, public benefits, cultural activities or group interests.
Corporate activities may affect a wide circle of stakeholders. As such, the Companies
Act has extended locus standi to a broad category of stakeholders (not only company
shareholders) to enforce its provisions and to seek redress where company directors
have abused their position, for example, in the application to declare a director
delinquent or under probation (s 162). Such stakeholders may include directors,
prescribed officers, trade unions or other representative of employees.
The Companies Act requires certain categories of companies to appoint a social and
ethics committee to monitor the company’s activities with regard to matters relating to:
social and economic development, good corporate citizenship, the environment, health
and public safety, consumer relationships, and labour and employment issues.
OCTOBER NOVEMBER 2019
QUESTION 1
1 1 ABC (Pty) Ltd ('the company') has five shareholders, each of whom holds
20% of the voting rights In the company All of them are also directors of the
company The Memorandum of Incorporation of the company has not
changed the default position In terms of the Companies Act 71 of 2008
regarding the quorum requirements for a shareholders' meeting It has also
not changed the default position regarding the threshold required to pass
ordinary resolutions.
The company held a board meeting at which four directors were present
Some of the decisions taken by the board of directors related to matters that
were required to be referred to the shareholders for approval by an ordinary
resolution Without Issuing a notice of a shareholders' meeting or convening
a shareholders' meeting, the board meeting proceeded to consider the
proposed ordinary resolutions All the directors who were present at the
meeting voted on the proposed ordinary resolutions In their capacity as
shareholders
Simphiwe, a director and shareholder of the company who was not present
at that meeting, objects to the passing of the ordinary resolutions at the
meeting In this manner He argues that (D the voting on the ordinary
resolutions was Invalid as no notice of a shareholders' meeting was properly
given, (Il) the quorum requirements for a shareholders' meeting were not
satisfied, and (Ill) the threshold required for the approval of the ordinary
resolutions was not satisfied
With reference to the relevant provisions of the Companies Act 71 of 2008

and the facts, advise Simphiwe whether his arguments have any merit and
whether the ordinary resolutions were validly passed at the meeting (15)
If every shareholder of a company (other than a state-owned company) is also a

director of the company, any matter that is required to be referred by the board to the
shareholders for decision may be dealt with in terms of section 57(4) of the Companies
Act 71 of 2008. The effect of this section is that a matter may be referred by the board
to the shareholders without notice or compliance with any internal formalities.
However, this is subject to the Memorandum of Incorporation which may provide
otherwise.
Therefore, as all the shareholders of ABC (Pty) Ltd are directors of the company,
section 57(4) of the Companies Act 71 of 2008 would be applicable, unless the
Memorandum of Incorporation provides otherwise.
Section 57(4) requires the following:
• Every person must be present at the board meeting when the

matter was referred to them in their capacity as shareholders.
• A sufficient number of persons must be present in their capacity as
shareholders to satisfy the quorum requirements as set out in section 64
of the Companies Act.
• A resolution adopted by the shareholders be supported by
shareholders holding at least the percentage of shares required for
adopting an ordinary resolution at a properly constituted shareholders’
meeting.
In this case, Simphiwe was not present at the meeting. Therefore, the first proviso
is not satisfied because not every person was present at the board meeting when
the matter was referred to them in their capacity as shareholders.
The default position for a quorum to be satisfied is that at least 25% of all the
voting rights eligible to be exercised in respect of at least one matter to be decided
at the meeting must be present before the meeting may start. Since four out of
five shareholders were present at the meeting, the quorum requirements for the
meeting were satisfied.
The default position for the support of an ordinary resolution is that shareholders
holding more than 50% of the voting rights exercised must vote in favour of the
resolution.
In conclusion, Simphiwe’s objection is valid because not every person was

present at the board meeting when the matter was referred to them in their
capacity as shareholders. Therefore, the ordinary resolutions were not validly
passed.
Refer to section 57(4) Companies Act 71 of 2008, para 11. 4.3 of the prescribed
textbook and page 3 of the study guide.
1 2 Cool Coals (Pty) Ltd ('the company') operates within a poor community and
has made three times the usual profit at the end of 2018. The board of
directors of the company debates whether the company should Issue
university bursaries to learners In the community who have completed grade
12 In 2018 Some of the directors are opposed to this view They clam that the
company should be managed exclusively In the Interests of the shareholders
With the result that (D the Interests of other stakeholders such as the
community and Its grade 12 learners cannot be taken Into account, and (i')
all the profits of the company must be distributed to the company's
shareholders As the secretary of the company, the board of the company
approaches you for advice
With reference to the principle of Ubuntu as expressed by Madala J In the case

of S v Makwanyane 1995 (6) BCLR 665 (CC) and the facts. In the scenario
above, advise the board on whether the payment of university bursaries may
be justified on the basis of the principle of Ubuntu or whether the profits of
the company should exclusively be distributed to Its shareholders (5)
Ubuntu refers to the saying umuntu ngumuntu ngabantu, which means a person is
a person through others. In the case of S v Makwanyane 1995 (6) BCLR 665 (CC),
Madala J expressed the view that ubuntu advocates social justice and fairness.
In the set of facts, the view of the directors that the company should be managed
solely in the interests of the shareholders, is not in line with the principle of ubuntu
which advocates for social justice and fairness.
This approach fails to acknowledge the responsibility of the company towards the
community within which it operates. Based on the principle of ubuntu which
promotes social justice and fairness, the company’s payment of bursaries can be
justified.
Refer to page 28 of Tutorial letter 101.
QUESTION 2
2.1 Nonhlanhla holds 40% of the shares and voting nghts In SLM (Pty) Ltd ('the
Company') The Company's Memorandum of Incorporation does not contain
any special provisions regarding the Issue of shares other than that the
Companies Act 71 of 2008 shall regulate any Issue of shares The board of
directors has resolved that the Company Will issue 4 million of Its authorised
shares for cash Nonhlanhla wants to subscribe for all the shares that the board
of directors has resolved to Issue. None of the other existing shareholders of
the Company wantto subscribe for any of these shares
However, the board of directors has negotiated an agreement With Always On

Investments (Pty) Ltd, which currently not a shareholder of the Company and
which is not related to the Company In terms of the agreement, Always On
Investments (Pty) Ltd Will subscribe for up to 60% of the shares resolved to be
Issued The agreement also provides that the consideration for the shares Will
be paid for by a loan obtained by Always On Investments (Pty) Ltd from
Sharevest Bank Ltd and the Company Will stand surety for this loan
2 1 .1 With reference to the relevant provisions of the Companies Act 71 of
2008, advise Nonhlanhla whether she Will be able to compel the
board of directors of SLM (Pty) Ltd to Issue all the 4 million new
shares to her (5)
Section 39 of the Companies Act 71 of 2008 is relevant.
If a private company, such as SLM (Pty) Ltd, proposes to issue shares, each
existing shareholder of that company has a right, before any other person who is
not a shareholder of that company, to be offered and, within a reasonable time
to subscribe for, a percentage of the shares to be issued equal to the voting
power of that shareholder’s general voting rights immediately before the offer
was made (section 39(2)).
Nothing in the facts indicates that the Memorandum of Incorporation has limited,
negated, restricted or placed conditions upon this right (section 39(3)).
The exceptions in section 39(1)(b) do not apply in this scenario.
Section 39(4) determines that except to the extent that the Memorandum of
Incorporation provides otherwise -
o A shareholder may subscribe for fewer shares than the shareholder would
be entitled to subscribe for; and
o shares not subscribed for by a shareholder within a reasonable time, may

be offered to other persons (i.e. outsiders such as Always On (Pty) Ltd in
this scenario) to the extent permitted by the Memorandum of
Incorporation.
• Therefore, if the Memorandum of Incorporation permits it, shares not

taken up by the other shareholders of SLM (Pty) Ltd may be offered to
persons other than shareholders.
Nonhlanhla can only force the company to offer her a percentage of the shares
equal to the voting power of her general voting rights immediately before the
offer was made.
Refer to section 39 of the Companies Act 71 of 2008, para 9.10 of the prescribed
2 1.2 Critically discuss the requirements of the Companies Act 71 of 2008 that
must be complied With for SLM (Pty) Ltd's agreement to stand surety for
the loan to be obtained by Always On Investments (Pty) Ltd from Sharevest
Bank Ltd to be valid. Also explain whether Nonhlanhla may be able to
prevent this agreement from becoming operative
The requirements of the Companies Act 71 of 2008 that must be complied with
The transaction in question (provision of guarantee/surety, of security or otherwise)

amounts to financial assistance for the subscription of the company’s securities.
Accordingly, the requirements of section 44 of the Companies Act 71 of 2008 must be
complied with.
o In terms of section 44(3)(a)(ii) the financial assistance must be provided pursuant

to a special resolution of the shareholders adopted within the previous two years.
The assistance must be approved either for the specific recipient or generally for a
category of potential recipients. The specific recipient must fall within that category.
o In terms of section 44(3)(b)(i) the board of directors must be satisfied that

immediately after providing the financial assistance the company would continue to
satisfy the solvency - and liquidity test in section 4 of the Companies Act 71 of 2008.
This means that, considering all reasonably foreseeable financial circumstances of the
company at the time:
o the assets of the company as fairly valued must exceed the liabilities of the
company as fairly valued, and
o it must appear that the company will be able to pay its debts as they become due
in the ordinary course of business for a period of twelve months after the date on
which the test is considered.
o In terms of section 44(3)(b)(ii) the board of directors must be satisfied that the
terms under which the financial assistance is proposed to be given are fair and
reasonable to the company.
o The board of directors must also ensure that any conditions or restrictions relating
to the granting of the loan which are set out in the Memorandum of Incorporation
of the company (if any) have been satisfied (section 44(4)).
Application
If the requirements of section 44 are not complied with, the agreement of SLM (Pty) Ltd
to stand surety for the loan to be obtained by Always On (Pty) Ltd from Sharevest Ltd
will be invalid.
Nonhlanhla would be able to prevent the agreement (or part thereof) from becoming
operative by simply voting against the resolution for the approval of financial
assistance. She holds enough voting rights to prevent the passing of the requisite
special resolution.
2.2 The Memorandum of Incorporation of Pure Gold Ltd ('the company') provides
that only the board of directors, or any director authorised by the board, has
the power to conclude contracts on behalf of the company It also states that
any transaction that exceeds R50 million must first be authorised by the
shareholders by way of an ordinary resolution
Maki, a director who IS authorised by the board of directors to conclude
contracts on behalf of the company, enters into a contract With Judith for
the purchase of gold processing equipment to the value of RI 00 million,
without first obtaining the authorisation for the purchase by the
shareholders
Judith knows about the provision in the Memorandum of Incorporation

because she has dealt with the company before However, she does not
know that the transaction has not been authorised by an ordinary
resolution of the company's shareholders
2.2.1 With reference to the relevant provisions of the Companies Act 71

of 2008 and the facts, discuss whether Pure Gold Ltd IS bound by the
contract concluded by Maki and Judith
(6)
Whether Pure Gold LTD is bound to the contract concluded between Maki and Judith
• Refer to section 20(7) of the Companies Act 71 of 2008.
• A third party dealing with the company in good faith may assume that that
the company has complied with all of the formal and procedural requirements in
terms of the
Companies Act 71 of 2008 and the company’s Memorandum of Incorporation
and rules unless he or she knew or reasonably ought to have been aware that
they had not been complied with.
Application
• There is no indication from the facts that Judith knew or reasonably ought
to have known that Maki had failed to comply with the procedural requirement
in terms of the Memorandum of Incorporation.
• There is also no indication that Judith was aware of the fact that Maki did
not comply with procedural requirement, and that she had acted in bad faith.
• The contract is valid, and the company will be bound to it.
Refer to section 20(7) of the Companies Act 71 of 2008, para 7.3 of the textbook and
page 21 of the study guide.
2.22 Suppose that after seven years the board of directors of the company has
withdrawn Maki's authority to conclude contracts on behalf of the company
by way of a board resolution and by amending the MOI of the company
However, the board of directors has allowed Maki to conclude contracts on
behalf of the company With Judith One day suddenly the board of directors
argues that Maki IS not authorised to conclude contracts on behalf of the
company and that the contract concluded with Judith is invalid
With reference to the relevant authority/principle and the facts, advise Judith
on what she must prove in order to prevent the company from arguing that it
is not bound by the contract (4)
What Judith must prove for the company to be bound by the contract if the company
relies on Maki’s lack of authority
Judith must prove the requirements for Estoppel. She must prove:
o That Pure Gold Ltd misrepresented (i.e the misrepresentation was made by the
company).
o The misrepresentation was made intentionally or negligently that Maki in fact had
the necessary authority to represent the company.
o That she, as a reasonable third party, was induced to deal/ conclude the contract
with Maki on the basis of the misrepresentation.
o That she was prejudiced/ suffered damage due to the misrepresentation.
Refer to Freeman & Lockyer v Buckhurst Park Properties as authority.
See page 20 of the study guide and para 7.4.2.1 of the prescribed textbook.
QUESTION 3
3 1 Thein (Pty) Ltd ('Then') holds 23% shares in Gote (Pty) Ltd ('Gote') Risa
(Pty) Ltd and Soloi (Pty) Ltd are both subsidiaries of Thein and each of them
holds 14% shares in Gote. With reference to the relevant provisions of the
Companies Act 71 of 2008 and the facts, advise the board of directors of Thein
(Pty) Ltd on the following matters
3.1.1 Whether Thein and Gote are related (5)
• In terms of section 2(1)(c) of the Companies Act 71 of 2008, a 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;
• If 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).
Application
The facts indicate that Thein directly holds 23% of the voting rights in Gote and
indirectly holds 28% of the voting rights in Gote through Risa and Soloi who hold 14%
each.
In total, Thein indirectly controls the majority (51%) of the voting rights in Gote.
This means that Thein and Gote are related.
Refer to section 2(1) of the Companies Act 71 of 2008, page 39 of the study guide and
para 8.4 of the prescribed textbook.
3 1 2 Whether Thein controls Gote (5)

In terms of section 2(2) of the Companies Act 71 of 2008
o a person controls another juristic person or its business, if that juristic person is
a subsidiary of the person in terms of section 3(1)(a); or
o if together with any related person or interrelated person is directly or indirectly

able to exercise or control the exercise of a majority of the voting rights associated
with the securities of that company, whether pursuant to a shareholder agreement
or otherwise.
Application
• The facts indicate that Thein is able to directly exercise 23% of the voting
rights in Gote and is also able to indirectly exercise 28% of the voting rights in
Gote through Risa and Soloi.
• In total, Thein is able to indirectly exercise the control of the majority of

51% of voting rights at Gote.
This means that Thein controls Gote.
3 1 3 Whether Gote is a subsidiary of Thein (5)
• In terms of section 3(1) of the Companies Act 71 of 2008 a company is a

subsidiary of another juristic person if that juristic person, one or more other
subsidiaries of that juristic person, or one or more nominees of that juristic
person or any of its subsidiaries, alone or in any combination is or are directly
or indirectly able to exercise or control the exercise of, a majority of the general
voting rights associated with issued securities of that company, whether
pursuant to a shareholder agreement or otherwise.
• A company also qualifies as a subsidiary company if the company or its
subsidiary/subsidiaries has or have the right to appoint or elect or control the
appointment or election of directors of that company who control a majority of
the votes at a meeting of the board.
Application
▪ On the facts, Thein is able to directly exercise 23% of the voting rights at
Gote and indirectly able to control 28% of the voting rights at Gote through Risa
and Soloi.
▪ In total, Thein is able to indirectly control the majority of 51% of the voting
rights in Gote.
▪ This means that Gote is a subsidiary of Thein.
QUESTION 4
4 1 Coffee Bean Lovers (Pty) Ltd ('the company') buys coffee from Kenya and
distributes It to different coffee shops In South Africa. Due to an Infestation
of bugs at one of the coffee plantations, the company will not be able to get
deliveries of coffee from Kenya for the next three months. Instead, the
company will have to Import coffee from Uganda at a much higher cost. As
a result, the company's cash flow will be severely affected. Pat, one of the
directors of Coffee Bean Lovers (Pty) Ltd, has informed Jane and Steven,
two of the employees of the company, that the company may face serious
financial difficulties In the next three to twelve months and that they will not
be paid their salaries for the next two months as the company will first have
to pay other creditors
Jane and Steven have heard about business rescue and are of the view that
business rescue proceedings may be appropriate in the circumstances to
assist the company to survive and to ensure that they will still be paid their
salaries. Jane and Steven approach you for advice on business rescue
proceedings
4 1 .1 With reference to the relevant provisions of the Companies Act 71 of

2008, explain what business rescue is and the circumstances of the
company in which business rescue proceedings may be used (5)
What is business rescue?
• Section 128(1)(b) of the Companies Act 71 of 2008 defines business

rescue as proceedings to facilitate the rehabilitation of a financially distressed
company by:
o The temporary supervision of the company, and of the

management of its affairs, business and property.
o A temporary moratorium on the rights of claimants against the

company or in respect of its property in its possession.
o The development and implementation, if approved, of a plan to

rescue the company, or, if not possible, a plan to achieve a better return
for the company’s creditors than the payment they would have received
if the company had been liquidated immediately.
Circumstances in which business rescue can be used
• In terms of section 128(1)(f) of the Companies Act 71 of 2008 a company

will be financially distressed when:
o the company is reasonably unlikely to be able to pay all its debts as they
become due and payable within the next six months, or o the company is
reasonably likely to become insolvent within the next six months.

Refer to section 128(1)(b) and (f) of the Companies Act 71 of 2008 and para 20.2 of the
prescribed textbook.
4 1 2 With reference to the Companies Act 71 of 2008, advise Jane and

Steven on how business rescue proceedings may be commenced. In your
answer also indicate whether Jane and Steven, in their capacity as
employees, would have any means of ensuring that the business rescue
proceedings are commenced. (5)
The commencement of business rescue proceedings
• In terms of section 129(1) of the Companies Act 71 of 2008 will

commence:
o When the board of the company resolves by means of a majority vote that
the company begin business rescue proceedings if
▪ it has reasonable grounds to believe that the company is

financially distressed and
▪ there appears to be a reasonable prospect of rehabilitating

the company.
• The proceedings will become effective only when the resolution is filed
with the Companies and Intellectual Property Commission.
• The proceedings can also be initiated by a court application in terms of

section 131 of the Companies Act 71 of 2008.
o Any affected person may apply to court for an order to commence business
rescue proceedings and place the company under supervision.
• The proceedings will become effective when an application is made to

court, or if made during liquidation – when the actual order for business rescue
is made.
• In terms of section 128(1)(a) of the Companies Act 71 of 2008, an affected
person is either a shareholder, creditor, registered trade union, and employees
not represented by a trade union.
Application
It is, therefore, possible for Jane and Steven to bring an application.
Refer to sections 129 and 131 of the Companies Act 71 of 2008, para 20.3.1 and
20.3.2 of the prescribed textbook and pages 49-50 of the study guide.
42 Jacques is an executive director of Ubuntu (Pty) Ltd and is also employed by

the company. He receives a letter from the board of directors stating that he
would no longer be employed by the company and henceforth his status is
that of a non-executive director. The letter further states that while Jacques
could still attend all meetings of directors, he would no longer be involved in
the day-to-day management of the company's affairs. Jacques is unhappy
about the fact that he will no longer be involved in the day-to-day management
of the company's affairs. With reference to appropriate authority, advise
Jacques on the following
4.2 1The differences between an executive and a non-executive director (4)
4 2.2 Whether Jacques is entitled to be Involved in the day-to-day management of

the company's affairs (6)
4.2 Section 66(1) of the Companies Act 71 of 2008 provides that the business of the
company must be managed by, or under the direction of its board, which has the
authority to exercise all the powers and perform any of the functions of the company
except to the extent that the Companies Act or the company’s Memorandum of
Incorporation provides otherwise.
The directors of a company, therefore have a duty to manage the company.
An executive director has a service contract with the company and works for the
company in a full-time capacity. A non-executive director attends and votes at board
meetings but does not work full-time for the company and does not have a service
contract.
The facts of this scenario are similar to the prescribed case of Kaimowitz v Delahunt.
In this case the court held that a director is not as of right entitled to participate in the
day-to-day running of the company’s affairs. The court stated that the overall
supervision of the management of a company rests with the board which may delegate
such management powers to a managing director or a board committee. Therefore, a
director has no right as such to be involved in the day-to-day management of the
company’s affairs.
In conclusion, Jacques is not entitled as of right to be involved in the day-to-day

management of the company’s affairs if this right is not delegated to him by the board
of directors.
textbook and pages 6-7 of the study guide.
MAY JUNE 2018 UNANSWERED
QUESTION 1
Deedee IS a shareholder of Magnesia (Pty) Ltd She receives a notice calling for a
meeting of shareholders of the company to vote on the appointment of Sipho as the
company's finance director Having known Sipho for a few years, Deedee attends the
meettng With the speciftc purpose of voting In favour of his appointment Magnesia (Pty)
Ltd has five shareholders but out of these, only Deedee and Thabo, who each hold 10%
of the voting rights, attend the meeting Clause 20 of Magnesia (Pty) Ltd's Memorandum
of Incorporation states that an ordinary resolution must be supported by 70% of the
voting rights exerased on the resolution
Answer the following questions With reference to the facts provided
11 Adv•se Magnesia (Pty) Ltd whether a quorum IS present at the meeting With
reference to the relevant provisions of the Companies Act 71 of 2008
1 2 Assuming that a quorum js present at the meeting of Magnesia (Pty) Ltd, advise
Magnesia (Pty) Ltd on the type of resolution that has to be passed to appoint Sipho as
the finance director of the company Also mention the mtnmum voting support required
to pass this type of resolutton (5)
QUESTION 2 [301
21 Discuss whether the statutory duty of a director to act With care, skill and
diligence as set out In the Companies Act 71 of 2008 •s a fiduciary duty Also consider
whether a subjective test and/or an objective test must be applied to determtne a
breach of this duty Discuss With reference to case law, the effect of the business
judgment rule on the statutory duty of care, skill and diligence
Taamane (Pty) Ltd IS a company that spectaltses In destgntng diamond rings Mapula,
an existing shareholder and employee of the company wants to purchase more shares
In the company She however does not have sufficient funds, but she offers to sell her
art collection to the company for R2 million She Will then use the money from the sale
of her art collectton to purchase more shares In Taamane (Pty) Ltd
2 2 1 Advise Taamane (Pty) Ltd on whether the purchase of Mapula's an collection
would qualify as financial assistance •n connection With the purchase of its shares
Refer to relevant case law where applicable
2 2 2 Assuming the purchase of the art collection qualifies as financial assistance,
discuss the requirements that must be satisfied In terms of the Companies Act 71 of
2008 for this transaction to be validly executed (5)
QUESTION 3
The board of directors of a well-known publishing company, Buka (Pty) Ltd, wants to
place the company under business rescue They are not sure how to go about doing
this, and whether the approval of the shareholders of the company Will be required or
whether they Will need to apply to court to place the company under business rescue.
The board also concerned about how a business rescue practitioner has to be
appointed They Wish to appoint Sam as the business rescue practitioner of the
company, but they are not sure whether they may do this Sam IS the son of one of the
major shareholders of the company and IS a qualified engineer The board ot Buka (Pty)
Ltd approaches you for adv:ce Advise the board of directors With reference to the
Companies Act 71 of 2008 on the following
3
LM 14806
May/June 2018
Discuss the circumstances under which the board of directors of Buka (Pty) Ltd may
place the company under voluntarily bustness rescue and the procedure that must be
followed to do so Also mention whether the approval of the shareholders has to be
obtained and whether a court order IS required to place the company under voluntary
business rescue
Discuss the procedure that has to be followed by the board of directors to appoint a
business rescue practitioner, and whether Sam may be appointed as the business
rescue practitioner of Buka (Pty) Ltd
QUESTION 4
Cars for Everyone (Pty) Ltd IS experiencing financial problems Its revenue has shrunk
as a result of a crippling six-month labour strike that plagued the motor Industry In
order to remain financially stable, the company retrenched some of its employees
Notwithstanding Its cost. cutting measures, the company IS struggling to stay financially
viable It has numerous
directors of Cars for Everyone (Pty) Ltd on the foitowng
Explain what a compromise IS (2)
4 2 Identify who may propose a compromise (2)
briefly explan how a compromise IS to be effected (5) Discuss the role of the court •n a
compromise procedure (4)
(Pty) Ltd to pursue (2)
QUESTION 1 [20]
Maisha (Pty) Ltd issued a notice for a meeting of its shareholders to vote on the
sale of its business to another company. But Maisha (Pty) Ltd has many
shareholders who are based overseas and who are unable to attend the meeting
in South Africa. Maisha (Pty) Ltd is concerned about having a quorum for the
meeting. The board of Maisha (Pty) Ltd did not determine a record date.
Answer the following questions with reference to the Companies Act 71 of 2008
and to the facts provided:
1.1 Explain the purpose of a record date in light of the facts given above. Discuss
how a record date would be determined if such date is not determined by the
board.(10)
In terms of section 59 of the Companies Act the board of a company must set a record
date to determine which shareholders are entitled to receive notice of a shareholders
meeting, participate in and vote at a shareholders' meeting and decide any matter by
written consent or electronic communication. If the board does not determine a record
date for the meeting, then the record date will be the latest date by which the company
is required to give shareholders notice of that meeting.
In a private company notice to the shareholders must be given at least 10 business

days before the meeting unless the Memorandum of Incorporation provides for a longer
or shorter minimum notice period. Since Maisha (Pty) Ltd is a private company, unless
the Memorandum of Incorporation provides for a longer or shorter notice period, the
record date will be the date which is 10 business days before the meeting since this is
the latest date by which the company is required to give shareholders notice of the
meeting.
1.2 Advise Maisha (Pty) Ltd whether it may conduct the shareholders’ meeting
by video conference, and if so, the statutory requirements with which it
would need to comply in order to do so. Also indicate in your advice who will
be liable for the costs for accessing the meeting by video conference. (10)
In terms of section 63(2) of the Companies Act, a company may provide for a
shareholders meeting to be conducted by electronic communication, unless this is
prohibited by its Memorandum of Incorporation. Therefore, Maisha (Pty) Ltd may
conduct the shareholders’ meeting by video conference, unless this is prohibited by its
Memorandum of Incorporation.
A meeting by electronic communication may be conducted provided that the notice of
the meeting sent out by Maisha (Pty) Ltd informs shareholders of the availability of
participating in the meeting by electronic communication. The notice must also provide
any necessary information to enable shareholders or their proxies to access the means
of electronic communication. The electronic communication used must enable all
persons participating in that meeting to communicate concurrently with each other
without an intermediary and to participate reasonably effectively in the meeting. Access
to the means of electronic communication is at the expense of the shareholders, except
to the extent that the company determines otherwise.
Therefore, the shareholders will be liable for the costs of accessing the meeting by video
conference unless Maisha (Pty) Ltd decides otherwise.
QUESTION 2 [25]
2.1 The board of directors of Amanzi (Pty) Ltd approaches you for advice. The
board has resolved to issue shares to the following persons:
(i) the newly appointed chief executive officer of the company;
(ii) a new director, Mr Meintjies, who will be joining the board of

directors in four months’ time; and
(iii) certain employees of the company in terms of an employee share
scheme.
However, the board of directors is unsure about certain matters

surrounding the issue of shares. Advise the board of directors of Amanzi
(Pty) Ltd whether approval of the shareholders of Amanzi (Pty) Ltd is
required to issue shares to the persons referred to in (i), (ii) and (iii) above.
(10)
Unless the Memorandum of Incorporation provides otherwise, the board of
directors may issue authorised shares without the approval of shareholders.
Section 41 of the Companies Act requires a special resolution to be passed in
certain instances.
A special resolution is required if shares are issued to a director or prescribed

officer of the company. If the chief executive officer of the company is a director or
a prescribed officer of the company, approval of the shareholders by special
resolution will be required to issue the shares to him. The approval of the
shareholders by special resolution is also required to issue shares to future
directors. A “future director” does not include a person who becomes a director of
the company more than 6 months after acquiring a particular right. Mr Meintjies is
a future director of the company because he will become a director in 4 months’
time. Therefore, approval by special resolution will be required to issue the shares
to Mr Meintjies.
Note that the approval of the shareholders of a company is not required if the shares
are issued pursuant to an employee shares scheme that satisfies the requirements
of section 97 of the Companies Act. If the shares are issued to the employees in
terms of an employee share scheme which satisfies the requirements of section 97
of the Companies Act, then the shareholders of Amanzi (Pty) Ltd will not be required
to approve the issue of shares by means of a shareholders' resolution. However, if
the requirements of section 97 of the Companies Act are not satisfied, then the
approval of the shareholders by special resolution will be required.
2.2 Lesedi is one of the five directors of Surfs Heaven (Pty) Ltd. Her co-directors
are of the opinion that Lesedi is neglecting her duties as a director because
she is out surfing all the time. The board of directors has therefore passed a
board resolution to remove her as a director. Lesedi is unhappy about her
removal as a director of the board, as she believes that she is in fact
promoting the company by surfing regularly.
and to the facts provided:
2.2.1 Advise Lesedi on the grounds upon which a director may be removed by
the board of directors, and whether or not she has the right to have the
decision of the board of directors to remove her as a director reviewed.
(10)
A director may be removed by the board of directors if:
(i) he has become ineligible or disqualified to be a director;
(ii) he has become incapacitated to the extent that he is unable to perform the
functions of a director and is unlikely to regain that capacity within a reasonable
time; or
(iii) he has neglected or has been derelict in the performance of the functions of
a director.
If the board of directors has removed a director from office, the director who
was removed, or a person referred to in the Memorandum of Incorporation who
appointed that director, may apply to court within 20 business days to review
the board’s decision.
Therefore, the matter may be reviewed by a court upon an application by Lesedi
within 20 business days of her removal from office.
2.2.2 Explain how your answer in 2.2.1 above would have differed if the
board of directors of Surfs Heaven (Pty) Ltd had consisted of only Lesedi
and one other director.
(5)
In terms of section 71(8) of the Companies Act, if a company has fewer than
three directors the board of directors may not remove a director from office. In
this event the other director or a shareholder of the company may apply to the
Companies Tribunal to make a determination with regard to the removal of a
director. Therefore, the answer would have differed in that if the board consisted
of only Lesedi and one other director, the other director or a shareholder would
have to refer the matter to the Companies Tribunal and the board would not be
permitted to remove Lesedi from office.
QUESTION 3 [20]
3.1 Willow Ltd, one of the subsidiaries of Fountain Ltd, holds controlling shares
in another company, called Bridge Ltd. Explain the nature of the relationship,
if any, existing between Fountain Ltd and Bridge Ltd. (5)
The holding/subsidiary relationship is based on control of the subsidiary by the holding

company either at the board meeting or shareholders' meeting level. In terms of section
3(1)(a) of the Companies Act, a holding/subsidiary relationship comes into existence if
the holding company controls the subsidiary, directly or indirectly, or does so through
other subsidiaries or in combination with other subsidiaries. In the facts provided, even
though there is no direct control relationship between Fountain Limited and Bridge
Limited, the two companies are connected through Willow Limited which is a subsidiary
of Fountain Limited and a controlling shareholder in Bridge Limited. Fountain Limited can,
therefore, influence the running of Bridge Limited through its control of Willow Limited.
This indirect connection makes Bridge Limited a subsidiary of Fountain Limited.
3.2 List five grounds on which a business rescue practitioner may be removed
from office by an order of court. (5)
A business rescue practitioner may be removed by a court on any of the following

grounds:
(i) incompetence or failure to perform the duties of a business rescue practitioner;
(ii) failure to exercise the proper degree of care;
(iii) engaging in illegal acts or conduct;
(iv) no longer satisfying the requirements set out in section 138(1) of the Companies Act
2008 (relating to the qualifications of business rescue practitioners);
(v) having a conflict of interest or lack of independence; or
(vi) being incapacitated.
3.3 The Memorandum of Incorporation of Mhlangu & Sons (Pty) Ltd states
that the company’s business is restricted to poultry farming. In an effort to
expand the company’s business to game farming and breeding, on behalf of
Mhlangu & Sons (Pty) Ltd the board of directors of Mhlangu & Sons (Pty) Ltd
purchases a buffalo for R40 million from Johan, a game breeder.
3.3.1 Discuss with reference to the Companies Act 71 of 2008 and the
Memorandum of Incorporation of Mhlangu & Sons (Pty) Ltd, whether the
contract for the purchase of the buffalo from Johan is valid. (5)
In terms of section 19(1)(b) of the Companies Act, a company has 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 the company’s Memorandum of Incorporation provides
otherwise. Therefore, the capacity of a company is no longer limited by its main or
ancillary objects or business. A transaction is not void merely because it is prohibited or
restricted in terms of its Memorandum of Incorporation. The fact that the company is
restricted to poultry farming is irrelevant. Therefore, the contract for the purchase of the
buffalo from Johan is valid.
3.3.2 Vela, one of the shareholders of Mhlangu & Sons (Pty) Ltd, is unhappy about
the purchase of such an expensive buffalo by the company. Assuming that
the contract between Mhlangu & Sons (Pty) Ltd and Johan for the purchase of
the buffalo is valid, discuss whether Vela has any claim for damages in this
regard in terms of the Companies Act 71 of 2008. (5)
Unless ratified by a special resolution in terms of section 20(2) of the Companies Act,
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 (refer to section
20(6) of the Companies Act). The purchase of the buffalo is in contravention of the
Memorandum of Incorporation of the company. It has not been ratified by special
resolution of the shareholders. Therefore, Vela will have a potential claim for damages
if he can successfully prove that the company intentionally or due to gross negligence
purchased the buffalo from Johan.
QUESTION 4 [15]
The main asset of Development Properties Ltd is an office building in

Johannesburg valued by its auditors in the previous financial year at R18 million.
It comprises 80% of the gross value of the company’s total assets. The board of
directors decided that they should focus on acquiring office buildings in Cape
Town. Since the company has received an offer of R20 million for the office
building in Johannesburg, the directors wish to accept the offer. The board of
directors regards the decision to sell the office building in Johannesburg as a
management decision that they can take on their own, but one of the company’s
shareholders disagrees.
and the facts provided:
4.1 Advise the board of Development Properties Ltd whether they may
contract to sell the office building in Johannesburg without the consent of
the shareholders of the company. (7)
Since the property being sold is the main asset of the company, the company
is disposing of all or the greater part of its assets or undertaking. “All or the
greater part of the assets” is defined in section 1 of the Companies Act as
meaning more than 50% of its gross assets fairly valued, irrespective of its
liabilities. Therefore, this transaction is a fundamental transaction. As a
fundamental transaction, this particular transaction is regulated by sections
112 and 115 of the Companies Act. If a company wants to dispose of all or the
greater part of its assets or undertaking, the transaction must be approved by
a special resolution of the shareholders. Therefore, the shareholders must be
involved in the transaction because the transaction must be approved by the
shareholders.
4.2 Discuss whether the requirements of the Takeover Regulations would

apply to this transaction. (3)
Since the company is a public company, it is a regulated company (in terms of section
118 of the Companies Act). Fundamental transactions involving regulated companies are
affected transactions. This transaction is therefore not only a fundamental transaction but
also an affected transaction. The implication of this is that the transaction will be subject
to additional regulation in the form of the Takeover Regulations.
4.3 Two shareholders of the company who are unhappy about the proposed sale
of the office building in Johannesburg, have indicated that if the sale goes
ahead, they will no longer be interested in owning shares in the company and
that they will expect the company to buy their shares. Advise the directors of
Development Properties Ltd whether these two shareholders may force
Development Properties Ltd to buy their shares. (5)
A proposed fundamental (and affected transaction) transaction is one of the triggering

actions for the appraisal remedy. Refer to section 64 of the Companies Act. The
appraisal remedy entails that a dissenting shareholder must send a written notice to the
company of his objection to the special resolution. The written notice must be sent to
the company before the resolution is voted upon. In addition, the dissenting shareholder
must vote against the special resolution. Accordingly, if the two shareholders who are
unhappy about the sale of the Johannesburg property follow the prescribed procedure,
they may force the company to buy their shares
QUESTION 1 [30]
1.1 The shareholders of Injabulo (Pty) Ltd, a black-economic empowerment

company, are scheduled to hold a shareholders’ meeting at 09:00 at the Head
Office of the company. Injabulo (Pty) Ltd has 20 shareholders. At 10:00, 11
shareholders are present at the meeting. They are able to exercise in aggregate
24% of all the voting rights that are entitled to be exercised in respect of the
matters to be decided at the meeting.
Two of the shareholders of the company have indicated to the chairperson that
they will attend the meeting, but are delayed in traffic due to bad weather. These
two shareholders each hold 2% of the voting rights in Injabulo (Pty) Ltd.
The chairperson of the board of directors consults you, as the secretary of the
company, on whether the shareholders’ meeting may proceed. With
reference to the Companies Act 71 of 2008, advise the chairperson of the
board of directors of his options in these circumstances. (15)
In terms of section 64 of the Companies Act 71 of 2008 (‘the Act’), a

shareholders’ meeting may not begin until sufficient persons are present at the
meeting to exercise in aggregate at least 25% of all the voting rights that are
entitled to be exercised in respect of at least one matter to be decided at the
meeting. This is subject to the Memorandum of Incorporation of the company
which may specify a higher or a lower percentage instead of the 25%
requirement.
In companies with more than two shareholders, at least three shareholders are
required to be present and the 25% requirement (or a different requirement if
stated in the Memorandum of Incorporation) must also be satisfied.
In this situation, assuming that the Memorandum of Incorporation has not changed
the quorum requirements, a quorum is not present because the shareholders
present at the meeting may exercise 24% of the voting rights instead of 25%. The
company has more than two shareholders and 11 shareholders are however
present at the meeting.
Therefore, the requirement in section 64(3) has been satisfied.
Section 64(4) of the Act provides that if, within an hour after the scheduled time for
the meeting to commence, the quorum is not met, the meeting may be postponed
without motion, vote or further notice for one week.
In this situation, the one-hour period referred to section 64(4) of the Act has expired
and there is no quorum. Thus the chairperson may postpone the meeting without
motion, vote or further notice for one week.
In terms of section 64(5) of the Act, the person who presides over the meeting that
cannot commence due to the fact that a quorum is not met, may extend the one-
hour period allowed in terms of section 64(4) for a reasonable period on the
grounds that:
(i) exceptional circumstances such as weather, transport or electronic

communication, have impeded the ability of the shareholders to be present at the
meeting; or
(ii) one or more shareholders who have been delayed have communicated an
intention to attend the meeting and those shareholders, together with others in
attendance, would satisfy the quorum requirements.
There are two shareholders who have indicated that they will attend the meeting and
who together hold 4% of the voting rights. The two shareholders are held up in the
traffic owing to bad weather which is a reason given in section 64(5) for the
chairperson to extend the onehour limit for a reasonable period. Therefore, the
chairperson may extend the one-hour period for a reasonable period on the grounds
that exceptional circumstances, being the weather, impede the shareholders from
attending the meeting at the scheduled time and/or when adding the voting rights of
the two shareholders who have indicated that they will attend, the aggregate of the
voting will be 28%, which is more than the 25% required.
In conclusion, the chairperson may either postpone the meeting for a week without
motion, vote or further notice or extend the one-hour limit for a reasonable period and
wait for the two shareholders to arrive.
1.2 Sifiso, a former director of Lerato (Pty) Ltd (“the company”), was convicted of
fraud during his term of office as a director of the company. He was sentenced
to 12 months’ imprisonment without the option of a fine by the High Court. He
was therefore disqualified to act as a director of the company and was
accordingly removed from office one year ago. However, Sifiso believes that he
has since been rehabilitated and wishes to be reinstated as a director of the
company. Sifiso and Lukas are the only shareholders of the company. Sifiso has
decided to apply to court for permission to be allowed to act as a director of the
company despite his disqualification. Lukas is strongly opposed to Sifiso being
reinstated as director of the company. With reference to the Companies Act 71
of 2008 and relevant case law, advise Sifiso on his prospects of success in
obtaining such a court order. (15)
The circumstances in this question are regulated by section 69(11) of the Companies
Act
71 of 2008 (‘the Act’) was considered in the cases of Ex parte Barron and Ex parte
Tayob. In terms of section 69(11) of the Act, a court may exempt certain
disqualified persons from their disqualification. A court is empowered to grant an
exemption to a person who was convicted of fraud and sentenced to imprisonment
without the option of a fine or a fine exceeding the prescribed minimum.
In Ex parte Barron, the applicant had been a director of several private companies
of which he and his wife were the only shareholders. He had tried to circumvent
certain regulations prohibiting the export of ostrich leather. He did this by
pretending that the consignment consisted of ostrich feathers when, in fact, it
consisted of ostrich leather. That constituted fraud and he was tried and convicted
on this charge. He was therefore disqualified to be a director. He subsequently
applied to court for authorisation to act as a director. The court held that the factors
that affected the discretion of the court were the following:
• the type of offence;
• whether or not it was a first conviction;
• the type of punishment imposed; and
• the attitude of shareholders and whether all the shareholders supported the
applicant’s application
The court held that it could be more lenient in a case where a private company
was concerned because the director of a public company obviously deals with
funds belonging to a vast number of people.
In Ex Parte Tayob the applicants had been convicted of bribery. One year after
their conviction they brought an application for permission to be allowed to act as
directors despite their disqualification. The court held that bribery and corruption
pose a serious threat to an open and honest community. The court therefore
concluded that too little time had lapsed between the date of the conviction and
the date of the application to prove that the applicants had been rehabilitated from
their dishonest ways. The application was therefore refused.
Factors which would support Sifiso’s application are the fact that the company is a
private company and not a public company. It will also count in his favour if this is
his first conviction.
Factors that will count against Sifiso’s application are the fact that Lukas objects
to his becoming a director; this will be taken into account by the court. As in Ex
Parte Tayob, too little time has lapsed in the given scenario between the date of
the conviction and the date of the application.
Based on the factors counting against him, Sifiso will most probably not be
successful with his application.
QUESTION 2 [20]
2.1 Discuss the doctrine of constructive notice and the exceptions which apply to
it. (10)
The doctrine of constructive notice provides that third parties are deemed to be fully
acquainted with the contents of the company’s public documents whether they have read
them or not. The doctrine of constructive notice has been partially abolished by section
19(4) of the Companies Act. Third parties are no longer deemed to have had notice or
knowledge of the contents of the public documents of the company merely because they
have been filed with the Companies and Intellectual Property Commission or are
accessible for inspection at the company’s office.
Even though the doctrine of constructive notice has been abolished, the Companies Act
(section 19(5)) introduces two exceptions when the doctrine of constructive notice will
apply.
The first is that a person is deemed to have knowledge of any ring-fencing provisions in
the company’s Memorandum of Incorporation. Ring-fencing provisions are provisions
prohibiting any provision of the Memorandum of Incorporation to be amended or any
restrictive condition or procedure for its amendment. This exception applies only if the
company’s name includes the letters “RF” and the Notice of Incorporation contains a
prominent statement drawing attention to such provision.
The second exception where the doctrine of constructive notice applies is in the case of a
personal liability company. Persons dealing with personal liability companies are deemed
to be aware of the effect of the directors’ and former directors’ joint and several liability for
debts and liabilities of the company contracted during their periods of office.
2.2 Tom (Pty) Ltd holds 25% of the voting shares in Pluto (Pty) Ltd, while Jerry (Pty)
Ltd holds 20% of the voting shares in Pluto (Pty) Ltd. The remaining 55% of the
voting shares in Pluto (Pty) Ltd are held by Mickey (Pty) Ltd.
Explain what is meant by a “group of companies” and discuss the factors one
would consider to determine whether a company is a subsidiary company. Also
explain the concept of a wholly-owned subsidiary. Indicate by giving reasons
for your answer, whether Pluto (Pty) Ltd is a subsidiary of Tom (Pty) Ltd, Jerry
(Pty) Ltd and/or Mickey (Pty) Ltd. (10)
• A group of companies means a holding company and all of its subsidiaries.
• Section 3(1) of the Companies Act 71 of 2008 defines a ‘subsidiary company’.

• A company is a subsidiary of another juristic person if –
that company or one or more of its nominees or subsidiaries alone or in combination is

directly or indirectly able to exercise the majority of the general voting rights or
- can directly or indirectly control the exercise of the majority of the voting rights or
- can appoint or elect directors who control a majority of the voting rights in board
meetings or
- can control the appointment of such directors
A wholly-owned subsidiary is a company in which all of the voting rights are held by
another person or persons.
In the facts provided, Tom (Pty) Ltd and Jerry (Pty) Ltd both hold a minority of the voting
shares in Pluto (Pty) Ltd. Pluto (Pty) Ltd is not a subsidiary of Tom (Pty) Ltd or Jerry (Pty)
Ltd because these companies are not able to exercise or control the exercise of the
majority of the voting rights in Pluto (Pty) Ltd.
Mickey (Pty) Ltd holds 55% of the voting rights in Pluto (Pty) Ltd and can therefore
exercise the majority of the voting rights in Pluto (Pty) Ltd. For this reason, Pluto (Pty) Ltd
is a subsidiary of Mickey (Pty) Ltd.
QUESTION 3 [35]
3.1 The directors of Smarties (Pty) Ltd, M & M (Pty) Ltd and Wine Gums Galore (Pty)
Ltd decide that it would be in the best interests of the respective companies to
amalgamate or merge into one new company, Sweets for All (Pty) Ltd. Advise
the directors of the respective companies whether such an amalgamation or
merger is permitted in terms of the Companies Act of 2008, and, if so, of the
requirements for such amalgamation or merger. Also explain the effect of an
amalgamation or merger. (15)
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, Sweets for All (Pty) Ltd,
holding all the assets and liabilities of Smarties (Pty) Ltd, M & M (Pty) Ltd and Wine Gums
(Pty) Ltd.
Upon completion of the amalgamation or merger, Smarties (Pty) Ltd, M&M (Pty) Ltd and
Wine Gums (Pty) Ltd would cease to exist.
The amalgamation or merger of Smarties (Pty) Ltd, M&M (Pty) Ltd and Wine Gums (Pty)
Ltd is permissible provided that the directors of each company reasonably believe that,
upon completion of the amalgamation or merger, Sweets for All (Pty) Ltd will satisfy the
solvency and liquidity test.
The transaction must first be approved by a special resolution of the shareholders of all
three companies.
The notice of a shareholders’ meeting to consider the resolution must be accompanied by

a copy of the amalgamation or merger agreement or a written summary of the precise
terms of the transaction and details of the proposed special resolution and appraisal rights.
The three companies would have to enter into a written agreement setting out the terms
and means of effecting the amalgamation or merger.
In particular, they would have to set out the following particulars in the agreement:
– the memorandum of incorporation of the newly formed company
- the name and identity number of each proposed director of the new company
- the manner in which the securities of each merging company are to be converted into
securities of the proposed new company
- If securities of any of the merging companies are not to be converted into securities of
the merged company, the consideration that the holders of those securities are to
receive instead.
- the manner of payment of any consideration instead of the issue of fractional securities
- details of the proposed allocation of the assets and liabilities of the merging companies
- details of any arrangement or strategy necessary to complete the merger; and - the
estimate cost of the proposed merger.
3.2 Sandwich Delight (Pty) Ltd provides sandwiches to office outlets in Cape Town.
The company is financially distressed and is under business rescue. The
company buys its bread from a local bakery, Cape Bakeries (Pty) Ltd. They have
since found that they can make sandwiches at a much lower cost by baking the
bread themselves instead of purchasing it from Cape Bakeries (Pty) Ltd.
3.2.1 Discuss whether business rescue proceedings will enable Sandwich

Delight (Pty) Ltd to cancel its contract with Cape Bakeries (Pty) Ltd, and
whether Sandwich Delight (Pty) Ltd will be liable for breach of contract
if they do so. (10)
In terms of section 136(2) of the Companies Act 71 of 2008, the business rescue
practitioner will not have the power to cancel any provision of a contract. He may,
however, apply urgently to the court to cancel either entirely, partially or
conditionally any obligation of the company on terms that are just and reasonable
in the circumstances.
A court may not cancel any provision of an employment contract or an agreement
to which section 35A or 35B of the Insolvency Act would have applied, had the
company been liquidated.
The other party to the contract that has been partially or entirely cancelled may
only claim damages from the company and not, for instance, specific performance
of the contract.
Sandwich Delight (Pty) Ltd will therefore not have the right to cancel the agreement
but the business rescue practitioner will have to apply to court to cancel the
agreement. A court will cancel the agreement only if the terms are just and
reasonable in the circumstances. Cape Bakeries (Pty) Ltd will have the right to
claim damages from Sandwich Delight (Pty) Ltd if the contract is cancelled.
3.2.2 Sandwich Delight (Pty) Ltd has appointed Andile as business rescue
practitioner. Andile is believed to be an excellent choice by the
company as he is a former director of the company and a good friend
of the current directors. Discuss whether Andile will qualify as a
business rescue practitioner of Sandwich Delight (Pty) Ltd in terms of
the Companies Act 71 of 2008 (5)
In order to be a business rescue practitioner, the person must not have any other
relationship with the company that would lead a reasonable and informed a third
party to conclude that his or her integrity, impartiality or objectivity is compromised
by that relationship. The fact that Andile is a former director of the company and a
good friend of the current directors could lead a reasonable and informed third
party to conclude that his integrity, impartiality or objectivity is compromised.
Therefore, Andile will most probably not qualify to be a business rescue practitioner
of Sandwich Delight (Pty) Ltd.
3.2.3 After 11 months Sandwich Delight (Pty) Ltd is still under business
rescue. The directors are concerned whether this is permissible under
the Companies Act 71 of 2008. Advise the directors of Sandwich
Delight (Pty) Ltd of the circumstances under the Companies Act 71 of
2008 when it would be acceptable for business rescue to endure for a
period of 11 months or longer. (5)
If a company’s business rescue proceedings have not ended within three months after
the start of those proceedings or such longer time as the court on application by the
practitioner may allow, the practitioner must –
• prepare a report on the progress of the business rescue proceedings and
update it at the end of each subsequent month until the end of those proceedings
and
• deliver the report and each update to each affected person and to the court
(if the proceedings have been the subject of a court order) or to the Companies
and Intellectual Property Commission in any other case
Therefore, it is acceptable for the business rescue proceedings to endure for eleven
months provided that the business rescue practitioner complies with the above
requirements.
QUESTION 4 [15]
Thandeka is the secretary of Veryslim Ltd, a company that manufactures slimming

tablets. At a board meeting at which Thandeka is required to take down minutes,
the board discusses the development of a revolutionary new manufacturing
process for slimming tablets. Thandeka realises that the implementation of the new
procedure will influence the profitability of the company positively. She informs
her mother, Veronica, of the new manufacturing process. Veronica immediately
contacts her broker, Sam, and instructs him to purchase shares in Veryslim Ltd on
her behalf. Veronica also buys shares through Sam for her son, Phineas. Thandeka
further advises her friend Bongi to buy shares in Veryslim Ltd. However, Bongi
decides not to buy the shares because Thandeka will not tell her why she should
buy the shares. Beauty, Bongi’s sister, overhears part of the conversation between
Thandeka and Bongi. When she asks Thandeka whether she should buy shares in
Veryslim Ltd, Thandeka tells her that she should not buy shares in Veryslim Ltd
because she dislikes Beauty. When the new manufacturing process is
implemented, the price of the shares of Veryslim Ltd increases dramatically.
Explain whether Thandeka, Veronica, Sam, Phineas and Bongi can be held liable
for any offences under the Financial Markets Act 19 of 2012 regulating insider
trading. Do not include a discussion of the definitions of an “insider” or “insider
trading” in your answer and do not discuss the defences to the insider trading
offences. (15)
In terms of the Financial Markets Act 19 of 2012, an insider who knows that he or she has
inside information and who deals directly or indirectly or through an agent (for example,
a stockbroker) for his or her own account in the securities listed on a regulated market
to which the inside information relates, commits an offence (s 78(1)).
An insider who knows that he or she has inside information and who deals directly or
indirectly or through an agent (for example a stockbroker) for any other person in the
securities listed on a regulated market to which the inside information relates, commits
an offence (s 78(2)).
A person who deals for an insider directly or indirectly or through an agent in the securities
listed on a regulated market to which the inside information possessed by the insider
relates or which are likely to be affected by it, who knew that such person is an insider,
commits an offence. (s 78(3))
An insider who knows that he/she has inside information commits an offence if he or she
discloses that information to another person (s 78(4)(a)). Even if the other person does
not commit any insider trading offence after the disclosure, it is still an offence to disclose
it.
It is also an offence for an insider who knows that he or she has inside information to
encourage or cause another person to deal or to discourage or stop another person from
dealing in the securities listed on a regulated market to which the inside information
relates or which are likely to be affected by it (s 78(5)).
Thandeka is guilty of disclosing inside information to her mother, Veronica, and friend,
Bongi. Thandeka is also guilty of discouraging Beauty from buying shares because she
told Beauty not to buy shares in Veryslim Ltd.
Veronica is guilty of dealing through an agent (Sam) for her own account and on behalf
of her son Phineas based on inside information.
Sam is not guilty of an offence provided he did not have knowledge of the inside
information and provided he did not know that Thandeka was an insider.
Phineas is not guilty of any offence because he had no knowledge of the inside
information. Bongi is not guilty of an offence because she did not have knowledge of the
inside information and she did not buy any shares.
MAY JUNE 2017 UNANSWERED

QUESTION 1
Themba lives In Knysna He IS a shareholder of Electrotech Limited He receives notice
of an annual general meetmg of Electrotech Limited to be held In Pretoria He cannot
attend the meeting on that day, but he feels strongly about certain of the proposed
resolutions set out In the notice of the meeting, and wants to express his views on these
matters to the board of directors Themba also wishes to vote agamst certain of the
resolutions which the company proposes to pass Advtse Themba of two methods under
the Companies Act 71 of 2008 that he could use to exercise his right to vote and to
express his views at the annual general meeting of Electrotech Ltmlted
1 2 Pele (Pty) Ltd calls a meeting of Its shareholders to vote on the proposed merger of
the company With another company The notice of the meetmg does not state the record
date Discuss the relevance of the record date in this Instance, and the consequences of
the failure to specify the record date In the notice of the meeting.
QUESTION 2
2 1 Oliver IS an experienced quantity surveyor and he has extensive knowledge of the
valuation of Immovable property He IS a director of Exclusive Properties (Pty) Ltd, a
company that buys and sells properties at a profit The only other director of the
company IS Sammy, who is a qualified accountant and the managing director of
Exclusive Properties (Pty) Ltd
One day Sammy phones Oliver to tell him of a proposal to Invest In a new property
development that IS situated In a rural area Oliver warns Sammy that the potential for
losses IS always higher In rural areas Oliver seeks a professional second optnton on
the proposal from his friend Ebrahlm who rs also a qualified quantity surveyor Ebrahlm
informs Oliver that the specific area IS not stable and the land could Sink at any time
When Oliver conveys this Information to Sammy, Sammy is adamant and Insists that
they must act swiftly and Invest In the property development before the opportunity to
Invest IS lost Under pressure, Oliver agrees that the company should take the rtsk and
Exclusive Properties (Pty) Ltd accordingly Invests In the property development
After SIX months It becomes clear that the development IS a failure A part of the
building has collapsed due to the unstable soil content. The loss Incurred by the
company is approximately R4 million Oliver and Sammy approach you for legal advice
on the matter
2 1.1 With reference to the Compames Act 71 of 2008 and With reference to the
respective areas of expertise of Oliver and Sammy, separately advise each of Oliver
and Sammy whether they have breached their duty of care, skill and diligence
2 2 2 Assummg that a legal action for a breach of the duty of care, skill and diligence IS
instituted against Oliver and Sammy, With reference to the Companies Act 71 of 2008
separately advise each of them whether they Will be able to rely successfully on the
business Judgment rule Give full reasons for your advice.
QUESTION 3
3 1 Mark IS a successful businessman and has recently Incorporated Coachella
Limited, a newly established soft-drinks company that manufactures a vanety of
flavoured soft-drmks. The company's subsidiary, Ram Limited, focuses on the supply
and distribution of Coachella Limited's manufactured products. Mark IS unsure about
who IS required to appomt the first members of the audit committee He IS also unsure
about whether the following persons would qualify to be appomted as members of the
audit committee:
• Ezra, the executive director of Coachella Limited,
• Bus', the non-executive director of Coachella Limited;
• David, a material supplier of plastic bottles to Coachella Lim Ited, and
• Leila, a qualified auditor and also the Wife of Ezra
Mark also wishes to know whether Ram Limited IS required to appoint an audit
committee
With reference to the relevant provisions of the Compames Act 71 of 2008, advtse Mark
on the following Issues•
3 1 1 the persons who must appoint the first members of the audtt committee of
Coachella
Limited; (3)
3 1 2 whether Ezra, Busl, David and Leda may validly be appotnted to the audit
committee, giving full reasons for your advice; and
3 1 3 whether an audit committee must be appointed for Rank Limited (2)
3.2 Development Properties (Pty) Ltd owns an office building In Johannesburg valued
by Its auditors In the previous financial year at R 18 million and two buildings m Cape
Town valued at R4 million and R5 million respectively
The board of directors decided that they should focus on acquiring more properties In
Cape Town. Since the company has recenved an offer of R20 million for the building In
Johannesburg, the directors want to accept the offer. The board regards the decision to
sell the property as a management decision that they can take on their own, but one of
the shareholders disagrees.
3 2.1 With referencc to the Companies Act 71 of 2008, fully advise the board whether
they may contract to sell the Johannesburg property without Involving the shareholders
of the company, and whether they need to comply With any specific statutory
requirements
3 2 2 Two shareholders of the company who are unhappy about the proposed sale of
the Johannesburg property, have Indicated that If the sale goes ahedd, they Will no
longer be Interested In owmng shares In the company and that they Will expect the
company to buy their shares The directors of Development Properties (Pty) Ltd want to
know If thesc shareholders can force the company to buy their shares. With reference to
the Companies Act 71 of 2008, advise the directors whether these two shareholders
may force Development Properties (Pty) Ltd to buy their shares (5)
QUESTION 4
4 1 Mah[angu Roadworks (Pty) Ltd was awarded a contract by a provincial government
to upgrade and to repair a number of secondary roads In the provrnce The company
completed the work months ago but has still not received payment from the provmual
government. As a result, the company IS strugglmg to pay Its employees and has not
paid other creditors when payment was due. It has also exhausted Its credit facilities at
the bank
The company's managing director, Mr Mahlangu, believes that the board should
Immediately adopt a resolution to place the company under business rescue because
some creditors have threatened to apply for liquidation of the company If they do not get
paid He fears that once an application for a liquidation order has been filed With the
court, and certainly If a liquidation order IS Issued by the court, business rescue Will no
longer be possible
Mr Mahlangu also worried because the company leases most of the heavy-duty
equipment It uses and although the company has managed to keep up the payments for
this equipment up to now, he IS not sure for how much longer this Will be possible If the
company misses any payment the lessors may cancel the lease and remove thetr
equipment
Advise Mr Mahlangu on the following aspects•
4 1 1 With reference to the Compames Act 71 of 2008 and relevant case law, discuss
whether the board of directors may commence business rescue procccdmgs (assuming
that Mahlangu Roadworks (Pty) Ltd IS financially distressed) after liquidation
proceedings have been Initiated agatnst Mahlangu Roadworks (Pty) Ltd Discuss further
whether Mahlangu Roadworks (Pty) Ltd may be placed under business rescue by any
other party after a liquidation application has already been Instituted against the
company as well as after a liquidation order has been Issued agatnst the company (8)
4 1 2 Assummg that the company IS financially distressed, discuss whether,
Instead of gorng down the route of business rescue, the company may enter unto a
compromise arrangement With Its creditors and thereby prevent dissolution of the
company If a liquidation order IS Issued, and what such a procedure would entail (6)
4.1 3 Assuming Mahlangu Roadworks (Pty) Ltd IS placed under busmess rescue,
explain to what extent the business rescue practitioner may prevent the lessors of the
heavy-duty equipment from cancelling the lease contracts and re-possessing the heavy-
duty equrpment If the company misses any payment (6)
QUESTION 1 [30]
1.1 Shareholders’ resolutions must usually be adopted at properly

constituted meetings of the company’s shareholders. However, the
common-law principle of unanimous assent constitutes an exception
to this rule. The Companies Act 71 of 2008 now also provides for
another exception. Explain what these two exceptions entail. (5)
To answer this question successfully, students had to indicate that unanimous

assent entails that resolutions can be adopted without holding a shareholders
meeting, provided that all the shareholders who were entitled to attend and
vote at the meeting, were fully aware of the facts pertaining to the resolution
and that they unanimously assented to the adoption of the resolution. They had
to further indicate that in terms of section 60 of the Act, resolutions can still be
adopted without holding a formal meeting, but the adoption of resolutions by
unanimous consent is not required as long as the resolution is adopted by an
ordinary resolution or a special resolution in accordance with the requirements
of the Act and the Memorandum of Incorporation of the company.
See your module online letter at learning unit 1, paragraph 1.11 and your
prescribed textbook, paragraph 5.12.
1.2 When it is found that the representative of a company did not have
actual authority to represent the company in an agreement with a
third party, the third party may under certain circumstances rely on
the doctrine of estoppel to hold the company liable in terms of the
agreement. Briefly state what a third party should allege and prove in
order to hold a company liable to an agreement on the basis of the
doctrine of estoppel. (5)
To answer this question, students had to note that a third party should allege
and prove that the:
• company intentionally or negligently misrepresented the agent

concerned as having the necessary authority to represent the company
• the misrepresentation was made by the company
• the third party was induced to deal with the agent by the
misrepresentation
• the third party was prejudiced by the misrepresentation
See your module online letter at learning unit 4, paragraph 4.6.
1.3 The Memorandum of Incorporation of many companies provides that

the holders of preference shares do not have the right to vote at
shareholders’ meetings unless the company is in arrears with the
payment of dividends to these preference shareholders.
Explain with reference to authority whether a preference shareholder
has the right to vote on a proposed resolution for the liquidation of
the company even if the company is not in arrears with the payment
of preferential dividends. (5)
To answer this question successfully, students had to explain that, in terms

of section 37(3)(a) of the Act, every share issued by a company is
accompanied by an irrevocable right to vote on any proposal to amend the
rights, preferences, limitations and other terms associated with that share.
In the Companies Act 61 of 1973, liquidation was specifically included as
one of the resolutions on which a preference shareholder had the right to
vote because it affected their rights. Although the Act does not mention
liquidation, it may be argued that such a resolution does amend the rights
of preference shareholders and that they should have the right to vote on
it. The Utopia VakansieOorde Bpk v Du Plessis case may still provide
guidance in this regard. The court held that the word “affect” means that
the rights or interests of a shareholder may be potentially prejudiced. The
word “amend” would probably have the same connotation of prejudice. The
liquidation of the company directly amends the rights of preference
shareholders and therefore these shareholders may vote on the proposed
resolution to liquidate the company.
1.4 Business rescue proceedings are regulated in Chapter 6 of the

Companies Act 71 of 2008. Briefly explain the meaning of the term
“business rescue” as found in section 128(1)(b) of the Companies Act
71 of 2008. (5)
To answer this question successfully, students had to explain that

business rescue is a proceeding to facilitate the rehabilitation of a company
that is financially distressed by providing for the temporary supervision of
the company, a temporary moratorium on the rights of creditors, and the
development of a business rescue plan to return the company to solvency
or obtain a better return for creditors.
See section 128 of the Act, your module online letter at learning unit 9,
paragraph 9.1 and your prescribed textbook, paragraphs 12.1–12.2.
1.5 Section 76(4) of the Companies Act 71 of 2008 introduced what is
known as the business judgment rule. Explain the essence and the
effect of section 76(4). (5)
To answer this question successfully, students had to explain that, in

terms of the business judgment test, a director will be regarded as
having acted in the best interests of the company and with the required
care, skill and diligence if the director complied with the elements of the
business judgment test as set out in section 76(4) of the Act.
See section 76(4) of the Act, your module online letter at learning unit 3,
paragraph 3.2.4 and your prescribed textbook, paragraph 6.3.3.
1.6 Discuss the meaning of “control” in the context of a group of companies. (5)
To answer this question successfully, students had to explain the

meaning of “control” in the context of group companies. Company A
controls company B or its business if:
• Company B is a subsidiary of company A
• Company A, on its own or together with any related or interrelated

person, is directly or indirectly able to exercise, or control the exercise
of the voting rights in company B, or able to appoint or elect or control
the appointment or election of directors of company B, who control
the majority of votes at the company’s board meetings
• Company A has the ability to materially influence the policy of

company B
See section 2 of the Act, your module online letter at learning unit 7,
paragraph 7.3 and your prescribed textbook, paragraph 3.1.2.
QUESTION 2 [20]
2.1 The board of directors of Springboard (Pty) Ltd is considering an offer

from the board of Scapegoat (Pty) Ltd, a company involved in the same
type of business, for the two companies to merge and consolidate their
businesses because both companies are competing in a fairly small
market. The proposal is that the two existing companies will cease to
exist after the merger and a new company, Togetherness (Pty) Ltd, will
hold all the assets and liabilities of the two merging companies.
The board of Springboard (Pty) Ltd suspects that a group of

shareholders holding between 10% and 20% of the ordinary shares of
Springboard (Pty) Ltd will be opposed to the merger because
Springboard (Pty) Ltd is far more successful than Scapegoat (Pty) Ltd
and they want to retain their shares in Springboard (Pty) Ltd. The board
seeks your advice regarding the possibility of this group of
shareholders being able to prevent the merger.
Fully explain to the board how (if at all) the shareholders opposed to
the merger would be able to prevent the merger from taking place. (10)
2.1 To successfully answer this question, students had to mention that,

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.
Students had to also explain that, although the merger is approved,

shareholders have other remedies, for instance section 115 of the Act.
Students had to provide and explain fully the provisions of section 115
of the Act. Students had to discuss both options in terms of section 115
of the Act, because the question does not indicate whether the
shareholders opposing the merger hold above or below 15% of the
shares.
Students must not discuss the appraisal remedy, because the question
clearly states that the shareholders want to keep their shares in
Springboard (Pty) Ltd, and the question asks how the shareholders can
prevent the merger.
See your module online letter at learning unit 8, paragraph 8.6 and
your prescribed textbook, paragraph 10.3.4.
2.2. Hemsworth Ltd is an unlisted public company trading in cellular

networks. Due to a hefty penalty fee imposed by ICASA, for failing to
disconnect deregistered yet active SIM cards, the company is in a
poor financial state. As finance director of Hemsworth Ltd, Sebo
advises the company that to regain its financial health, Hemsworth
Ltd should issue new shares and offer these shares to the public.
However, in so doing, the company should avoid revealing in its
prospectus the true financial state of the company because this may
have a detrimental effect on how the company is perceived by the
public.
With reference to the relevant provisions of the Companies Act 71 of

2008 discuss the purpose of a prospectus and the legal
consequences of the failure of Hemsworth Ltd to disclose the true
financial state of the company in the issued prospectus. (10)
2.2 To answer this question successfully, students had to explain that
a prospectus is a document that must accompany all initial public
offerings and all primary offerings for unlisted securities. As a general
rule, the prospectus must contain all information that an investor may
reasonably require to assess the following:
• the assets and liabilities of a company, financial position, profits and

losses, cash flow and prospects of the relevant company
• the securities being offered and rights attached to them
Secondly, they had to explain what an untrue statement is, the liability
for an untrue statement in terms of section 104 of the Act and the
purpose of the wide-ranging liability. Thirdly, they had to set out the
persons who are personally liable to a person who acquired securities
and suffered any loss or damage as a result of any untrue statement in
the prospectus in terms of section 104 of the Act. Lastly, they had to
explain that in terms of section 77(3)(d)(i) of the Act, a director may also
be held liable to the company for any loss, damages or costs it suffered,
if the director knew that the prospectus contained a false, misleading or
untrue statement. Note that remedies under the common law would also
be available to a person who suffered loss or damage as a result of an
untrue statement in a prospectus, such as a remedy in delict (see
section 95(6) of the Act).
See your module online letter at learning unit 5, paragraph 5.11.2 and
your prescribed textbook, paragraph 9.5.
QUESTION 3 [25]
3.1 Henry has been a non-executive director of Spectrolab (Pty) Ltd since
2010. He is also a director and sole shareholder of a management
consultancy business, ConsultRight (Pty) Ltd. Spectrolab (Pty) Ltd is
undergoing a process of internal restructuring. Without knowing of
Henry’s involvement with ConsultRight (Pty) Ltd, one of the other
directors of Spectrolab (Pty) Ltd proposes to the board of directors of
Spectrolab (Pty) Ltd that ConsultRight (Pty) Ltd should be approached
for advice on the recruitment of key staff. The board of directors of
Spectrolab (Pty) Ltd will be voting on this issue at the next board
meeting which is scheduled for next week.
3.1.1 Henry seeks your advice. He wants to know whether he must

disclose his interest in this matter to the board of directors of
Spectrolab (Pty) Ltd and if so, what procedure he must adopt to
do so. (8)
To answer this question successfully, students had to explain that, in

terms of section 75 of the Act, if a director has a personal financial
interest in respect of a matter to be considered at a meeting of the board,
the director must disclose the interest and its general nature before the
matter is considered at the meeting. Secondly, they had to discuss the
definition of a “personal financial interest” in section 1 of the Act. Henry
was required to disclose his personal financial interest. Students had to
outline the process of how the interest must be disclosed by Henry in
terms of section 75(5) of the Act.
See your module online letter at learning unit 3, paragraph 3.2.2 and your
prescribed textbook, paragraph 6.3.1.
3.1.2 Assume that Henry does not disclose his interest in this matter at
the board meeting of Spectrolab (Pty) Ltd. Explain whether the
contract between Spectrolab (Pty) Ltd and ConsultRight (Pty) Ltd
will nonetheless be valid. (7)
To answer this question successfully, students had to discuss section

75(7) of the Act. Students had to discuss the fact that the contract will
be valid only if it was approved following disclosure by Henry of its
general nature before the matter is considered at the meeting. However,
even if there was no disclosure, the contract will still be valid if the
shareholders ratify it with an ordinary resolution after the disclosure of
the interest. Students also had to mention that the contract will also be
valid if it has been declared valid by a court on application by any
interested person.
See your module online letter at learning unit 3, paragraph 3.2.2 and your
prescribed textbook, paragraph 6.3.1.
3.2 Richmond Global Enterprises Ltd is an outdoor advertising company.

The company wishes to appoint a company secretary that will be
based at its Head Office in Pretoria. Walter Sithole, who is a citizen of
and resides in Namibia, is employed in Namibia as an I.T. Technician.
Whilst on holiday in South Africa, Walter hears about this vacancy and
intends applying for the position of company secretary.
3.2.1 Discuss whether Walter may be validly appointed as the

company secretary of Richmond Global Enterprises Ltd. (5)
To answer the question successfully, students had to explain that, in

terms of section 86(2) of the Act, every company secretary must have
the requisite knowledge of or experience in, relevant laws and must be
a permanent resident of the Republic, and remain so while serving in
that capacity. Students had to state that Walter is not a permanent
resident of the Republic of South Africa because he resides in Namibia.
Arguably Walter does not have the requisite knowledge of relevant laws
in South Africa and experience as a company secretary. Students had
to conclude that Walter may not be appointed as company secretary of
Richmond Global Enterprises Ltd.
prescribed textbook, paragraph 13.10
3.2.2 Assume that Walter is appointed as the company secretary of
Richmond Global Enterprises Ltd. Walter also runs a part-time
business as an estate agent in Namibia. Walter has recently been
accused of theft involving large sums of money received from his
clients in trust. As a result of this accusation, the board of
directors of Richmond Global Enterprises Ltd decides to remove
Walter from office as the company secretary. Walter denies that
he has committed theft. Advise Walter on the steps that he could
take under the Companies Act 71 of 2008 following his removal
from office if he disputes the reason for his removal from office.
(5)
3.2.1 To answer this question successfully, students had to explain

that, in terms of section 89(2) of the Act, if a company secretary is
removed from office by the board, the company secretary may require
the company to include a statement in its annual financial statements
relating to that financial year setting out the company secretary’s
contention as to the circumstances that resulted in the removal. If the
company secretary wishes to exercise this power, he must give written
notice to the company by not later than the end of the financial year in
which the removal took place, and that notice must include the
statement to be included in the annual financial statements. Therefore,
if Walter wants to dispute the reason for his removal from office he may
require the company to include a statement in its annual financial
statements setting out his contention of his removal. He must give
written notice to Richmond Global Enterprises that he wishes to exercise
this power to contend his removal from office. This must be
done not later than the end of the financial year and this notice must
include his statement to be included in the annual financial statements.
QUESTION 4 [25]
4.1 John, who is a director of ABC Ltd, a public listed company, receives a
call from his good friend Peter, who is the chief executive officer of the
company. Peter informs John that he has just been released on bail after
being arrested on allegations of fraud and theft. The alleged offences
were committed before Peter became the CEO of ABC Ltd, and are not
linked in any way to the company. However, they realise that if the news
of Peter’s arrest becomes known it will have a negative effect on the
reputation of ABC Ltd that will result in a material drop in the value of
the company’s shares. They therefore decide to keep it quiet for as long
as they can.
John immediately calls his stockbroker and instructs him to sell 30% of
John’s shares in ABC Ltd and 40% of the shares in the company owned
by his wife. When the stockbroker asks him for a reason for selling so
many shares, John merely tells him that he has reason to believe that
the share price of the company will drop in the next few weeks. The
stockbroker, knowing that John is a director, realises that John must
know that something bad has happened in the company and sells the
shares as instructed by John. John only informs his wife about the
situation after her shares have been sold when she demands an
explanation for selling so many of her shares.
A few days later a newspaper reports about the arrest of Peter and the
market price of shares in ABC Ltd drops 8%.
4.1 Fully discuss whether John, Peter, John’s wife and the
stockbroker have committed any of the offences relating to insider
trading in terms of section 78 of the Financial Markets Act of 2012.
(Do not discuss the amounts for which any of them could be held
liable.) (15)
To answer this question successfully, students had to discuss the

definition of “inside information” in section 77 of the Financial Markets
Act 19 of 2012. They also had to discuss the definition of an “insider” in
the Financial Markets Act. Students were required to apply the
definitions to the facts given to them in order to determine whether the
various parties were insiders and whether they had committed any
insider trading offences.
See sections 77 and 78 of the Financial Markets Act, your module online
letter at learning unit 11, paragraph 11.3 and your prescribed textbook,
paragraphs 11.2.3– 11.2.4.
4.2 Discuss the difference between a “share” and a “debenture” and

differentiate between the rights of ordinary shareholders and the
holders of debentures in relation to a company. (10)
To answer this question successfully, students had to discuss the
difference between a share and debenture by explaining that both
shares and debentures are methods of raising capital for a company,
but a share is equity while a debenture is a debt instrument. Secondly,
with regard to differentiating between the rights of ordinary shareholders
and the holders of debentures, students had to discuss any of the
differences between a share and a debenture. For instance, a
shareholder is a member of the company, while a debenture holder is a
creditor of the company. A shareholder is issued with a share certificate,
while a debenture holder is issued with a document by the company
acknowledging that it is indebted to the debenture holder in the amount
stated therein. A debenture may be secured or unsecured. A
shareholder has the right to vote, while a debenture holder usually does
not have a right to vote but may be given special privileges of voting at
general meetings. A shareholder receives dividends from the company
if these are declared, while a debenture holder receives interest from
the company.
201-1-2020
Assignment 01
1. Property stars (Pty) Ltd has four shareholders, Sam, Sim, Jack and Tony. Sam,
Sim and Jack are currently in France for a long vacation with their families.
Consequently, they are not able to attend an urgent meeting of shareholders. The
company does not have electronic communication media to hold the meeting and
the shareholders are not keen to appoint proxies to represent them in the
meeting. However, Sam, Sim and Jack have access to their emails as they
travelled with their laptops for emergencies relating to the company. Tony seeks
advice on the option that is available to ensure that resolutions can be adopted
while other shareholders are on vacation.
With reference to the Companies Act 71 of 2008, fully advise Tony on the option
that is available to the company for the resolutions to be adopted while other
shareholders are on vacation. Further advise Tony on the exception that is
applicable to the option. (10)
Common law
In terms of the common law shareholders’ resolutions can be adopted without holding a
general meeting.
This can be done by unanimous assent provided that: - all shareholders are fully
aware of the facts all shareholders assented to.
See: o Gohlke and Schneider v Westies Minerals (Pty) Ltd 1970 (2) SA 685 (A). o In re
Duomatic Ltd [1969] 1 All ER 161 (ch).
Section 60 of the Companies Act 71 of 2008 (round robin or written resolutions)
Section 60 of the Companies Act 71 of 2008 is an alternative to the doctrine of
unanimous assent to validly pass a resolution of shareholders outside a properly
constituted meeting provided that certain formalities have been complied with.
In terms of section 60: o A resolution may be submitted to shareholders in writing.
o The resolution must be adopted in writing by the required majority to pass the
particular type of resolution.
• If a resolution is passed in this manner, it has the same effect as a resolution
adopted at a duly convened meeting.
• However, any matters that in terms of the Companies Act 71 of 2008 or the
Memorandum of Incorporation of a company must be dealt with at the annual general
meeting of a company, may not be dealt with in terms of the procedures set out in
section 60.
Conclusion and application
The procedure envisaged in terms of section 60 of the Companies Act 71 of 2008 can
be used by Property Stars (Pty) Ltd to adopt the proposed resolution if it is impossible or
impracticable to convene a meeting.
Refer to par 11.4 in the prescribed textbook and par 1.11 in the study guide.
2. Suppose the Memorandum of Incorporation (‘MOI’) of Property Stars (Pty) Ltd
provides that shareholders may appoint proxies who are only shareholders of the
company and that proxy appointments may be made verbally. With reference to
the Companies Act 71 of 2008, advise Tony whether the provision relating to the
appointment of a proxy in the MOI is valid. (5)
The appointment of a proxy is subject to the following conditions:
• The appointment must be made in writing and must be signed by the shareholder
on whose behalf the proxy will be acting.
• The appointment is valid for one year.
• However, a proxy may be appointed for a specific period of time.
• The appointment may be for two or more persons concurrently exercising voting
rights in respect of different shares.
• A proxy may delegate his or her authority to act on behalf of the shareholder to
another person.
• A copy of the proxy appointment form must be delivered to the company before
the shareholders’ meeting.
• A shareholder is not compelled to make an irrevocable proxy appointment. A
shareholder may revoke the proxy appointment by cancelling it in writing, or appointing
another proxy, and delivering a copy of the revocation instrument to the proxy and to the
company.
Shareholders may be invited by the company on the proxy appointment form to appoint
a proxy from a list provided by the company. However, a shareholder is not obliged to
choose one or more persons from the list. As the appointment must be made in writing
the provisions in the given scenario relating to the appointment of a proxy in the
Memorandum of Incorporation are invalid.
Assignment 02
Goot Ltd holds 51% of the voting rights in Geet Ltd. Geet Ltd holds 34% of the voting
rights at Giit Ltd. Goot Ltd also holds 52% of the voting rights in Leet Ltd. Leet Ltd holds
17% of the voting rights in Giit Ltd. The employees of Giit Ltd seek advice on the
relationship between the companies. With reference to the Companies Act 71 of 2008,
advise the employees of Giit Ltd on the following matters.
1.1 Explain to the employees of Giit Ltd what a group of companies is and
whether the facts provided relate to a group of companies. (5)
Section 1 of the Companies Act 71 of 2008 defines a ‘group of companies’ as a holding
company and all of its subsidiaries.
Generally speaking, when one company controls one or more companies, all the
companies together are referred to as a ‘group of companies’.
The controlling company is referred to as the holding company while the other
companies being controlled by it are referred to as the subsidiaries of the holding
company.
The definitions of ‘holding company’ and ‘subsidiary’ are, therefore, of significance as
the holding/subsidiary relationship brings about the existence of a group of companies.
A holding company is defined in section 1 of the Companies Act 71 of 2008 as follows:
o a holding company, in relation to a subsidiary means a juristic person that controls the
subsidiary as a result of any circumstances contemplated in section 2(2)(a) or 3(1)(a) of
On the facts, Goot Ltd directly holds 51% of the voting rights in Geet Ltd. Goot Ltd also
holds 52% of the holdings right in Leet Ltd. As Goot Ltd controls one or more of the
companies, namely Geet Ltd and Leet Ltd, the companies together may be referred to
as a group of companies.
1.2 Explain to the employees of Giit Ltd whether Giit Ltd is a subsidiary of Goot
Ltd. (5)
Section 3(1)(a) of the Companies Act 71 of 2008 provides that a holding-subsidiary
relationship will exist between a juristic person and a company when a juristic person on
its own or through its subsidiaries -
o controls the majority of the voting rights associated with the issued securities of a
company or
o has or have the right to control the appointment of the directors on the board of a
company who control the majority voting power on the board.
Giit Ltd is a subsidiary of Goot Ltd because:
o Goot Ltd controls more than 50% (51%) of the shares in Geet Ltd and more than
50% (52%) in Leet Ltd. o Goot Ltd controls 34% of the shares in Gitt Ltd through the
control of Geet Ltd.
o Goot Ltd controls 17% of the shares in Gitt Ltd through the control of Leet Ltd.
Consequently, Goot Ltd indirectly controls 51% (34% + 17%) of the voting rights in Giit
Ltd.
1.3 Explain to the employees of Giit Ltd about the consequences of the
relationship between Goot Ltd and Giit Ltd. (5)
The main consequences can be grouped under the following headings:
• Acquisition of shares –
o a subsidiary company may acquire shares in its holding company provided it
does not acquire more than 10% in aggregate of the number of issued shares of any
class of shares of the holding company.
o No voting rights attached to those shares may be exercised while the shares are
held by the subsidiary.
Refer to section 48(2) of the Companies Act 71 of 2008 and par 10.4.1 of your
• Directors’ conduct–
A director of a company must not use his or her position as a director, or any
information obtained while acting in the capacity of a director, to gain an advantage for
him or herself or for another person other than the company or a wholly-owned
subsidiary of the company, or to knowingly cause harm to the company or a subsidiary
of the company.
See section 76(2)(a) of the Companies Act 71 of 2008 and par 8.3 and 14.4.2.1 of your
• Public offerings –
o Employee share schemes (in terms of which a company offers shares to its
employees) are defined in section 95 of the Companies Act 71 of 2008 in such
a way that an employee of a company is treated also as an employee of a subsidiary
company, for the purposes of the scheme.
o Likewise, a secondary offering of shares is defined in section 95 of the
Companies Act 71 of 2008 as meaning an offer for sale to the public of any securities of
a company or of its subsidiary made by or on behalf of a person other than that
company or its subsidiary. Thus, a secondary offer of shares is treated as though the
shares of one company in a group are those of any member of the group of companies.
• Disposal of all or the greater part of assets or undertaking –
o where a disposal of all or the greater part of the assets or undertaking of
company constitutes a transaction between a wholly-owned subsidiary and its holding
company, there is an exemption from having to comply with the approval and other
requirements of section 112 and 115 of the Companies Act 71 of 2008.
o An exemption is also granted where a section 112 disposal constitutes a
transaction between or among (i) two or more wholly-owned subsidiaries of the same
holding company; or (ii) a wholly-owned subsidiary of a holding company on the one
hand and its holding company and one or more wholly-owned subsidiaries of that
holding company on the other hand (see section 112(1) of the Companies Act 71 of
2008).
• Financial assistance – the restrictions on companies providing financial
assistance for the purchase of shares and loans to directors also apply in relation to
other companies in the group.
See sections 44 and 45 of the Companies Act 71 of 2008 and pars 10.5.8 and 10.6.3 of
your textbook. See also par 7.7 in the study guide.
1.4 Is Giit Ltd a wholly-owned subsidiary of Goot Ltd? (3)

In terms of section 3(1)(b) of the Companies Act 71 of 2008 a company will be a wholly-
owned subsidiary of another company if:- o all the voting rights associated with issued
securities of a company are held or controlled, alone or in combination, by another
company.
On the facts provided, Goot Ltd indirectly controls 51% (34% + 17%) of the voting rights
in Giit Ltd. As Goot Ltd does not control all of the voting rights in Giit Ltd, it is not a
wholly-owned subsidiary of Goot Ltd.
201-2- 2020
Assignment 01
The board of directors (‘the board’) of Umhlaba Omuhle (Pty) Ltd (‘the company’)
wants to appoint a remuneration committee. The Memorandum of Incorporation of
the company is silent on this matter. No board or shareholders’ resolutions have
been adopted on this matter. The board of the company approaches you for advice
on this matter. With reference to the relevant authority, advise the board on the
following matters:
1.1 Explain to the board whether it can appoint a remuneration committee and
allow the committee to deal with the remuneration matters of the company.
(4)
• Section 72 of the Companies Act 71 of 2008 regulates board committees.
• Except where the Memorandum of Incorporation provides otherwise, the

board of directors may appoint committees and delegate functions of the board
to these committees.
• The directors will remain liable for the due and proper performance of the
duties delegated to such a committee.
• The Companies Act 71 of 2008 places the same standards of conduct and
liability on non-director members of a board committee as on directors.
• Yes, the board can (or is allowed) to appoint a remuneration committee.
Note:
• Although the Companies Act 71 of 2008 does not make specific provision
for the appointment of a remuneration committee, such a committee may be
appointed in terms of section 72.
• Even though King IV recommends the appointment of a remuneration

committee, such a committee will still be appointed and regulated in terms of
section 72 of the Companies Act 71 of 2008.
• Some committees, such as the social and ethics committee and the audit
committee, are specifically provided for in the Companies Act 71 of 2008. See
section 72(4) and section 94 respectively.
See study guide sub-unit 2.14 and textbook par 12.18.
1.2 Suppose the board wants to appoint Sipho who is not a director of the
company, and who is an unrehabilitated insolvent to be a member of the
remuneration committee. Explain to the board whether it can appoint Sipho.
(6)
• Generally, the board may appoint persons who are not directors to be
members of board committees. (section 72(2)(a)).
• However, section 72(2)(a)(i) prohibits ineligible persons and disqualified
persons to board committees. This is provided for in section 69 of the Companies
Act 71 of 2008.
• Section 69(8)(b)(i) provides that an unrehabilitated insolvent is disqualified
from being a director of the company. Such a person is, therefore, also prohibited
from being a member of a board committee in terms of section 72(2)(a)(i).
• Section 69(9) limits the period of time by which a person can be
disqualified or by which such a period can be extended by a court to five years.
• Section 69(10) sets out the procedure for extending a disqualification or
• a person disqualified in terms of section 69(8)(b) can be exempted from

being disqualified. (Section 69(11)).
An unrehabilitated insolvent such as Sipho cannot, therefore, be appointed as a

member of a board committee, unless:
• Sipho was sequestrated more than five years before and such order has
not been
extended by a court in terms of section 69(9) and 69(10), or,

• a court has exempted Sipho from the application of subsection (8)(b).
See study guide sub-unit 2.14, textbook par 12.18, section 72 and the relevant
provisions of section 69 referred to in section 72(2)(a)(i).
1.3 Explain to the board the factors that may be taken into consideration in order
to determine whether the company must appoint a social and ethics
committee. (5)
The board must establish whether the company is required to appoint a social and
ethics committee in circumstances prescribed by the Minister of Trade and Industry in
terms of section 72(4) of the Companies Act 71 of 2008. It must be desirable in the
public interest for the Minister to appoint the social and ethics committee.
Section 72(4) lists the factors the board must take into account:
• The annual turnover of the company
• The size of the company’s workforce
• The nature and extent of the activities of such companies
A state-owned company must have a social and ethics committee (reg 43(1) of the
Companies Regulations, 2011).
A company having a public interest score of more than 500 points in any two of the
previous five years, must also appoint a social and ethics committee. (reg 26(2)).
Unless section 72(4) of the Companies Act 71 of 2008 read with regulation 43(1)
applies, a private company does not need to appoint a social and ethics committee.
See study guide sub-unit 2.14 and textbook par 12.18
Assignment 02
Actionometrics Ltd (‘the company’), an unlisted company, has issued its shares to
the public before this offer of shares. However, it has appointed a new board of
directors (‘the board’). The new board of the company is busy drafting a
prospectus in respect of shares that the company intends to offer to the public.
The board is worried that some of the information that the company is required to
furnish in the prospectus, will be detrimental to its business. The board
approaches you for advice on the regulation of the issues concerning the issuing
of a prospectus for the offer of shares. With reference to the relevant authority,
advise the board on the following matters:
1.1 Explain to the board whether a prospectus is required in respect of the shares
that the company intends to offer to the public. (3)
• An offering to the public is defined in section 95 of the Companies Act 71

of 2008.
• The offer in question falls within that definition as it is an offer of securities
to be issued to the public, or a section thereof, by a public company.
• In addition, the offering provided for in the set of facts is not excluded in
terms of section 96, which sets out offers that are not considered to be public
offers.
• Therefore, the offering by Actionometrics Ltd is a primary offer to the public
as defined in section 95 of the Companies Act (an offer by the company of its
own securities, or the securities of a company in the same group of companies,
or the securities of a proposed merger or amalgamation partner by an unlisted
company).
• Actionometrics Ltd must issue a prospectus that satisfies the requirements
of the Act.
• These provisions do not apply to private companies and personal liability

companies as these companies are not allowed to offer their securities to the
public.
See study guide sub-unit 5.11.1 and textbook pars 16.2 and 16.4
1.2 Assuming a prospectus is required, explain to the board whether the

company may omit certain information that it is required to furnish in the
prospectus. (6)
What is a prospectus?
• A prospectus details all the information an investor reasonably requires to

assess the assets and liabilities, financial position, profits and losses, cash flow
and prospects of the company in which the rights or interest is to be acquired.
• In addition, it must also provide information about the securities on offer
and the rights attached to those securities.
What is the purpose of a prospectus?

• The purpose of a prospectus or the regulation of public offerings of
securities, is to protect prospective investors by providing them with sufficient
information to enable the investor to make an informed decision on whether the
specific shares on offer is, or will be, a good investment.
The accuracy of the information in a prospectus
• A company may not omit information required by the Companies Act 71

of 2008 as the Act provides for both civil and criminal liability in the event of a
failure to adhere to the strict requirements.
• When an omission misleads the public, irrespective of whether the Act
requires such information or not, the information must be provided to the public
as it will be relevant to the investment decision by members of the public (see
section 95(4)).
However, section 100(9) of the Companies Act 71 of 2008 provides that the
Commission may, on application, allow the required information to be omitted from a
prospectus if the Commission is satisfied that:
• Publication of the information would be unnecessarily burdensome on the

applicant, seriously detrimental to the company whose securities are the subject
of the prospectus, or the disclosure thereof would be contrary to public interest;
and Users will not be unduly prejudiced by the omission.
The application for omission of certain information must be made in writing and must
be accompanied by the prescribed fee.
Conclusion
Therefore, the board must include all information required in the prospectus, unless it
applies in writing to the Commission for the exclusion of the information in terms of
section 100(9) of the Companies Act 71 of 2008.
See study guide sub-units 5.11.2 and 5.11.3, and textbook pars 16.7 and 16.9.
1.3 Suppose the offer of shares is still open and the board is notified by
the company secretary that it mistakenly overstated the assets of the
company in the prospectus. The board is worried that it may be held
personally liable for any loss that may be suffered by potential investors.
Explain to the board whether there is any route that may be applied to
remedy the error committed in the prospectus.(6)
Section 100(11) of the Companies Act 71 of 2008 provides that, as long as the initial
or primary offering remains open, any person responsible for information in the
prospectus who becomes aware of it must:
• correct any error,
• report on any new matter
• report on any change of a matter included in the prospectus
provided the above information is relevant or material in terms of chapter 4 of the

Companies Act 71 of 2008.
In terms of section 104 of the Companies Act 71 of 2008, if the board fails to correct
the information, the board members will be held personally liable for untrue statements
in the prospectus, the purpose of which is to protect the public and to ensure that they
receive reliable and correct information.
Therefore, the board must correct the error in the prospectus while the offer of shares
is open in order to escape personal liability.
In addition, the board must comply with the requirements of section 100(12) regarding
registration of the correction or report. The correction will also impact on persons who
have subscribed to the securities. They may withdraw these subscriptions by written
notice within twenty business days after the subscription. (Section 100(13)(a))
The correction will have further consequences for the company. The company may act
in terms of section 100(13)(b) by accepting withdrawal by subscribers and restoring the
consideration paid, or by applying to court for an order negating the right of the
subscriber to withdraw the offer, or to reverse the transaction. Section 100(13)(c)
authorises the court to make any order it deems just and equitable.
See study guide sub-unit 5.11, textbook pars 16.7, 16.9 and sections 100 and 104 of
1.4 Suppose the company was listed on the stock exchange. Explain to
the board whether a prospectus would be required in respect of the offer
of shares to the public. (3)
No, a prospectus in terms of chapter 4 of the Companies Act 71 of 2008 will not be
required for a primary public offering of listed securities as set out in the assignment, as
it is specifically excluded in section 100(1) of the Companies Act 71 of 2008.
However, section 100(1) provides that a prospectus is required when the public offering
by a listed company is an initial public offering (see section 100(1) of the Companies Act
71 of 2008).
Listed companies making a primary public offering must comply with the requirements
of the exchange where they are listed. In South Africa that will normally be the listing
requirements of the Johannesburg Stock Exchange Ltd.
See study guide sub-unit 5.11.2, textbook par 16.2, and section 100 of the Companies
Act 71 of 2008
201-1-2019
Assignment 01
1. The memorandum of incorporation of Borboleta (Pty) Ltd states that the

percentage of voting rights required for an ordinary resolution is 56%. It
further states that the percentage required for a special resolution is 65%.
Nozi is a shareholder in Borboleta (Pty) Ltd, and she seeks your advice on
these provisions of the memorandum of incorporation. Advise Nozi on the
validity of the requirement for a 56% voting percentage for an ordinary
resolution and a 65% voting percentage for a special resolution, with
specific reference to the definitions of ordinary and special resolutions as
found in the Companies Act 71 of 2008. Further advise Nozi on the
percentage of voting rights needed to remove a director of Borboleta (Pty)
Ltd. (10)
An ordinary resolution means a resolution adopted with the support of more than 50%
of the voting rights exercised on the resolution, either at a shareholders’ meeting or by
holders of the company’s securities acting other than at a meeting (as contemplated in
section 60). A special resolution means a resolution adopted with the support of at
least 75% of the voting rights exercised on the resolution, either at a shareholders'
meeting, or by holders of the company’s securities acting other than at a meeting (as
contemplated in section 60).
However, in terms of section 65(8) of the Companies Act 71 of 2008 ("the Companies
Act") the Memorandum of Incorporation of the company may specify a higher
percentage of voting rights to approve an ordinary resolution or a different percentage
of voting rights to approve a special resolution 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
requirements for approval of a special resolution on any matter.
It is permissible for the percentage of voting rights to approve a special resolution to

be lower than 75%. However, in this case the percentage may not be 65% because
there is only a difference of 9% between the highest requirement for approval of an
ordinary resolution (56%) and the lowest requirement for approval of a special
resolution (65%). Therefore, the provisions in the Memorandum of Incorporation of
Borboleta (Pty) Ltd specifying a 56% voting percentage for an ordinary resolution and
a 65% voting percentage for a special resolution are invalid.
Section 65(8) of the Companies Act provides that a company’s Memorandum of

Incorporation may require a higher percentage of voting rights to approve an ordinary
resolution except for an ordinary resolution for the removal of a director under section
71 of the Companies Act.
Therefore, the percentage of voting rights needed to remove a director of Borboleta
(Pty) Ltd is 50% + 1 (or 51%).
2. Discuss the main differences and similarities between a shareholders’

meeting and an annual general meeting with reference to public and private
companies. (5)
Both are meetings of shareholders but an annual general meeting ("AGM") is held
annually and particular business must be conducted at an annual general meeting.
Some of the business that must be conducted at an AGM is the presentation of the
directors’ report, audited financial statements, audit committee report, election of
directors, appointment of an auditor and audit committee and any matters raised by
the shareholders. A public company must convene an AGM, but it is not mandatory for
a private company to hold an AGM.
Refer to your Study Guide paragraphs 1.12 and 1.14, and to paragraphs 11.14.2,
11.14.3 and 11.6.2 of your prescribed textbook.
Assignment 02
Ubuntu (Pty) Ltd is a private company that owns and operates five underground
gold mines throughout South Africa. The company also owns two gold-processing
plants and a gold refinery. The consolidated market value of the five underground
gold mines is worth R8.5 billion. The market value of the two gold-processing
plants is R3 billion and the gold refinery is worth R500 million. The directors of
Ubuntu (Pty) Ltd have decided to sell four of its underground mines in order to,
inter alia, raise capital towards reducing the company’s debts, fund the operational
costs of the company and upgrade the gold-processing plants.
A potential buyer, Global Resources (Pty) Ltd, approaches Ubuntu (Pty) Ltd with
an offer to purchase the four mines at a price of R8 billion. Advise the directors of
Ubuntu (Pty) Ltd on the following, should they wish to proceed with the sale:
1. The nature of the transaction and the requirements of the Companies Act 71
of 2008 that must be complied with in order for Ubuntu (Pty) Ltd to proceed
with the sale of the four
mines. (9)
This transaction is a fundamental transaction in the form of a disposal by a company

of all or the greater part of the assets or undertaking. The phrase “all or the greater part
of the assets or undertaking” means more than 50% of the company’s gross assets
fairly valued, irrespective of its liabilities or more than 50% of the value of its
undertaking, fairly valued.
The statutory requirements of the transaction for a disposal by a company of all or the
greater part of its assets or undertaking are set out in section 112, read with section
115 of the Companies Act. The disposal must be approved by a special resolution of
the shareholders of the company. The notice of the shareholders meeting to consider
the resolution must be accompanied by a written summary of the terms of the
transaction. In addition, the assets to be disposed must be given a fair market value,
and the other procedural requirements of section 115 of the Companies Act must be
complied with.
Refer further to paragraphs 17.1 and 17.3 of your prescribed textbook.
2. Name the circumstances under which the requirements that you have
discussed in your answer to question 1 above need not be complied with. (4)
The above requirements do not have to be complied with in the following instances: (i)
pursuant to a business rescue plan; (ii) between a holding company and its wholly-
owned subsidiary; (iii) between two or more wholly-owned subsidiaries of the same
holding company; and (iv) between the wholly-owned subsidiary on the one hand, and
its holding company and one or more wholly-owned subsidiaries of that holding
company, on the other hand.
Refer to section 112(1) of the Companies Act.
3. Explain and motivate whether the Takeover Regulation Panel has

jurisdiction over this transaction. (5)
The Takeover Regulation Panel has jurisdiction over the securities of regulated
companies. A profit company is a regulated company if it is a: (i) public company; (ii)
state-owned company; or (iii) private company, but only if its Memorandum of
Incorporation expressly subjects the securities of the company to the Takeover
Regulator Panel, or, in the twenty four months prior to the relevant transaction more
than 10% of the securities of the company had been transferred.
In this case, none of the companies involved in the transaction are a “regulated
company”. The transaction is not an affected transaction. Therefore, the disposal will
not be subjected to the takeover provisions as provided for in the Companies Act.
Refer to section 117(1)(i) read with sections 118(1) and (2) of the Companies Act.
201-2-2019
Assignment 01
Imithi Ltd is a company specialising in the distribution of pharmaceutical products
to major clinics. Recently, the company has been experiencing financial strain due
to a new competitor in the market, Direct Link Ltd. Direct Link Ltd distributes
pharmaceutical products to a wider clientele and is much cheaper than Imithi Ltd.
Imithi Ltd wants to expand its business, but will need more funds to be able to do
this. Faizel, a director of Imithi Ltd, proposes that the company offer 1 500 ordinary
shares for subscription to existing shareholders of the company in the form of
non-renounceable rights offers.
1. Explain with reference to the relevant provisions of the Companies Act 71 of
2008 whether the offer to subscribe for the new shares in Imithi Ltd should be
accompanied by a prospectus. (5)
Primary offering to the public must be accompanied by a registered prospectus. Offer

made to any part of the public. In terms of section 96 (1) (c) of the Companies Act 71
of 2008, a non-renounceable offer made only to the existing shareholders of the
company is not an offer to the public. In the hypothetical facts, the offer is a non-
renounceable offer to existing shareholders which is not an offer to the public.
Therefore, a registered prospectus is not necessary.
See section 99 read with section 96 of the Companies Act 71 of 2008, prescribed
textbook section 16.2.2 and 16. 4 and page 31 of the study guide.
2. For purposes of this question, assume that the company is required

to issue a prospectus. Andile has recently been appointed as a director of
Imithi Ltd. When he joined the company, it was already in the process of
offering the additional shares for subscription. The prospectus was issued
two weeks after he became a director and he consented to its issuing. Three
weeks after the issuing of the prospectus, Andile realised that the prospectus
contained an error in that the annual financial statements attached to the
prospectus overstated the income of the company for the previous financial
year. Advise Andile, with reference to the provisions of the Companies Act 71
of 2008, as to whether he could be held liable for inaccurate information in
the prospectus and whether he could take any steps to avoid liability. (10)
Section 104(1) of the Companies Act 71 of 2008 provides that a person who acquired
securities on the basis of a prospectus is entitled to recover any loss or damage that
the person might have sustained as a result of any untrue statement in the prospectus,
without it being necessary to establish fault.
The plaintiff will be successful if he/she can prove the following:
o that he/she acquired shares based on his/her reliance on the

prospectus;
o that he/she suffered a loss;
o and that loss was caused by an untrue statement in the
prospectus.
An untrue statement is defined in 95 (1) (p) of the Companies Act 71 of 2008 as a
statement that is misleading in the form and context in which it is made.
The error that Andile has discovered may very well be regarded as an untrue statement
in the prospectus.
As a director of the company issuing shares for subscription, Andile qualifies as a
person who may be held liable in terms of section 104(1)(d) of the Companies Act 71
of 2008.
Section 104(3)(f) of the Companies Act 71 of 2008 provides that liability will not attach
to a person who authorised the issue of the prospectus provided that after the issue of
the prospectus and before allotment or acceptance, that person on becoming aware
of any untrue statement in it, withdrew any consent to the prospectus and gave
reasonable public notice of the withdrawal and of the reason of it.
Andile will escape liability if he can prove that upon becoming aware of any untrue
statement in the prospectus, he withdrew any consent to the prospectus and gave
reasonable public notice of the withdrawal and the reason of it.
Andile is advised to give a public notice of the fact that he is withdrawing his consent
and to state the reasons for doing so. He has to do this before the company accepts
the offer for its shares.
See section 95 and 104 of the Companies Act 71 of 2008, section 16.9.2 of the
prescribed textbook and page 31 of the study guide.
Assignment 02
Samuel is the director of a printing company, Print Your Paper (Pty) Ltd, which
specialises in the printing of academic journals. Samuel is concerned about the
trend to move away from publishing hard copies of journals towards publishing
academic journals electronically. Although Print Your Paper (Pty) Ltd is not
insolvent and does not have cash flow problems, he is considering entering into
an agreement with the creditors of Print Your Paper (Pty) Ltd in terms of which
Print Your Paper (Pty) Ltd offers to pay 80% of all creditors' claims against the
company in full and final settlement. Samuel knows the offer will be accepted by
most of the creditors, but a small minority might reject the offer. Samuel
approaches you for legal advice in order to establish whether there is a specific
procedure in the Companies Act 71 of 2008 that makes it possible to make the
settlement agreement binding on all creditors if the offer to creditors is accepted
by most of them. In your opinion to Samuel you must:
1. Suggest and name a suitable procedure that may be used by the company.
Explain what this procedure entails and discuss the requirements that must
be met in order to effect the procedure. Do not discuss the contents of any
relevant documentation. (15)
A suitable procedure would be a compromise. It is provided in section 155 of the

Companies Act 71 of 2008.
A compromise is an agreement or arrangement or restructuring of claims between a
company and its creditors in terms of which the creditors agree to accept less than
their full claims against the company. A compromise is binding on all the company’s
creditors.
A company may effect a compromise with its creditors, or a specific class of creditors,
whether the company is in financial distress or not, unless it is in business rescue.
The board of a company or the liquidator of such a company if it is being wound up,
may propose a compromise of its financial obligations to all its creditors.
The proposal of a compromise is effected by the delivery of a copy of the proposal and
notice of meeting to consider the proposal to the Companies Commission and to every
creditor of the company or every member of the relevant class of creditors whose name
and address is known to, or can reasonably be obtained by the company.
The proposal for a compromise is adopted by the creditors or members of the relevant
class of creditors if it is supported by a majority in number, representing at least 75%
in value of the creditors present and voting in person or by proxy at a meeting called
to consider the proposal.
The proposal for a compromise must contain all the information reasonably required to
assist creditors in deciding whether or not to accept or reject the proposal.
The proposal must be divided into three parts, consisting of the background to the
proposal, the proposal itself and its assumptions and conditions.
If the proposal regarding a compromise of a company’s financial obligations to all the

company’s creditors is duly adopted, the company may then apply to the High Court
for an order approving the proposal.
2. Discuss the requirements that need to be met after approval of the
procedure by a court, as well as the effects of such a transaction, if
approved by a court. (3)
In terms of section 155 (8) of the Companies Act 71 of 2008, if a compromise is

approved by the court the company must file a copy of the order with the Companies
Commission within 5 business days.
A copy must also be attached to each copy of the company’s Memorandum of
Incorporation that is kept at the company’s registered office or elsewhere contemplated
in section 25.
The order of the court sanctioning the compromise is final and binding on all creditors
or class of creditors from the date on which a copy of the order is filed. (3)
See section 155 of the Companies Act 71 of 2008, section 20.10.1 and 20.10.3 of the
textbook and study guide on page 53.
201-1-2018
Assignment 01
Bongani has been a non-executive director of Apex (Pty) Ltd since 2012. He is
also a director and sole shareholder of a management consultancy business,
Infinity (Pty) Ltd. Apex (Pty) Ltd is undergoing a process of internal restructuring.
Without knowing of Bongani’s involvement with Infinity (Pty) Ltd, one of the other
directors of Apex (Pty) Ltd proposes to the board of directors of Apex (Pty) Ltd
that Infinity (Pty) Ltd should be approached for advice on the recruitment of key
staff. The board of directors of Apex (Pty) Ltd will be voting on this issue at the
next board meeting which is scheduled for next week.
(a) Bongani seeks your advice. He wants to know whether he must disclose his
interest in this matter to the board of directors of Apex (Pty) Ltd and if so, what
procedure he must adopt to do so. (8)
These circumstances are regulated by section 75 of the Companies Act 71 of 2008 (‘the
Act’). It provides that if a director has a personal financial interest in respect of a matter
to be considered at a meeting of the board, the director must disclose the interest and its
general nature before the matter is considered at the meeting.
A personal financial interest is defined in section 1 of the Act as meaning a direct material
interest of that person of a financial, monetary or economic nature, or to which a monetary
value may be attributed.
Bongani has a personal financial interest in this matter because Infinity (Pty) Ltd (of which
Bongani is a director and sole shareholder) will benefit financially if Apex (Pty) Ltd
appoints Infinity (Pty) Ltd to provide advice to it on the recruitment of staff.
Therefore, Bongani must disclose his interest in the matter.
The procedure for Bongani to disclose his interest is as follows:
• He must disclose his interest and its general nature to the board of directors
before the matter is considered at the meeting.
• He must disclose any material information relating to the matter and known
by him.
• He may disclose any observations or pertinent insights relating to the matter

if requested to do so by other directors.
• If present at the meeting, Bongani must leave the meeting after making any
disclosure.
• He must not take part in the consideration of the matter.
• He must not execute any document on behalf of the company in relation to

the matter unless specifically requested or directed to do so by the board.
(b) Assume that Bongani does not disclose his interest. Explain whether the
contract between Apex (Pty) Ltd and Infinity (Pty) Ltd will nonetheless be valid.
(7)
Section 75(7) of the Act provides that a board decision or a transaction or agreement
approved by the board is valid despite any personal financial interest of a director
or a person related to a director, only if –
a) it was approved following disclosure of that interest in the manner contemplated in

section
75
b) despite having been approved without disclosure of that interest, it –
i) has subsequently been ratified by an ordinary resolution of the shareholders after

disclosure of the interest or
ii) has been declared to be valid by a court in terms of section 75(8) of the Act. In
terms of section 75(8) of the Act a court, on application by any interested person, may
declare valid an agreement that had been approved by the board despite the failure
of the director to satisfy the disclosure requirements of section 75.
In Omar v Inhouse Technical Management (Pty) Ltd 2015 (3) SA 146 (WCC) the court
affirmed that the effect of non-compliance with section 75(5) of the Companies Act is
that the transaction or agreement entered into would be invalid unless it was ratified
by the company’s shareholders or declared valid by a court.
The contract will be valid only if it was approved following disclosure by Bongani of its
general nature before the matter is considered at the meeting. However, even if there
was no disclosure, the contract will still be valid if the shareholders of Apex (Pty) Ltd
ratify it after the disclosure was made by Bongani to them. Furthermore, the contract
will also be valid if a court declares it valid on an application by any interested person.
See paragraph 3.2.2 of the Study Guide and para 14.6 of the prescribed textbook
and section 75 of the Companies Act 71 of 2008.
Assignment 02
Deli Delight (Pty) Ltd (“Deli Delight”) recently released its financial statements
which reflected a huge profit. As a result, several investors are keen to purchase
shares in Deli Delight. Sifiso, who is currently not a shareholder, approaches Deli
Delight. The board of directors of Deli Delight resolves to issue some shares in
Deli Delight to Sifiso, but on condition that payment shall be made before or when
the shares are issued. Simphiwe, one of the prescribed officers and shareholders
of Deli Delight, is opposed to his brother, Sifiso, purchasing the shares. He
believes that he (Simphiwe), together with Deli Delight’s other shareholders, must
first be afforded an opportunity to subscribe for the shares. Advise Simphiwe
whether he has the right to be first afforded an opportunity to subscribe for the
new shares in Deli Delight. [15]
Section 39(2) of the Companies Act 71 of 2008 (‘the Act’) provides that if a private
company proposes to issue any shares, each shareholder has the right, before any
other person who is not a shareholder of that company, to be offered and, within a
reasonable time, to subscribe for a percentage of the shares to be issued equal to the
voting power of that shareholder’s general voting rights immediately before the offer
was made.
Thus, pre-emptive rights are conferred upon existing shareholders in private companies
to subscribe for new shares issued by the company in proportion to their voting power.
The Memorandum of Incorporation of a private company may limit, negate, restrict or

place conditions on the pre-emptive right with respect to the shares of the company.
However, section 39(1) (b) of the Act provides that, in the case of private companies, the
right of pre-emption does not apply to shares issued:
• in terms of options or conversion rights;
• for future payments or services or benefits; or
• when there is a capitalisation issue;
Shareholders in private companies automatically enjoy pre-emptive rights to new shares

to be issued by the company. Deli Delight (Pty) Ltd (“Deli Delight”) is a private company
and there is no indication that the right of pre-emption has been changed or abolished by
its Memorandum of Incorporation. It does not appear that any of the above-mentioned
exceptions apply. In fact, the board of Deli Delight has specifically refused to issue the
shares for future payment or services.
Therefore, Simphiwe is entitled to first be afforded an opportunity to subscribe to the new

shares before such shares are offered to his brother, Sifiso, or any other potential
investor. Simphiwe must be given a reasonable time to subscribe for a percentage of the
shares to be issued which is equal to the voting power of his general voting rights
immediately before the offer is made.
See paragraph 5.4.1 of the Study Guide and paragraph 9.10 of the prescribed textbook
and section 39 of the Companies Act 71 of 2008.
201-2-2018
Assignment 01
The board of directors of Abayomi Ltd approaches you for advice. The board has
resolved to issue shares to the following persons:
(i) the newly appointed chief executive officer of the company;

(ii) a new director, Mr Molefe, who will be joining the board of directors in
three months’ time; and
(iii) certain employees of the company in terms of an employee share
scheme.
However, the board of directors is unsure of certain matters surrounding the
issue of these shares. With reference to the relevant provisions of the Companies
Act 71 of 2008 advise the board of directors of Abayomi Ltd on the following:
(a) Whether the approval from the shareholders of Abayomi Ltd is

required to issue the shares referred to in (i), (ii) and (iii) above; (10)
The general principle

In terms of section 38 of the Companies Act 71 of 2008, the board of directors may resolve
to issue shares in a company at any time in accordance with the provisions of and within
the classes authorised in terms of the company’s Memorandum of Incorporation. Thus
the approval of the shareholders is not required for the issue of shares unless the
Memorandum of Incorporation provides otherwise.
The provision of section 41

However, section 41 of the Companies Act requires shareholder approval by a special
resolution for issuing shares in certain cases.
Shareholder approval for issuing shares in certain cases
(I) CHIEF EXECUTIVE OFFICER (PRESCRIBED OFFICER)

Legal principle
In terms of section 41(1)(a) of the Companies Act 71 of 2008, the approval of the
shareholders by special resolution is required where the issue of shares is to a present
director or prescribed officer of the company.
Application of legal principle

A Chief Executive Officer of a company is a director or a prescribed officer of the
company. The approval of the shareholders by special resolution will be required to issue
the shares to him or her.
(II) MR MOLEFE (DIRECTOR)

Legal principle
Section 41(1)(a) of the Companies Act 71 of 2008 provides that the approval of
shareholders by special resolution is required when shares are issued to future directors.
Section 41(6) of the
Act provides that a “future director” does not include a person who becomes a director of
the company more than six months after acquiring a particular right.
Application of the legal principle

Mr Molefe would be a future director of the company because he will become a director
in three months’ time. Therefore, shareholder approval will be required to issue the shares
to Mr Molefe.
(III) EMPLOYEES
Legal principle
In terms of section 41(2)(d) of the Companies Act, the approval of the shareholders of a
company is not required if the shares are issued pursuant to an employee share scheme
that satisfies the requirements of section 97 of the Companies Act.
Application of the legal principle

If the shares are issued to employees in terms of an employee share scheme which does
satisfy the requirements of section 97 of the Companies Act, then the shareholders of
Abayomi Ltd will not be required to approve the issue of the shares. However, if the
requirements of section 97 of the Companies Act are not satisfied, then the approval of
the shareholders by special resolution will be required.
(b) The consequences that would follow if the board of directors does not comply
with the requirements of the Companies Act 71 of 2008 to issue such shares;
and (3)
Legal principle
In terms of section 41(5) of the Companies Act 71 of 2008, a director of a company is
liable for any loss, damages or costs sustained by a company as a direct or indirect
consequence of the director having been present at a meeting or having participated in
the making of such a decision by written resolution and when such a director failed to
vote against the issue of any shares despite knowing that the issue of those shares was
inconsistent with section 41.
Note that the provisions of section 77(3)(e)(ii) may also apply.
Application of legal principle

Thus in terms of section 41(5) of the Act, the directors of Abayomi Ltd will be personally
liable for any loss, damages or costs sustained by the company if they do not follow the
correct procedures to issue the shares.
Refer to paragraphs 5.4 and 5.4.2 of the study guide and paragraphs 9.5 and 9.6 of the
(c) How the payment for these shares is to be ascertained. (2)
In terms of section 40(1)(a) of the Companies Act 71 of 2008, the shares must be
issued for adequate consideration. The adequate consideration for the shares must be
determined by the board of directors before the company issues the shares.
Assignment 02
Mahlangu is the chief executive officer of Monifa Ltd, a listed company which
develops educational software programmes for children. The company is on the
verge of introducing a mathematics software educational package which will
revolutionise learning in primary schools. The company has not yet made any
public announcement about this new invention. Only Mahlangu and the managing
director, Bongani, know about this invention. Bongani’s personal assistant,
Lerato, saw the documents containing this confidential information about the
invention when she was asked to file documents. Lerato told Fulu about the
contents of the documents. Fulu immediately purchased shares in Monifa Ltd for
herself. Lerato also told Thakhani to buy shares in Monifa Ltd without telling her
why she should do so. Thakhani did not purchase any shares in Monifa Ltd.
Edward, Fulu’s husband, bought 1 000 shares in Monifa Ltd without discussing
any matters relating to the shares with Fulu. When the new software programme
was announced publicly, the price of the company’s shares immediately
increased by 10%.
Explain whether Lerato, Fulu, Edward and Thakhani can be held liable for any
offences under the Financial Markets Act 19 of 2012 regulating insider trading.
You must include a discussion of the definitions of an “insider” and “insider
trading” in your answer, but do not discuss the defences to the insider trading
offences. [15]
Discussion of key definitions: -

“Insider trading” refers to the sale and purchase of a company’s securities by insiders,
persons associated with the company and who possess price sensitive information which
is not generally available to the public.
An “insider” is a person who has inside information by:

o being a director, employee, shareholder of an issuer of securities
listed on a regulated market to which the inside information relates; or
o having access to such information by virtue of employment, office or
profession; o or have obtained the inside information from a person in
circumstances where the person knows that the information is obtained
from my person who is an insider.
“Inside information” is
• specific or precise information
• that has not been made public and

• which is obtained or learned as an insider and
• if it were made public, would be likely to have a material effect on the price
or value of any security listed
• on a regulated market.
Application of the relevant definitions

The news about the invention is inside information because it meets the criteria set out
above. The information was obtained by Lerato who is an insider because she is an
employee of Monifa Ltd.
LERATO
Lerato told Fulu about the content of the inside information and therefore is guilty of the
disclosure offence.
Lerato encouraged Thakhani to purchase shares in Monifa Ltd and, even though she did
not disclose the inside information to Thakhani, she is guilty of the offence of encouraging
insider trading.
FULU
Fulu is guilty of the offence of dealing since she knew that Lerato disclosed inside
information to her and, based on this information, she purchased some shares of Monifa
Ltd for herself.
EDWARD
Edward is not guilty of any offence because he did not have any inside information and
bought the shares in Monifa Ltd independently.
THAKHANI
Thakhani is not guilty of any offence because she did not purchase any shares in Monifa
Ltd.
Refer to sections 77 and 78 of the Financial Markets Act 19 of 2012 and to learning unit
11 of the study guide.

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MAY JUNE 2021 unanswered

4.2.1 Thandi (4)

4.2.2 Simon (4)

4.2.3 Tebogo (1)

OCTOBER NOVEMBER 2020 UNANSWERED

1.1 Discuss the meaning of the term “ubuntu”. (3)

4.2 Who may propose a compromise? (2)

MAY JUNE 2020

• the appointment of an auditor,

• the appointment of an audit committee, and

• any matters raised by shareholders.

Application to the facts:

Application to the facts:

• Personal liability companies

Refer to sections 1 (definition of ‘distribution’), 46 and 4 of the Companies Act 71 of

(Your answer must not exceed one page)

• took reasonable steps to become informed about the matter,

• had no material personal financial interest in the subject matter of the

(Your answer must not exceed half a page)

This is a simple and straightforward question. The statutory duties of an audit

4.2 Thabiso is a director of Computer Land International Holdings Ltd (‘the

(Your answer must not exceed two pages)

• The offence of dealing in own account – an insider who knows that

(Your answer must not exceed one page)

• The offence of dealing in own account – Thabiso is an insider who

• The ‘encouraging’ offence – Thabiso is an insider who knew that he

MAY JUNE 2019

• intentionally or by gross negligence inflicted harm upon the company or a

At the time of the conclusion of the contract with World-of-Electronics Ltd,

When the memorandum of incorporation of a company contains special conditions the

3.1 Themba is a business rescue practitioner of a company that is under

In terms of section 132(3) (1) of the Companies Act 71 of 2008,

3.2 Rickus, a business rescue practitioner of a company that is under business

In terms of section 82 of the Financial Markets Act 19 of 2012 if a person commits

- cost of suit (1) including the investigation costs.

- any commission or consideration received for such disclosure.

“Corporate social responsibility” seeks to make companies responsible members of the

OCTOBER NOVEMBER 2019

With reference to the relevant provisions of the Companies Act 71 of 2008

If every shareholder of a company (other than a state-owned company) is also a

Section 57(4) requires the following:

• Every person must be present at the board meeting when the

In conclusion, Simphiwe’s objection is valid because not every person was

With reference to the principle of Ubuntu as expressed by Madala J In the case

Refer to page 28 of Tutorial letter 101.

However, the board of directors has negotiated an agreement With Always On

Section 39 of the Companies Act 71 of 2008 is relevant.

The exceptions in section 39(1)(b) do not apply in this scenario.

o shares not subscribed for by a shareholder within a reasonable time, may

• Therefore, if the Memorandum of Incorporation permits it, shares not

The transaction in question (provision of guarantee/surety, of security or otherwise)

o In terms of section 44(3)(a)(ii) the financial assistance must be provided pursuant

o In terms of section 44(3)(b)(i) the board of directors must be satisfied that

Judith knows about the provision in the Memorandum of Incorporation

2.2.1 With reference to the relevant provisions of the Companies Act 71

• Refer to section 20(7) of the Companies Act 71 of 2008.

o That she was prejudiced/ suffered damage due to the misrepresentation.

Refer to Freeman & Lockyer v Buckhurst Park Properties as authority.

3.1.1 Whether Thein and Gote are related (5)

• In terms of section 2(1)(c) of the Companies Act 71 of 2008, a juristic

• If either is a subsidiary of the other; or

• A person directly or indirectly controls each of them or the business of

This means that Thein and Gote are related.