LML4806 PORTFOLIO MEMO - MAY/JUNE 2022 SEMESTER 1 - WITH DETAILED BIBLIOGRAPHY

LML4806 PORTFOLIO MEMO - MAY/JUNE 2022 SEMESTER 1 - WITH DETAILED BIBLIOGRAPHY QUESTION 1 LML4806 May/June 2022 1.1 Discuss how the social and ethics committee enhances corporate social responsibility in South African companies. (10) 1.2 You are approached by Zelda, the chairperson of the board of directors of TMT Ltd for legal advice. She informs you that TMT Ltd will be holding its annual general meeting (AGM) in person next month. She further informs you that some of the company’s shareholders and their proxies have indicated that they will not be able to attend the AGM in person at the time it is to be held, although they would want to participate at the AGM and to vote on the resolutions that will be tabled for shareholder vote. Advise Zelda regarding the possibility of allowing those shareholders and proxies who will not be able to attend the AGM in person to attend and participate at the AGM electronically, and indicate whether there would be any requirements that must be complied with. (5) 1.3 Independent Game Services (Pty) Ltd (the company) specialises in providing game management and veld rehabilitation services. The company’s registered office is situated in Mbombela in the Mpumalanga province. John, Sarah, Vusi and Aubrey are the directors of the company. To ensure that the company does not deviate from its core business of providing game management and veld rehabilitation services, the following clauses were inserted in the company’s Memorandum of Incorporation: “Capacity • The company may not participate in any trade or transactions other than for purposes of the provision of game management and veld rehabilitation services. • The company may not enter any transaction for the purchase or sale of immovable property outside the borders of the Mpumalanga province.” While on holiday in Durban, in the KwaZulu-Natal province, Sarah spotted a holiday flat for sale and thought it would be a great investment for the company. Without the knowledge of the shareholders and directors, Sarah immediately arranged an appointment with the owner of the holiday flat, Tayob, and concluded an agreement for the purchase of the holiday flat at a price of R1 000 000 on behalf of the company. The shareholders and the other directors object to the transaction. 1.3.1 Advise the board of directors whether Independent Game Services (Pty) Ltd can escape liability for performance in terms of the contract concluded by Sarah and Tayob on the ground that the transaction falls beyond the capacity of the company. (5) 1.3.2 Explain whether Independent Game Services (Pty) Ltd and its shareholders would be able to hold Sarah personally liable, on any basis, for the conclusion of the contract. (5) [20] Question 2 2.1 Muthu is interested in purchasing preference shares in Aluminium Ore Ltd. He has no previous experience or knowledge of preference shares and approaches you for general information and advice. With reference to the relevant case law and the Companies Act 71 of 2008, advise Muthu on the different types of preference shares that can be issued by a company as well as the rights, obligations and conditions associated with preference shares. (10) 2.2 Pristine Properties Ltd focuses on the acquisition, development and letting of retail, industrial, commercial and residential properties throughout South Africa. A competitor, ACS Real Estate Ltd, has embarked on a disposal of its non-core portfolio of properties in South Africa in order to focus on its overseas businesses in Eastern Europe and Asia. Mark, a director of Pristine Properties Ltd, is authorised by the board of directors to represent Pristine Properties Ltd in negotiations for the acquisition of certain retail and commercial buildings in Johannesburg from ACS Real Estate Ltd. During one of the meetings between Mark and Thandi, a representative of ACS Real Estate Ltd, Thandi informs Mark that ACS Real Estate Ltd is under pressure to sell the adjacent residential buildings at a discounted price as she believes that Pristine Properties Ltd would also be interested in buying these residential buildings. Mark secretly incorporates a company which purchases the residential buildings from ACS Real Estate Ltd and subsequently divides them into sectional titles owned by himself, his children and his business associates. Discuss whether Mark has breached any of his fiduciary duties to Pristine Properties Ltd. (10) QUESTION 3 [13] Steel Co Ltd is one of the largest producers of steel in South Africa. Its major competitor is Steel Works Ltd, which operates several steel manufacturing plants across South Africa. Steel Co Ltd and all its related persons do not control any voting rights in Steel Works Ltd. Steel Co Ltd and Steel Works Ltd have concluded an agreement in terms of which Steel Co Ltd will acquire and hold all the assets and liabilities of Steel Works Ltd for R300 million (“the Transaction”). The material terms of the Transaction include that Steel Co Ltd will pay the shareholders of Steel Works Ltd a cash consideration of R10.00 for each Steel Works Ltd share held and that, pursuant to the implementation of the Transaction, Steel Works Ltd will be deregistered. Over the past five years, Steel Works Ltd’s operational and financial performance have been declining due to increasing working capital requirements. The company obtained a loan of R200 million from the Commercial Bank of South Africa, which it has not yet repaid, in order to fund its increased working capital requirements. At a shareholders’ meeting to consider the Transaction proposed by the board, 83% of the shareholders of Steel Works Ltd vote in favour of the Transaction. However, certain shareholders, who hold 17% of the general voting rights in Steel Works Ltd, vote against the Transaction as they are dissatisfied with the strategic rationale for the Transaction as well as the cash consideration of R10.00 per share, which they believe does not provide them with an opportunity to realise at least the fair value for their shares. With reference to the facts provided and the Companies Act 71 of 2008: 3.1 Identify the type of transaction that is contemplated in the scenario above. (2) 3.2 Advise the shareholders of Steel Works Ltd who voted against the resolution to approve the Transaction on whether they may seek court intervention in the event that the board of directors proceeds to implement the Transaction. (6) 3.3 Advise the Commercial Bank of South Africa on the protections that the Companies Act 71 of 2008 provides to it if the Transaction is implemented. (5) QUESTION 4 [22] 4.1 Mrs Kilian, a permanent resident of South Africa, has been identified as a potential candidate for the vacant position of company secretary that needs to be filled at BST Bank Ltd. Mrs Kilian holds a Bachelor of Commerce in Law (BCom Law) degree 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 2012. She was sentenced during the same year to eight years imprisonment without the option of a fine. With reference to the facts provided and the Companies Act 71 of 2008, discuss whether Mrs Kilian may be validly appointed as the company secretary of BST Bank Ltd. (8) 4.2 Godfrey is an information technology (IT) technician at Helping Hands Drugs Ltd, a pharmaceutical company that is listed on the Johannesburg Stock Exchange. At a board meeting to discuss the manufacture of a new drug Godfrey is asked to assist the chief executive officer with problems he is having with connecting to a virtual meeting on Zoom. While assisting the chief executive officer in the board meeting, Godfrey overhears a discussion about a revolutionary new drug for cancer patients which has been incredibly successful in clinical trials and which Helping Hands Drugs Ltd is about to launch. Godfrey realises that once this new drug is launched the price of the company’s shares will increase significantly. Later that day, Godfrey advises his best friend, Themba, to buy shares in Helping Hands Drugs Ltd. Themba does not do this because he is currently unemployed and cannot afford the shares. Godfrey also informs his girlfriend, Lerato, of the new drug that is about to be launched by Helping Hands Drugs Ltd. Lerato calls her broker, Allen, and instructs him to purchase 200 shares in Helping Hands Drugs Ltd on her behalf. Lerato also buys 200 shares through Allen for her father, Patrick. When the new drug is launched, the price of shares in Helping Hands Drugs Ltd increases significantly. Discuss whether the following persons can be held liable for any offences relating to insider trading under the Financial Markets Act 19 of 2012 (You should not include a discussion of the definitions of an “insider” or “insider trading” in your answer and you should not discuss the defences to the insider trading offences): 4.2.1 Godfrey 4.2.2 Themba 4.2.3 Lerato 4.2.4 Allen 4.2.5 Patrick TOTAL: [80] Note:- Extreme care is used by our Tutors to draft our documents, however the contents are provided “as is” without any representations or warranties, express or implied. 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