AUI4862
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 2025
,QUESTION 1 – 25 MARKS
PART A – 1.1
[12 Marks]
Topic: Conflict of interest and disclosure – Companies Act 71 of 2008
� Scenario Summary:
Holiday Factory (Pty) Ltd entered into a contract worth R3 million with Iceland (Pty) Ltd
to purchase radar systems. Thabo Shabalala is a director of Holiday Factory, and his
brother, Oscar, is the majority shareholder in Iceland (Pty) Ltd. The company's
Memorandum of Incorporation (MOI) states that any director or prescribed officer with a
personal financial interest in a contract must comply with the Companies Act and the
contract must be authorised by a general meeting before it is signed.
📝 Required: Discuss the requirements of the Companies Act 2008 in relation to
this contract.
� Answer:
Under the Companies Act 71 of 2008, when a director has a personal financial
interest in a company contract, there are clear steps they must follow to avoid a
conflict of interest and to ensure everything is done legally and ethically.
Let’s break it down based on the scenario:
1. Who is considered to have a personal financial interest?
According to section 75(1)(b) of the Companies Act, a “related person”
includes a brother, and so Thabo’s brother Oscar (the majority shareholder of
, Iceland) creates a situation where Thabo is indirectly financially interested in
the contract.
This means Thabo has a “personal financial interest” in the contract between
Holiday Factory and Iceland.
2. What must Thabo do under the Act?
Under section 75(5) and (6) of the Companies Act:
Thabo must disclose his indirect interest in writing or verbally at the board
meeting before the contract is discussed or approved.
Once disclosed, Thabo must recuse himself (not take part) from:
o Deliberations (discussions) about the contract.
o Voting on whether the company should enter into the contract.
Failure to do this may render the contract voidable (can be cancelled) at the company’s
option and can have serious legal consequences.
3. What does the MOI say?
The company’s MOI adds an extra rule — it requires that:
The shareholders in a general meeting must approve the contract by poll,
before it is entered into.
This means that board approval alone is not enough. The proper procedure was to
first disclose the interest and then get the shareholders' approval before entering
into the contract.
4. Was the process followed correctly?
ASSIGNMENT 2 2025
UNIQUE NO.
DUE DATE: 2025
,QUESTION 1 – 25 MARKS
PART A – 1.1
[12 Marks]
Topic: Conflict of interest and disclosure – Companies Act 71 of 2008
� Scenario Summary:
Holiday Factory (Pty) Ltd entered into a contract worth R3 million with Iceland (Pty) Ltd
to purchase radar systems. Thabo Shabalala is a director of Holiday Factory, and his
brother, Oscar, is the majority shareholder in Iceland (Pty) Ltd. The company's
Memorandum of Incorporation (MOI) states that any director or prescribed officer with a
personal financial interest in a contract must comply with the Companies Act and the
contract must be authorised by a general meeting before it is signed.
📝 Required: Discuss the requirements of the Companies Act 2008 in relation to
this contract.
� Answer:
Under the Companies Act 71 of 2008, when a director has a personal financial
interest in a company contract, there are clear steps they must follow to avoid a
conflict of interest and to ensure everything is done legally and ethically.
Let’s break it down based on the scenario:
1. Who is considered to have a personal financial interest?
According to section 75(1)(b) of the Companies Act, a “related person”
includes a brother, and so Thabo’s brother Oscar (the majority shareholder of
, Iceland) creates a situation where Thabo is indirectly financially interested in
the contract.
This means Thabo has a “personal financial interest” in the contract between
Holiday Factory and Iceland.
2. What must Thabo do under the Act?
Under section 75(5) and (6) of the Companies Act:
Thabo must disclose his indirect interest in writing or verbally at the board
meeting before the contract is discussed or approved.
Once disclosed, Thabo must recuse himself (not take part) from:
o Deliberations (discussions) about the contract.
o Voting on whether the company should enter into the contract.
Failure to do this may render the contract voidable (can be cancelled) at the company’s
option and can have serious legal consequences.
3. What does the MOI say?
The company’s MOI adds an extra rule — it requires that:
The shareholders in a general meeting must approve the contract by poll,
before it is entered into.
This means that board approval alone is not enough. The proper procedure was to
first disclose the interest and then get the shareholders' approval before entering
into the contract.
4. Was the process followed correctly?
