Summary LML4806 NOTES

Contents 1 Shareholders and Company Meetings.......................................................................................................................2 2 Directors, Board Committees and the Company Secretary........................................................................................6 3 Duties of Directors...................................................................................................................................................13 4 Capacity and Representation of a Company............................................................................................................17 5 Corporate Finance: Shares and Debentures............................................................................................................19 6 Capital Maintenance................................................................................................................................................23 7 Groups of Companies..............................................................................................................................................26 8 Takeovers, Offers and Fundamental Transactions....................................................................................................27 9 Business Rescue Proceedings..................................................................................................................................32 10 Abbreviations...................................................................................................................................................... 39 lOMoARcPSD| 1 Shareholders and Company Meetings 1.1 Introduction Shareholder:  Term used only in respect of a profit company.  Person who is entitled to exercise any voting rights in relation to a company, irrespective of the form, title or nature of the securities to which those voting rights are attached.  Retain control over the directors by their power to appoint and remove directors  Approve important decisions of the directors Member:  Term used for non-profit companies who do not have shareholders Directors:  Have authority to exercise all powers and perform any of functions of the company, except to extent that Act or company’s Memorandum of Incorporation provides otherwise  Have a duty to manage the company 1.2 Notice of Meetings Notice must:  be in writing  include date, time and place for the meeting  explain general purpose of the meeting;  contain a statement that a shareholder is entitled to appoint a proxy to attend, participate in and vote at the meeting in the place of a shareholder  should indicate the participants will be required to provide proof of identity at the meeting  be accompanied by a copy of any proposed resolution which will be considered at the meeting  indicate percentage of voting rights required for the resolution to be adopted  Notice before date of meeting: Public company & non-profit company with voting members: 15 business days Any other company: 10 business days MOI may prescribe longer minimum notice  Notice convening AGM: must contain summary of the financial statements must explain procedure shareholder can follow to obtain complete financial statements Defective notice:  Meeting may proceed if: Persons who are entitled to vote i.r.o. each item on agenda:  are present  acknowledge actual receipt of notice  agree to waive notice of meeting / ratify defective notice Where defect relates to one/more matters on the agenda:  matter may be taken off agenda; notice remains valid w.r.t. remaining matters  where defective notice ratified: meeting may consider matter 1.3 Representation by Proxy Getz v Spaarwater: Validity or otherwise of proxy must depends on facts of each case. Material departure from prescribed form may invalidate proxy. Here: only date of execution on form left blank and this non-compliance was judged to not be of a material nature. Davey and others v Inyaminga Petroleum: cf. Getz. Prescribed form required proxy giver to set out number of shares i.r.o. which he was authorizing proxy to vote. Non-compliance was judged to be of a material nature and proxy was thus incomplete and invalid. Ingre v Maxwell: Must be at least 2 persons present to constitute a meeting; not valid where 1 person holds all proxies of all persons who were entitled to attend meeting. lOMoARcPSD| The appointment of a proxy:  in writing and signed by shareholder;  valid for one year;  may be for a specific period of time;  may be for two or more persons concurrently exercising voting rights for different shares;  proxy may delegate authority to act on behalf of the shareholder to another person;  copy of the proxy appointment form must be delivered to the company before the shareholders’ meeting;  shareholder is not compelled to make an irrevocable proxy appointment;  shareholder may alter proxy by cancelling it in writing, appointing another proxy and deliver a copy of the revocation to the proxy and the company.  appointment remains valid until end of meeting for which it was intended to be used. Proxy is entitled to vote as he/she sees fit, unless shareholder indicated on proxy form how proxy should vote. 1.4 Demand to convene a shareholders’ meeting Board of company/any other person specified in MOI may call a shareholders’ meeting at any time. Meeting must be convened:  at any time required by the CA or MOI, i.e. to elect a director  if one/more written and signed demands for such a meeting are delivered to the company. Relevant points when demand is made:  demand must specify purpose of meeting  demand must be signed by holders of at least 10% of voting rights  MOI may specify a lower percentage than 10%  Company/shareholder may apply for order setting aside demand for meeting on following grounds: Vexatious Frivolous Matter has already been considered and decided upon by shareholders  Demand may be withdrawn before start of meeting. 1.5 Shareholders acting other than at a meeting Gohlke and Schneider v Westies Minerale: members may validly appoint a director to the board without any formal meeting being held because there was evidence of their unanimous consent. In re Duomatic Ltd: unanimous approval of directors’ remuneration by the two directors holding all the voting shares in a company could be regarded as a resolution of a general meeting approving the payment. CA: Resolution may be submitted to shareholders and, if adopted in writing by the required majority, will have the same effect as if it had been adopted at a meeting without actually holding a general meeting of shareholders (s 60). Thus: unanimous assent of all shareholders is no longer necessary. No business that must, in terms of the CA or the company’s MOI, be conducted at an annual general meeting may be conducted by using this procedure. 1.6 Annual General Meeting 1 st AGM must occur no more than 18 months after company’s date of incorporation. Subsequent AGMs must occur no more than 15 months after the previous AGM. Section 61(8): following matters must be transacted at the AGM:  Election of directors to the extent required by the Act or the company’s MOI;  Appointment of an auditor for the following financial year;  Appointment of an audit committee;  Presentation of the directors’ report;  Presentation of audited financial statements for the immediately preceding financial year;  Presentation of an audit committee report;  Any matter raised by shareholders. 1.7 Convening a meeting in special circumstances If a company cannot convene a meeting because it has no directors/the directors are incapacitated:  Any person authorized by the MOI may convene a meeting Downloaded by Thomas Mboya () lOMoARcPSD|  If MOI does not authorize anybody: shareholders may request Companies Tribunal to issue an administrative order for a meeting to be held. If a company fails to convene a meeting for any reason other than the above (a) at a time required in accordance with its Memorandum of Incorporation; (b) when required by shareholders; or (c) within the time required a shareholder may apply to a court for an order requiring the company to convene a meeting on a date, and subject to any terms, that the court considers appropriate in the circumstances. 1.8 Quorum  Shareholders’ meeting may not begin until sufficient persons are present at the meeting to exercise, in aggregate, at least 25% of all of the voting rights that are entitled to be exercised in respect of at least one matter to be decided at the meeting; and  A matter to be decided at the meeting may not begin to be considered unless sufficient persons are present at the meeting to exercise, in aggregate, at least 25% of all of the voting rights that are entitled to be exercised on that matter at the time the matter is called on the agenda.  The company’s MOI may provide for a lower/higher percentage to constitute a quorum  If a company has more than two shareholders, a meeting may not begin, or a matter begin to be debated, unless at least 3 shareholders are present at the meeting, provided the members can exercise at least 25% of the voting rights that are entitled to be exercised. 1.9 Conduct of meetings Voting may be conducted by:  A show of hands: any person can have only 1 vote, regardless of amount of shares held  A poll Where a person fails to exercise his/her vote: person is deemed to have voted against the resolution. 1.10 Majority rule Sammel & Others v President Brand Gold Mining Co Ltd: Where a person becomes a shareholder in a company, he/she agrees to be bound by the decision of the majority of the shareholders. 1.11 Exercise of voting rights Pender v Lushington: shareholders, unlike directors, do not exercise their voting rights for the benefit of the company and can act entirely in their own interests. A shareholder has a right to have his or her vote recorded, even if that vote made no difference to the final results. 3 Scenarios: 1. A profit company (other than a state-owned enterprise) with only one shareholder: i. shareholder may exercise all the voting rights. ii. rules of setting a record date etc. do not apply. 2. A profit company (other than a state-owned enterprise) with only one director: i. director may exercise any power/perform any function of the board at any time except when the MOI provides otherwise. 3. A company (other than a state-owned enterprise) where every shareholder is also a director: i. Shareholders may decide on any matter to be referred by the board at any time, without notice or compliance with any internal formalities except when the Memorandum provides otherwise; subject to certain specified conditions 1.12 Shareholder resolutions CA provides 2 types of resolutions: 1. Ordinary resolution i. Requires 50% or more of the voting rights exercised on the resolution ii. MOI may require a higher percentage 2. Special resolution i. Requires 75% or more of the voting rights exercised on the resolution ii. MOI may require a lower percentage Downloaded by Thomas Mboya () lOMoARcPSD| Must always be a difference of at least 10% between percentages required for an ordinary and a special resolution 1.13 Decisions that require a special resolution Special resolution required for the following decisions: 1. Amendment of company’s MOI 2. Approving the voluntary winding up of the company 3. Approval of a sale of assets, a merger, an amalgamation or a scheme of arrangement. MOI may require a special resolution to approve any other matter. 1.14 Postponement and Adjournment of meetings Meeting may be postponed or adjourned for a week under the following circumstances: 1. if within an hour of the scheduled starting time the quorum is not formed. i. Chairperson may extend 1 hour limit due to exceptional circumstances ii. 1 hour limit can be altered by MOI 2. when a quorum is not present at the postponed or adjourned meeting: members present in person/by proxy will be deemed to constitute a quorum. 3. If there is other business on the agenda, consideration of that matter may be postponed to a later time in the meeting without motion or vote. A meeting may not be adjourned for longer than whichever is the earlier of:  120 business days after the record date  60 business days after which the adjournment occurred Downloaded by Thomas Mboya () lOMoARcPSD| 2 Directors, Board Committees and the Company Secretary 2.1 Meaning of the word “director” and the different types of directors. Director: member of the board of a company and includes any person occupying the position of a director or alternate director. A person becomes a director only:  when that person has given his or her written consent to serve as director,  after having been appointed/elected/holding office in accordance with the provisions of section 66 of the CA Key functions of the BOD: (King Code)  Give strategic direction to company  Ensure that management implements board plans and strategies  Be responsible for the performance and affairs of the company  Retain full and effective control over the company 2.1.1 Types of directors according to the CA Type Characteristics Ex officio director  Person who holds a directorship due to that person holding another office/title/status  Not appointed by shareholders  All powers & functions of a normal director except to extent that MOI restricts such powers/functions.  Has all of the duties and is subject to the liabilities of any other director MOI- appointed director  Does not have to be appointed by shareholders  MOI can specify how/by whom such a director is appointed Alternate director  Person elected/appointed in substitution for particular appointed/elected director  May be appointed/elected depending on contents of MOI  Profit company: at least 50% of alternate directors must be elected by shareholders Elected director  Profit company: at least 50% of alternate directors must be elected by shareholders Temporary director  MOI can provide for appointment of a temporary director  Unless MOI provides otherwise, directors can appoint temporary director 2.2 Directors v. managers Director Manager Leadership  Provide leadership & direction at top of org.  Carry through strategy on behalf of directors Decision making  Determine future of organization  Protect org. reputation & assets  Consider how decisions relate to stakeholders & regulatory framework  Implementing decisions & policies made by board Duties & responsibilities  Long term prosperity of the company  Subject to fiduciary duties  Required by law to apply skill and care in exercising their duty to the company.  Breach of duties: personally liable  Can be held responsible for acts of the company  Fewer legal responsibilities  Cannot act contrary to interests of employer Relationship with shareholders  Accountable to shareholders for company’s performance  Can be removed from office by them.  No interaction  Normally appointed & dismissed by directors Ethics & values  Key role in determination of values & ethical position of company  Must enact company ethos: take direction from board Company Administration  Responsible for company’s administration  Duties can be delegated to managers; ultimate responsibility lies with directors Statutory provisions  Many provisions in CA under which directors may face penalties if they act/fail to act in a certain way.  No held responsible under CA Disqualification  Can be disqualified in terms of CA/MOI  Control over manager’s employment lies with BOD Downloaded by Thomas Mboya () lOMoARcPSD| 2.3 Number of directors and consent  Private or personal liability company: at least 1 director  Public and non-profit company: at least 3 directors Person will only become a director of a company if he/she delivered a written consent accepting the position. Section 66(11) provides: where company does not have prescribed minimum directors, does not negate or limit the authority of the board, nor invalidate anything done by the board or the company. Directors must be properly appointed (cf. S v Vanderberg and Others):no such thing as a de facto director exists. 2.4 Directors: the Act and a company’s Memorandum of Incorporation Provisions in CA regarding directors variable by MOI: CA MOI Number  Private/personal liability company: at least 1  Public and non-profit company: at least 3  Company does not have prescribed minimum: any act done by the board will remain valid  Can specify higher number  Cannot specify lower number  Cannot invalidate acts where company does not have prescribed minimum directors Appointment  Profit company: Shareholders are entitled to elect at least 50% of directors and 50% of any alternate directors  Profit company: cannot change minimum number of elected directors.  Can provide that any person has power to appoint/remove directors. Removal  Director may be removed by an ordinary resolution at a shareholders’ meeting  Cannot override shareholders’ will as expressed in an ordinary resolution Ex officio  MOI may provide for a person to be an ex officio director.  Can provide that a person will be regarded as an ex officio director Alternate  No requirement for an alternate director  Can provide for election/appointment of alternate director(s) Remuneration  No automatic right of remuneration  Company may pay remuneration, unless prohibited by MOI  Remuneration paid other than i.t.o. MOI must be approved by special resolution  Can provide for payment of remuneration to directors Term of office  Elected for indefinite/fixed term as provided for in MOI  Can provide for term of office of a director Ineligibility / disqualification  Can provide additional grounds of ineligibility / disqualification.  Cannot override provisions in CA Qualifications  Can prescribe minimum qualifications to be met by directors of company 2.5 Ineligible and disqualified persons  Ineligible person: person is absolutely prohibited from becoming a director without any exceptions.  Disqualified person: person may still be appointed as a director of a company with the permission of the court. Disqualifications thus not absolute: court has discretion on application to allow such persons to be directors. Exception: a person who has been prohibited from being a director by a court of law, Ineligible persons: 1. Juristic person 2. Unemancipated minor / person under similar legal disability 3. Person who does not satisfy any requirement in MOI Disqualified persons: 1. No discretion: a. Person prohibited by a court of law from becoming a director b. Person who has been declared to be delinquent by a court of law c. Person disqualified i.t.o. MOI Downloaded by Thomas Mboya () lOMoARcPSD| 2. Discretion allowed: (section which allows discretion): a. Unrehabilitated insolvent – s 69(11) b. Person prohibited i.t.o. any public regulation – s 69(11) c. Person removed from an office of trust because of dishonesty – s 69(11) / s 69(12) d. Person convicted & imprisoned without the option of a fine for theft, fraud, forgery, perjury or other offences listed in the Act – s 69(11) / s 69(12) 2.6 Director disqualifications: exemptions  Section 69(11): gives a court a discretion to exempt certain disqualified persons  Section 69(12): gives shareholders of certain private companies an opportunity to avoid this disqualification 2.6.1 Exemptions by a court See above list of disqualified persons for where discretion of court is allowed. Ex Parte Schreuder: Applicant committed fraud, contravened Insolvency Act and afterwards applied to become a director. Court decided that CA grants court discretion to decide whether or not to allow a person to act as director. Ex Parte Tayob: Applicants were convicted of bribery and a year later applied for permission to act as directors. Court decided too little time had elapsed to prove that applicants had been rehabilitated. Requirements for applying to court from exemption from disqualification:  Applicant must prove to court that he/she has been rehabilitated from his/her wrongful ways & can be trusted.  To determine whether applicant has proved honesty/trustworthiness, court considers: (Ex Parte Schreuder) Nature of offence Circumstances under which the offence was committed Applicant’s behaviour since commission of offence Whether applicant committed any other offences with an element of dishonesty To what extent entities that applicant is involved in trusts him/her Applicant’s business acumen and knowledge of companies Time period elapsed between conviction & date of application 2.6.2 Director disqualifications: exemptions for certain private companies Ex Parte Barron: Applicant was tried and convicted of fraud (ostrich leather/feather). Was previously director of several private companies in which only he & his wife were shareholders. Subsequently applied to court to allow him to be a director. Court held that factors which affect the discretion of the court are the following:  Type of offence  Whether or not it was a first conviction  Type of punishment imposed  Whether applicant wished to be a director of a private or a public company  Attitude of shareholders and whether all shareholders supported the application Court held that it could be more lenient in cases where a private company is affected. Section 69(12): Despite being disqualified, a person may act as a director of a private company if:  All the shares are held by the disqualified person; or  All the shares are held by the disqualified person and persons related to such person and each such person has consented in writing to that person being a director of the company. 2.7 Application to declare a person delinquent or under probation Court can order a person to be a “delinquent” or “under probation” on application from: 1. a company 2. a shareholder 3. a director 4. a company secretary or prescribed officer of a company 5. a registered trade union that represents employees of the company 6. any other representatives of the employees of a company 7. the Commission 8. the Takeover Regulation Panel Downloaded by Thomas Mboya () lOMoARcPSD| By: Grounds for application Order Effect 1 – 6 Person consented to serve as director while he/she was ineligible or disqualified Delinquency Declaration is unconditional Subsists for lifetime of person declared delinquent 1 – 6 Person acted as a director whilst under probation Delinquency Declaration is unconditional Subsists for lifetime of person declared delinquent 1 – 6 Person, whilst director, grossly abused the position of director Delinquency Declaration may be made subject to conditions court thinks is appropriate Subsists for 7 years or such longer period as determined by the court Court may additionally order that person  undertakes program of remedial education relevant to nature of person’s conduct as director  carries out community service  pays compensation to any person adversely affected by person’s conduct as director 1 – 6 Person took advantage of information or any opportunity contrary to s76(2)(a) Delinquency As above 1 – 6 Person intentionally or by gross negligence inflicted harm upon the company / subsidiary contrary to s76(2)(a) Delinquency As above 1 – 6 Person acted in a manner that amounted to gross negligence, willful misconduct or breach of trust. Delinquency As above 1 – 6 Person acted in a manner contemplated in s77(3)(a), (b) or (c) Delinquency As above Person, whilst director, was present at a meeting and failed to vote against a resolution despite the inability of the company to satisfy the solvency and liquidity test Probation Declaration may be made subject to conditions court thinks is appropriate Subsists for a period not exceeding 5 years Court may additionally order that person  undertakes program of remedial education relevant to nature of person’s conduct as director  carries out community service  pays compensation to any person adversely affected by person’s conduct as director  be supervised by a mentor in any future participation as a director  be limited to serving as a director of a private company of which that person is the sole shareholder 1 – 6 Person acted in a manner materially inconsistent with the duties of a director. Probation As above 1 – 6 Person acted in, or supported a decision of the company, to act in an oppressive or unfairly prejudicial manner. Probation As above 7 – 8 Any of the above grounds as well as: Person has repeatedly been subject to a compliance notice or similar enforcement mechanisms for substantially similar conduct Person has at least twice been convicted of an offence, or subjected to an administrative fine or similar penalty in terms of any legislation Person was director at multiple companies that were convicted of an offence or similar penalty within a period of 5 years. Delinquency Declaration may be made subject to conditions court thinks is appropriate Conditions can include limiting application of declaration to one/more categories of companies. Subsists for 7 years or such longer period as determined by the court 2.7.1 Application to court to suspend or set aside a delinquency order Application may only be made where declaration was not made unconditional and effective for the lifetime of person declared delinquent. Person may apply to:  3 years order of delinquency: suspend order of delinquency and have it replaced with an order of probation  2 years after suspension of order: have order set aside Court may not grant order unless applicant has satisfied all conditions attached to order. 2.8 First directors of a company At incorporation of new company:  every incorporator is deemed to be a director of such company until sufficient directors have been appointed to meet the required minimum number of directors Downloaded by Thomas Mboya () lOMoARcPSD|  if required minim directors is not met: board must call shareholders’ meeting within 40 business days after incorporation for purpose of electing sufficient directors to fill vacancies 2.9 Vacancies on the Board Rosebank Television & Appliance Co v Orbit Sales Corporation: A director’s resignation becomes effective the moment he/she communicates such to the company. Date on which resignation accepted by company = irrelevant. Vacancies can arise as follows:  Period for fixed term contract expires as provided for in MOI  Person: resigns dies becomes incapacitated to extent that person is unable to perform functions of director & is unlikely to regain that capacity within a reasonable time is declared a delinquent is placed under probation under conditions inconsistent with continuing to being a director becomes ineligible or disqualified ceases to hold office/title that entitled such person to be an ex officio director is removed from office by resolution of shareholders/board 2.10 Filling of vacancies If vacancy arises (other than as a result of an ex officio director ceasing to hold that office):  Must be filled by appointment; or  Company required to hold AGM? Yes: at next AGM No: at shareholders’ meeting within 6 months after vacancy arose  If no remaining directors resident in SA: shareholder may convene meeting  Company must file notice within 10 days after person becomes/ceases to be director of company. 2.11 Removal of directors 2.11.1 Removal by shareholders  Director may be removed by an ordinary resolution adopted at a shareholders’ meeting This is so, no matter what the terms of any agreement may provide  Notice of meeting & resolution must be given to director prior to consideration of resolution Notice period: equivalent to that which shareholder entitled to receive when convening a meeting  Director must be given reasonable opportunity to make representation before resolution is put to vote 2.11.2 Removal by BOD Grounds upon which a director may be removed by the BOD:  Company has more than 2 directors & it is alleged by a shareholder/director that director has become ineligible/disqualified  Director becomes incapacitated to extent that he/she is unable to perform functions of director & is unlikely to regain that capacity within a reasonable time  Director is no longer resident in SA & there are no other directors resident in SA  Director has neglected / been derelict in performance of functions of director or the board After resolution has been taken: director may within 20 business days apply to a court to review decision. 2.11.2.1 Removal & breach of contract De Villiers v Jacobsdal Saltworks: Plaintiff claimed damages from company on basis that i.t.o. original articles of association he had been appointed director for life. Articles were subsequently amended – he became subject to election. After termination: alleged company breached contract with him. Employment contract of director was, however, subject to terms & condition in articles of association. Plaintiff could thus not found a claim on mere alteration of articles. Thus: person who seeks compensation must be able to show that a contract did in fact exist & was breached when such person is removed as director.  Removal i.t.o. CA could constitute breach of contract. Downloaded by Thomas Mboya () lOMoARcPSD|  Director will retain right to institute any claim he/she has i.t.o. the common law for damages/compensation for loss of office/loss of any other office as consequence of being removed as director. 2.12 Board committees  BOD may, unless MOI provides otherwise, appoint committees & delegate authority of BOD to such committee  BOD/director will still remain liable for proper performance of a director’s duty despite delegation to committee  Committee may include persons who are not directors of the company, provided person is not ineligible/disqualified from being a director  S72(4) entitles Min. of Trade & Industry to prescribe that company/class of company must have a social & ethics committee if it is desirable in the public interest  King Code: Board has duty to evaluate board committees regularly to ascertain performance & effectiveness. Public listed company should have at least: 1. audit committee mend appointment of external auditors principles for recommending using accounting firm of external auditors for non-audit services der whether/not interim report should be subject to review by external auditor nal audit should report at all audit committee meetings ntment/dismissal of head of internal audit should be with concurrence of audit committee f. if internal & external audit is done by same firm: committee should ensure adequate segregation between 2 functions & that independence is not impaired d approve internal audit work plan 2. remuneration committee recommendations to BOD on i. remuneration packages for each executive director ii. fees to be paid to each non-executive director ate performance of individuals in contributing to success of company and achievement of results 3. nomination committee (recommendation) a.Assist BOD in formal & transparent procedures in i. board appointments ii. company secretary b.Review & evaluate: i. BOD’s mix of skills & experience ii. other qualities of board, i.e. demographics & diversity iii. all committees & contribution of each director 2.13 Board meetings  Board meetings may be called by directors so authorised.  Directors’ meeting must be called: If required to do so by number/percentage of directors specified in company’s MOI If required to do so b y at least 25% of directors, where board has at least 12 members If required to do so where board has less than 12 members & meeting is requested by at least 2 directors  Notice must be given to all directors of board meetings Form of notice & period is determined by BOD  Majority of the directors of the board must be present at a meeting before a vote may be called  Every director has one vote per meeting Majority of votes cast on a resolution is sufficient to approve the resolution Chairman has deciding vote in the event of a tie.  Minutes of all decisions & any resolutions taken by board at a meeting must be kept  Decisions that could be voted on at a meeting may instead be adopted by written consent of majority of directors, provided all directors received notice of matter to be decided Downloaded by Thomas Mboya () lOMoARcPSD| 2.14 The mandatory appointment of a company secretary Panorama Developments (Guilford) Ltd. A company secretary has ostensible authority to conclude contracts that concern the day to day running of the business. Thus companies are bound by contracts concluded by the secretary.  Must be a permanent resident of SA & remain so while serving in that capacity  Appointment: Public company/state owned:  obliged to appoint company secretary who is knowledgeable/experienced in the relevant laws  first company secretary may be appointed by: incorporators of the company; or within 40 business days after incorporation of company: directors/ordinary resolution Other companies: not obliged to have company secretary but may appoint one.  Vacancy: Within 60 business days after vacancy arises: board must fill vacancy by appointing person whom directors consider to have requisite knowledge & experience  Possible for body corporate/partnership to be appointed to hold the office as company secretary, provided: at least 1 employee of that juristic person/partnership is not disqualified from being secretary  Disqualification: Court prohibited that person to be a director/declared person to be a delinquent Person has been removed from an office of trust on grounds of misconduct involving dishonesty Convicted & imprisoned without option of a fine for theft/fraud/forgery/perjury in connection with promotion/formation/management of a company  Duties: providing directors collectively &individually with guidance as to their duties, responsibilities and powers; making directors aware of any law relevant to/affecting the company; reporting to board any failure on part of company/director to comply with MOI/rules of the company/CA; ensuring that minutes of shareholders meetings, board meetings and the meetings of any committees of the directors, or of the company’s audit committee, are properly recorded; certifying in company’s annual financial statements whether company has filed required returns and notices & whether all such returns and notices appear to be true, correct and up to date; ensuring that a copy of company’s annual financial statements is sent to every person entitled to it carrying out the functions of a person designated in terms of section 33(3).  Removal/resignation: BOD can take a resolution to remove a company secretary may resign from office by giving 1 month’s notice/less than 1 month’s notice with approval of the board 2.15 Registration of secretaries and auditors  Every company that appoints/terminates a company secretary/auditor must file notice of the appointment / termination with the Registrar within 10 business days after appointment/termination  Incorporators of company can file a notice of the appointment of the company’s first company secretary as part of the company’s Notice of Incorporation  Company is required to maintain a record of its secretaries/auditors. Record must include: Name (including former name) Date of appointment  Where firm/juristic person is appointed, record must include: Name, registration number & registered office address of firm/juristic person Name of any individual contemplated in s90(3) if applicable Any changes in the above information as they occur with the date & nature of such change. Downloaded by Thomas Mboya () lOMoARcPSD| 3 Duties of Directors 3.1 Duties of Directors  Common law position: directors have a fiduciary relationship with the company.  CyberScene Ltd and Others v i-Kiosk Internet and Information (Pty) Ltd: even non-executive directors have a fiduciary relationship with the company.  Common law: Not excluded by CA: continues to apply except insofar as specifically amended by CA or is in conflict with a provision of the CA Directors are subject to fiduciary duties to act in good faith & in best interests of company Directors must exercise their powers with care and skill. Fiduciary duties entail:  avoiding conflict of interests between director’s personal interests and interests of the company;  not exceeding the limitations of their power;  maintaining an unfettered discretion; and  exercising their powers for the purpose for which they were conferred  Companies Act 2008: Partially codified regime of directors’ duties: I.t.o. codified duties: Director is extended to include:  Alternate director  Prescribed officer  Member of a committee of a board of the company/of the audit committee of a company, regardless whether/not person is also a member of the company’s board. Duties:  Disclose to the board any personal financial interest in matters of the company  Not to use position of director/ information obtained as director, to gain an advantage for himself or another person, or to knowingly cause harm to the company or a subsidiary  Disclose to BOD any material information that comes to a director’s attention  Act in good faith and for a proper purpose  Act in the best interests of the company  Act with a reasonable degree of care, skill and diligence 3.2 Directors must not abuse position/information & must act in a certain way when there is a personal financial interest Regal (Hastings) Ltd v Gulliver: (Cinema case) Directors, acting in good faith, made a profit by putting up their own money when the company could not. After business was sold, new owners instituted action against directors for recovery of profits made by them in breach of their fiduciary duty to the company to avoid putting themselves in a position where duty to company conflicted with their own interests. Court held: liability to account for profits made during the course of directorship does not depend on fraud/absence of bona fides, but from the mere fact that a profit had been made by the director in his capacity as director and while performing his duties as director. Robinson v Randfontein Estates Gold Mining Co Ltd: Director purchased property for himself when it was his duty to buy it for the company and afterwards sold it to the company for a profit. Held: company was entitled to the profit made from the transaction. Action arose because director had breached his fiduciary duty to company. 3.2.1 General  Failure to comply with the disclosure requirements in section 75: Any interested person has the right to make an application to the court for an order declaring that the transaction or agreement that had been approved by the board or by the shareholders, is valid.  Director may make (written) advance general disclosure of personal financial interests to the shareholders/board explaining nature & extent of the interest. Notice will continue to be valid until such time that it is changed or withdrawn by the same director. Downloaded by Thomas Mboya () lOMoARcPSD|  Validity of a decision of the board/ an agreement approved by the board is not affected by the personal interest of a director/related person, provided: there is approval/ratification by ordinary resolution of the shareholders.  S76(2): director should avoid knowingly causing harm to the company or to its subsidiary.  S76(2)(a): prohibits abuse of position by director. protects information that director has access to while acting as a director: director is prohibited from making use of information obtained by virtue of his office, for his own personal gain or for another person’s benefit. 3.2.2 Directors’ financial interests conflict with those of the company 2 Scenarios: 1. Director is the only director; not the only shareholder a. must disclose any personal interest in an agreement/other matter of the company to the shareholders and obtain prior approval by ordinary resolution before he enters into agreement 2. All other cases: a. disclosure must be made to BOD of any personal financial interest of the director in a matter to be considered at a board meeting and may not be present/take part in the discussion. 3.2.3 Director/related person has financial interest in matter to be discussed at meeting of BOD  Director must: Disclose interest and its general nature before matter is considered at meeting Disclose material information relating to the matter that he is aware of If required to do so by other directors: disclose any observation/pertinent insights relating to matter  Once director made disclosures, director must: leave the meeting be excluded from participating in the consideration of that particular matter.  Director is prohibited from executing any document on behalf of the company in relation to the matter unless specifically requested or directed to do so by the BOD 3.2.4 Director/related person acquires financial interest in agreement/other matter in which company has interest, after approval by company of agreement has been made  Director must disclose: Nature and extent of that interest Material circumstances relating to the director/related person’s acquisition of that interest Disclosure must be done promptly to the BOD or to the shareholders 3.2.5 Circumstances where disclosure of personal financial interests do not apply  Not applicable to a director of a company w.r.t. a decision that may have an effect on all of the directors of the company in their capacity as directors, or a class of persons, despite the fact that the director is one of the members of the class of persons, unless the only members of the class are the director or persons related or interrelated to the director.  Not applicable to a director of a company w.r.t. a proposal to remove that director from office  Not applicable to a company/its director, if one person holds all of the beneficial interests of all of the issued securities of the company and is the only director of that company.  Director does not need to disclose if he/she reasonably believes that the information is: Immaterial to the company Generally available to the public Known to the other directors  Also does not need to disclose where a legal or ethical obligation of confidentiality prevents him/her from disclosing the information 3.3 Acting in good faith and with a certain degree of care, skill and diligence Fisheries Development Corporation of SA Ltd v Jorgensen; Fisheries Development Corporation of SA Ltd v AWJ Investments (Pty) Ltd: “the extent of the director’s duty of care and skill depends to a considerable degree on the nature Downloaded by Thomas Mboya () lOMoARcPSD| of the company’s business and on any particular obligations assumed by or assigned to him”. Also held: Law does not require of a director to have special business acumen and directors may assume officials will perform duties honestly. Directors should use their powers for the real or true purpose for which these powers were given. Test used to determine what a reasonable director would have done in same circumstances: both an objective and a subjective test: takes into account issues such as the general knowledge, skill and experience of particular director. 3.3.1 Business judgment rule (s 76(4)) Director will be judged to have acted in best interests of company & with required degree of care, skill & diligence if: 1. he/she took reasonable steps to become informed about the matter; 2. he/she had no material personal financial interest in the subject matter of the decision or knew of anybody else having a financial interest in the matter, or disclosed his interests; and 3. he/she made, or supported a decision in the belief that it was in the best interests of the company. Director will also escape liability if he/she: 1. had rational basis for believing and actually believed that the decision was in the best interest of the company 2. disclosed the conflict of interest as required by the CA Director is entitled to rely on: 1. one/more employees whom director reasonably believes to be reliable & competent in the functions performed 2. information/opinions/reports/statements provided by legal counsel/accountants/other professional persons retained by the company 3. board/committee as to matters involving skills/expertise that director reasonably believes are matters within that person’s professional or expert competence. 3.4 Liability of directors and prescribed officers Director may be held liable for loss or damages suffered, or costs incurred by the company as follows:  I.t.o. principles of the common law/provisions of the law of delict relating to breach of fiduciary duties  Acted without authority, whilst knowing that he lacked the necessary authority.  Took part in an act or omission whilst knowing that was it intended to defraud another  Signed/agreed to/provided authority for the publication of false or misleading financial statements  Signed/agreed to/authorised publication of a prospectus/a written statement containing an untrue statement or a statement stating that consent had been given by a person to be a director of the company, when such consent had not been given, despite knowing that the statement was false, misleading or untrue.  Took part in a meeting or in the making of a decision where formalities prescribed by CA were not complied with  Knew shares were not authorised: failed to vote against the issuing of unauthorised shares  Knew securities did not comply with provisions of CA: took part in the issuing of unauthorised securities.  Took part in the granting of options to any person, whilst knowing that the share for which the options could be exercised or into which securities could be converted had not been authorised.  Took part in making a decision granting financial assistance to any person for the acquisition of securities of the company whilst knowing that the provision was in contravention of s. 44 of the Act or MOI  Provided with financial assistance/a loan in contravention of s. 45 of the Act or MOI  Took part in resolution approving a distribution, knowing that distribution was contrary to provisions of s. 46  Acquisition by the company of any of its shares/shares of its holding company, in contravention of s.46 or s. 48.  Allotment of shares contrary to any provision of Chapter 4 of the Act. 3.4.1 Business judgement rule Rule: Director should not be held liable for decisions that lead to undesirable results, where such decisions were made in good faith, with care and on an informed basis, which the director believed was in the best interest of the company. Director can thus be excused from liability where a decision was taken in line with above statement. 3.5 Indemnification and directors’ insurance Indemnification and directors’ liability as provided for in s. 78 includes current and former directors of companies A company may not:  undertake not to hold a director liable for breach of fiduciary duties. Downloaded by Thomas Mboya () lOMoARcPSD|  directly/indirectly pay a fine imposed on the director of the company who has been convicted of an offence A company may:  take out indemnity insurance to protect a director/itself against any liability/expenses for which the company is permitted to indemnify the director. A company may not indemnify a director in respect of liability arising out of any of the following circumstances:  director acted in the name company/signed anything on behalf company/purported to bind company or authorise taking of any action on behalf of company, while knowing he/she lacked authority to do so  acquiesced in the carrying on of company business in insolvent circumstances while knowing that it was being so conducted  party to an act/omission by company despite knowing act/omission was calculated to defraud a creditor/employee/shareholder of the company, or had another fraudulent purpose  company’s loss/liability arose from willful misconduct/willful breach of trust on the part of the director  where director is liable to a fine for an offence in contravention of any national legislation S78(8) allows company to claim restitution for any money paid to director in contravention of above restrictions.