LML4806 MEMO 2021

LML4806 MEMO 2021 . LML4806 - Company Law 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) (Your answer must not exceed a half page) 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) (Your answer must not exceed two pages) 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.