SUMMARY LML4806 EXAM PACK AND NOTES 2024/2025. QUSTIONS WITH CORRECT AND VERIFIED ANSWERS WITH RATIONALE. GUARANTEED DISTINCTION (A+). LATEST 2024 UPDATE.

QUESTION 1 1.1 Discuss the meaning of the term “ubuntu”. Ubuntu is an African indigenous philosophy that is the measure of human behaviour. It is the ideal to live life selflessly and to make sacrifices for others who, in turn, will live selflessly. It places the well-being of the individual in all transactions. It is similar to the audi alteram partem rule, which means that both sides of the story must be heard. Ubuntu is attributed to communal living, a shared sense of belonging, group solidarity, reciprocity and collective ownership of assets. With regards to business, ubuntu embodies the following elements: • the ability to show compassion, • social justice and fairness, • harmony and humanity, • recognising the interconnectedness of people and the accompanying responsibilities, • integrity and ethical behaviour , • open channels of communication and transparency, and •due process and sensitivity in dealings with one another. Constitutionally, the philosophy of ubuntu harmonises the indigenous value system with the common law. It was given explicit application by the court in S v Makwanyane 1995 (6) BCLR 665 (CC) when it advocated social justice and fairness. 1.2 Discuss the common-law Turquand rule and the formulation of this rule under the Companies Act 71 of 2008. The Turquand rule is derived from Royal British Bank v Turquand (1856) and was formulated to provide and outsider with a duty to inquire into the affairs of the company within reasonable grounds. It provides that an outsider contracting with the company in good faith is entitled to assume that all internal procedures and requirements have been complied with. The company will be bound even where internal requirements and procedures have not been complied with, except in circumstances where the outsider was aware of the non-compliance of the internal requirements and procedures, or where the contract being concluded was suspicious. In Wolpert v Uitzigt Properties (Pty) Ltd 1961 (2) SA 257 (W), the court stated that an outsider may not assume that the director with whom he or she is contracting with is the particular director who has been given such authority. The Turquand rule only operates under the requirement of internal formalities. The decision in Tuckers Land Development Corporation (Pty) Ltd v Perpellief 1978 (2) SA 11 (T) found that outsiders may not automatically assume that the individual who purported to act on behalf of the company had the necessary authority to do so, and the company may be able to escape liability on the grounds that the person acting on its behalf had no authority. The Turquand rule has been codified in section 20(7) and section 20(8) of the Companies Act 71 of 2008. Section 20(7) and Section 20(8) of the Act read as follows: 20(7) A person dealing with a company in good faith, other than a director, prescribed officer or shareholder of the company, is entitled to presume that the company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural requirements in terms of this Act, its Memorandum of Incorporation (MOI) and any rules of the company unless, in the circumstances, the person knew or reasonably ought to have known of any failure by the company to comply with any such requirement. 20(8) Subsection (7) must be construed concurrently with, and not in substitution for, any relevant common law principle relating to the presumed validity of the actions of a company in the exercise of its powers. Section 20(7) of the Act contains provisions that resemble the Turquand rule. Section 20(7) does not replace the Turquand rule as provided by section 20(8) which provides that subsection 7 must be interpreted concurrently with, and not in substitution for any relevant common-law principle that relates to the validity of the actions of a company. The decision in One Stop Financial Services (Pty) Ltd v Neffensaan Ontwikkelings (Pty Ltd and Another (20028/14) [2015] ZAWHC 89 clarified the application of sections 20(7) and 20(8) of the Act, in light of the abolishment of the Doctrine of Constructive Notice which provided that third parties dealing with the company are deemed to be fully aware and familiar with the contents of the public documents of the company. This had detrimental consequences for third parties faced with the company that had acted ultra vires. This doctrine was abolished by section 19(4) of the Act. As such, third parties contracting with the company will no longer be deemed to have had the knowledge of the company’s public documents. However, section 19(5) provides two exceptions: • A person is deemed to have knowledge of any provision of the company’s MOI if the name of the company includes the ending “RF” and the company’s Notice of Incorporation contains a prominent statement drawing attention to such provision as required by section 13(3), and • An exception applies to a personal liability company - 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. 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. A group of companies is made up of a holding company and its subsidiary companies, where one company controls one or more other companies. Section 3(1) of the Act provides that 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. Or, according to section 3(1)(b), a subsidiary could be a wholly-owned subsidiary of another juristic person if all the general voting rights associated with issued securities of the company are controlled or held, either alone or on combination by the holding company, or one or more of its subsidiaries, or one or more nominees of the holding company or any of its subsidiaries. 1.4 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. Sections 69(7) and 69(8) of the Companies Act provide for the ineligibility and disqualification of persons to be appointed as directors of ac company. According to subsection 7, a person is ineligible if the person is: a) is a juristic person; b) is an unemancipated minor, or is under a similar legal disability; or c) does not satisfy any qualification set out in the company’s Memorandum of Incorporation. In terms of subsection 7, Mrs Kilian may be eligible to be appointed as a director. According to subsection 8(b), a person is disqualified to be a director of a company if the person: i. is an unrehabilitated insolvent; ii. is prohibited in terms of any public regulation to be a director of the company; iii. has been removed from an office of trust, on the grounds of misconduct involving dishonesty; or iv. has been convicted, in the Republic or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence- a) involving fraud, misrepresentation or dishonesty; b) in connection with the promotion, formation or management of a company, or in connection with any act contemplated in subsection (2) or (5); or c) under this Act, the Insolvency Act, 1936 (Act No. 24 of 1936), the Close Corporations Act, 1984, the Competition Act, the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001), the Securities Services Act, 2004 (Act No. 36 of 2004), or Chapter 2 of the Prevention and Combating of Corruption Activities Act, 2004 (Act No. 12 of 2004). In terms of subsection 8(b)(iv), Mrs Kilian is disqualified from being appointed as a director in respect of her conviction and imprisonment without the option of a fine for fraud, forgery and bribery. With the exception of a person prohibited from being a director by a court of law, a disqualified person may still be appointed as a director of a company with the permission of the court. Thus, the disqualification is not absolute as the court has the discretion, on application, to allow such disqualified persons to be appointed as directors. Section 69(11) of the Act states that the following persons may apply for such exemption: • An un-rehabilitated insolvent, • A person who was removed from an office of trust for dishonest misconduct, or •A person who was convicted of a crime with an element of dishonesty Mrs Kilian, being a disqualified person, may make an ex parte application to the court for permission to act as a director. She will have to prove that she is rehabilitated from her wrongful ways and can be trusted with the responsibility of a directorship. Regarding ex parte applications, the court found in Ex Parte Tayob and Another 1990 (3) SA 715 (T) that bribery and corruption is a serious threat to an open and honest community, and that insufficient time had passed between the date of conviction and the date of application. In addition, Ex Parte Barron 1977 (3) SA 1099 (C) provides factors that affect the discretion of the court. These are: • The type of offence, • Whether or not it was a first conviction, • The type of punishment imposed, • Whether it was a public company or whether it was a private company, and • The attitude of shareholders, whether the shareholders supported the application. Unless the court directs otherwise, disqualification on the ground of a criminal conviction will last a period of 5 years. QUESTION 2 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. TN Engineering Group must appoint a company secretary. Every company secretary must be a permanent resident of the Republic and remain so while serving as company secretary. They must also have the required knowledge and experience in the applicable and relevant laws. Section 87 of the Companies Act provides that a juristic person or partnership may be appointed company secretary provided that: a) every employee of that juristic person who provides company secretary services, or partner and employee of that partnership, as the case may be, satisfies the requirements contemplated in section 84(5); and b) at least one employee of that juristic person, or one partner or employee of that partnership, as the case may be, satisfies the requirements contemplated in section 86. Should RLV Corporate Services meet the above criteria, it may validly be appointed as company secretary. Being the first company secretary, they may be appointed by: • The incorporators of the company, or • Within 40 business days after incorporation of the company, by either the directors of the company or ordinary resolution of the company’s shareholders. 2.2 With reference to the Companies Act 71 of 2008, identify the statutory duties of a company secretary. Section 88 of the Companies Act describes the duties of a company secretary. A company’s secretary is responsible to the company’s Board and duties include, but are not limited to: • providing the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers; • making the directors aware of any law relevant to or affecting the company; • reporting to the company’s board any failure on the part of the company or a director to comply with the Memorandum of Incorporation or rules of the company or this Act; • ensuring that minutes of all shareholders meetings, board meetings and the meetings of any committees of the directors, or of the company’s audit committee, are properly recorded in accordance with this Act; • certifying in the company’s annual financial statements whether the company has filed required returns and notices in terms of this Act, and whether all such returns and notices appear to be true, correct and up to date; • ensuring that a copy of the company’s annual financial statements is sent, in accordance with this Act, to every person who is entitled to it; and • carrying out the functions of a person designated in terms of section 33(3), that is, responsibility for the company’s compliance. QUESTION 3 3.1 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. Section 48(2)(a) allows the board of a company to acquire its own shares if that decision satisfies the requirements of section 46 which regulates distributions. Distributions can be regarded as: a) any direct or indirect transfer of money or property, other than its own shares, by the company to or for the benefit of its shareholders or those of another company within the same group of companies. This can take the form of: • payment of dividends; • payment for the purchase of a capitalisation share; • consideration for the acquisition of its own shares or those of another company in the group; • any other transfer of money or property in respect of any of the shares of that company or another company within the same group; b) incurrence of debt for the benefit of one or more shareholders of the company;or c) the forgiveness or waiver of a debt owed to the company by one or more of theshareholders of the company. A distribution may be made in the following circumstances: • Unless made in terms of an existing legal obligation of the company or court order, the board of directors must authorise the distribution; • It must reasonably appear that the company will able to satisfy the solvency and liquidity tests under section 4 of the Act immediately after the distribution has been made; • The board must acknowledge by way of a resolution that it has applied the solvency and liquidity tests and reasonably concluded that the company will satisfy the tests immediately after completion of the proposed distribution. The solvency and liquidity test must be applied when a company wishes to acquire its own shares as provided for in section 48. In terms of section 4, a company will satisfy the solvency and liquidity test considering all the reasonably foreseeable financial circumstances of the company at that time: • The assets of the company, fairly valued, must equal or exceed the liabilities of the company as fairly valued; and • It must appear that the company will pay its debts as they become due in the ordinary course of business for a period of 12 months after the date on which the test is considered or in the case of distribution 12 months following that distribution. The acquisition of its shares are subject to the following requirements: • There must be shares left over other than convertible or redeemable shares; • There must also be shares in issue that are held by shareholders other than the company’s subsidiaries; • Shares acquired by the company itself must be cancelled and will revert to being authorised but not issued. The agreement for the acquisition of shares is enforceable provided the statutory requirements are met. However, should a company be unable to fulfil its obligations terms of the agreement as a result of sections 48(2) or (3), section 48(5) provides: • The company must apply for a court order to suspend the repurchase of shares, and bears the burden of proof that fulfilment of its obligations will breach the requirements of sections 48(2) and (3); • If the court is satisfied that company is prevented from fulfilling its obligations, the court may order that it is just and equitable in view of the financial circumstances of the company, and may ensure that the person to whom the company is required to make payment is paid at the earliest possible date, bearing in mind the company’s financial obligations. If the repurchase was in contravention of the solvency and liquidity tests, the company can apply for a court order to have the repurchase reversed. The person from whom the shares were bought will then be required to return the consideration received and the company will have to issue shares to that person, in return. Furthermore, if a director present at the meeting when the acquisition of shares in terms of section 48 was approved failed to vote against it despite having knowledge that the acquisition was contrary to section 46 or 48 of the Act, he or she will be liable for any loss, damage or costs sustained by the company as a direct or indirect result of the approval. 3.2.1 Explain the meaning of the term “financially distressed” in the context of business rescue proceedings. Section 128(f) of the Companies Act defines financially distressed in reference to a particular company as: • It is reasonably unlikely that the company will be able to pay all its debts as they become due and payable within the immediately ensuing 6 months; or • It is reasonable likely that the company will become insolvent within the immediately ensuing 6 months. 3.2.2 Advise Solomon whether he is entitled to be paid his salary for the previous month, before the business rescue proceedings commenced. Section 136(1)(a) of the Companies Act provides that any employee of the company, immediately before the beginning of the business rescue proceedings, continues to be employed on the same terms and conditions, unless changes occur in the ordinary course of attrition, or otherwise agreed upon in terms of applicable labour laws. Section 144(2) of the Act provides that any remuneration due and payable, and had not been paid to that employee, by a company to an employee at any time before the beginning of the company’s business rescue proceedings, such employee is a preferred unsecured creditor of the company. Therefore, according to the provisions of the Act, Solomon is entitled to his salary for the month preceding the commencement of business rescue proceedings. 3.2.3 Advise Solomon whether the terms and conditions of his employment may change now that the company is in business rescue. Section 136(2A)(a) regulates that a business rescue practitioner may not suspend any provision of an employment contract, and subsection (2A)(b) states that a court may not cancel any provision of an employment contract, except as contemplated in subsection (1) which deals with attrition, agreements in terms of labour laws, and retrenchments. Should any provision in Solomon’s contract be suspended or cancelled, he may assert a claim for only damages against the company. A claim for remuneration that becomes due to an employee during business rescue proceedings enjoys preference above all other creditor’s claims. Only the business rescue practitioner’s claims for expenses, remunerations, and other costs will rank higher than the claims of employees. QUESTION 4 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. Section 155 of the Companies Act provides for a tool that can be used to amend or settle claims of creditors against the company, that is, propose an arrangement of its financial obligations to all its creditors, as a group. This usually takes the form of making an offer to the creditor for a percentage of their full claim against the company which is incentivised by immediate payment subject to the approval of the compromise. In terms of section 155(1) of the Act, a company need not be in financial distress to effect a compromise with its creditors, unless it is engaged in business rescue proceedings in terms of Chapter 6 of the Act. Financial difficulty is not a requirement for the company to utilise the compromise procedure. A creditor may also make use of the compromise procedure even when the company is in financial distress, provided the company has not been placed in business rescue. 4.2 Who may propose a compromise? Section 155(2) states that the board of a company, or the liquidator of such a company if it is being wound up, may propose an arrangement or a compromise to all of its creditors. A compromise may be proposed by the company, creditor, member, the provisional or final liquidator if the company was being wound up, or the provisional or final judicial manager if the company was under judicial management. 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. In terms of section 155(2) of the Act, a compromise must be made by delivering a copy of the proposal and notice of a meeting to consider the proposal to the 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 be reasonable obtained by, the company. The proposal must contain all information reasonably required to facilitate creditors in deciding whether or not to accept or reject the proposal. Section 155(6) of the Act states that the proposal will have been adopted by the creditors of the company, or members of the relevant class of creditors, if it is supported by the majority representing at least 75 percent in value of the creditors or class present at the meeting and voting either in person or by proxy. 4.4 Discuss the role of the court in a compromise procedure and the effect of the approval of a compromise by a court. Upon adoption of the proposal, according to section 155(7) of the Companies Act, the company may apply to the court for an order approving the proposal, and thus, the court may sanction the compromise as set out in the adopted proposal if it considers it just and equitable to do so, and having regard to: • The number of creditors of any affected class of creditors who were present or represented at the meeting, and who voted in favour of the proposal; and • In the case of a compromise in respect of a company being wound up, the report of the Master required in terms of the laws contemplated in item 9 of Schedule 5. A copy of the order of the court must be filed by the company within 5 business days and must be attached to each copy of the company’s Memorandum of Incorporation that is kept at the company’s registered office or elsewhere. The court order is final and has the effect of being binding on all the company’s creditors or all members of the relevant class of creditors as of the date on which it is filed. Such compromise does not affect the liability of any person who is a surety of the company. 4.5 Discuss whether, in your view, a compromise would be an appropriate option for Snazzy Boutique (Pty) Ltd to pursue. Due to its financial difficulties, a compromise would seem to be an appropriate arrangement for Snazzy Boutique as it will allow the company to make an offer to its creditors for a percentage rather than full settlement of the creditor’s claims. UNIVERSITY EXAMINATIONS May/June 2020 LML4806 Company Law 80 Marks Duration 24 Hours This paper consists of 8 (eight) pages. Instructions: PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE ANSWERING THE EXAMINATION QUESTIONS. 1. The examination paper counts 80 marks. 2. It consists out of four questions. Answer ALL of the questions. 3. Number the answers to each question clearly. 4. The duration of the examination is 24 hourts. Your portfolio must be submitted via myUnisa on Saturday, 13 June 2020 on or before 11h30 (Central African Time). 5. This is an open-book examination. You may consult your prescribed study material during the examination. 6. Your answer to this portfolio examination must be submitted online on myUnisa. 7. The steps to upload your answer to the portfolio examination are as follows: 7.1 On the landing page for myUnisa, before login, go back to the link where you downloaded your examination paper: Login and download my Exam Question Paper for May/June 2020. 7.2 Login using your student number and myUnisa password. 7.3 On the next screen, find the module code for which you want to submit a portfolio answer file. Click on the link to “submit answer file”. This link will only display if the examination session is still open for submissions. 7.4 A new screen will open that will guide you through the steps to upload your answer file. Step 1: Load assessment file from your device to myUnisa • Click on the Browse button next to File Name • In the Choose File dialog box, select the file you want to upload, and then click OK • Select the correct programme format from the File Format drop-down list. Most modules only allow PDF formatted files to be uploaded. • Read the Honesty Declaration statement, then click the check box to acknowledge that you have the statement. • If you agree with the Honesty Declaration statement, type I AGREE in the text box. You cannot continue with the submission process if you do not complete the requirements of the declaration. • Click on the Continue button. Step 2: Verify the file details for final submission of your answer file Use this step to verify that you are uploading the correct portfolio answer file to the correct course and assessment number. • Click on the Continue button to submit your answer file. If you do not click Continue, no submission action will take place. • Large files will take longer to upload than smaller files. Please be patient after you’ve clicked Continue. • If the wrong details, e.g. file name, appear on the screen, click Back to restart the file upload process. Step 3: Assessment submission report This is your proof that your portfolio answer file was submitted. It is advisable to print this page or make a screen capture for record purposes. A copy of this page will also be emailed to your myLife email account. 8. Alternative Submission Process 8.1 Login to myUnisa using your student number and myUnisa password 8.2 Click on the “myAdmin” tab in the top navigation 8.3 In the “Assessments” submenu, click on the “Assessment Info” tool in the dropdown list • A list of all available assessments will display • Locate the section for May/June Online Exams at the bottom of the list • Find the corresponding module code • Click on the Open in New Window link and follow the steps as described above. 9. The cover page to your portfolio must include your name, student number and the module code. 10. Make sure that you ‘save’ the confirmation that your portfolio has been successfully submitted. 11. It is preferred that your answers should be typed, but handwritten submissions will also be accepted. 12. Whether your answers are typed or handwritten, your submission on myUnisa must be made in the form of one PDF document. 13. If your answers are typed it must be: a. In Arial font, size 12 with single line spacing within the paragraph, and double line spacing after the paragraph. b. The text must be justified. c. All of the pages must be numbered in the bottom right hand corner of the page. d. All margins must be 2.5cm, but the left margin must be 3cm. e. The text should be typed using South African English and not American English. For example, the correct spelling is “Labour” and not “Labor”. 14. Do not use abbreviations or SMS language. 15. All quotes that are two lines long (or less), must form part of the main text, be written in italics, and be bracketed by quotation marks. Where a quotation is longer than two lines, it must be typed in a separate paragraph in italics in size 11 font and must be indented by 1 cm. No quotation marks are required when the quotations stand alone. Use quotations very sparingly. In this portfolio, a maximum of 5% of the text may be quoted. 16. The cover page to your portfolio must include your name, student number and the module code. 17. Please read, complete and sign the attached academic integrity declaration form, and include it in your portfolio. Your portfolio will not be marked if you fail to include a signed copy of this form with your portfolio. 18. When answering the portfolio questions, remember that an open-book exam is a test at a higher level than the usual type of exam, where memory is tested as much as insight. In an open-book exam, you need not memorise any information. You are expected to prove that you can use information, rather than merely repeat it. In brief, what is being tested is factual knowledge, understanding and the correct application thereof, not memory skills. For this reason, you do not earn marks by merely detailing a list of all the information that you think might be relevant to a particular question. This gives no indication that you know what statutory or other provisions are applicable in a specific context. You are expected to identify precisely what information applies, and then explain why you think so. Also, because you have the guide available when answering questions, we do not give marks for direct quotations from the guide. You are therefore assessed on your level of understanding of the legal principles by looking at how well you applied the principles to the questions. PLEASE DO NOT CUT AND PASTE ANSWERS FROM THE STUDY GUIDE (OR ANY OTHER SOURCE). 19. The arguments that you make must be logical, well-structured and substantiated by all of the relevant legal principles. You are given 24 hours (not 2 hours) to complete the portfolio. Use the time given wisely. 20. Ensure that you give reasons for each answer. Substantiate your answers by referring to ALL of the relevant authorities, e.g. sections from relevant legislation and/or court cases in the text or in your footnotes. 21. You are required to have read and summarised the prescribed cases yourself. The summaries in the Study Guide are not sufficient for this exam. When using case law to support your answer, please include complete references to the relevant cases in your footnotes. This means that you must not only include the name of the case but the exact page and section and/or paragraph where the information can be found. The same applies to articles and books used. 22. A number of students lose marks because they do not approach problem-type questions correctly. When answering such questions, it is important to first clarify for yourself the area of work where the answer must be sought. Once you have done this, set out the relevant legal principles. Deal only with those principles that relate to the given facts. Next, apply these principles to the facts. This is where most of the students lose marks - they set out the law in some detail, but then do not illustrate how it applies to the factual situation they have been asked to solve. Finally, state your conclusion. 23. Adhere to the restrictions placed on the length of your answers. These restrictions are indicated in each question. The same restrictions apply to both handwritten and typed answers. 24. Include an Academic Integrity Declaration similar to the one below in the front of your portfolio answer. If you fail to include the declaration, it will result in a mark of 0%. I, [type in student name] declare that this portfolio submitted towards the examination for the module LML4806, is my own work and has not been submitted before to any institution for assessment purposes. Further, all sources that I have used or quoted have been indicated and acknowledged by means of complete references. PLEASE NOTE: If you experience technical problems, of any kind, on the day of the examination and your examination answers are not submitted by the cut-off time, you will be marked as absent and automatically deferred to the October/November 2020 examination. No other type of submission of your examination answers will be accepted. CONFIDENTIAL _________________________________________________________________________________ QUESTION 1 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) 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) (Your answer must not exceed one page) 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) (Your answer must not exceed one page) 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) (Your answer must not exceed one page) [27] QUESTION 2 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) (Your answer must not exceed one page) 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) (Your answer must not exceed two pages) 2.3 Advise the board of directors whether the loan of R10 million may validly be given to Gareth. (3) (Your answer must not exceed half a page) [23] QUESTION 3 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) (Your answer must not exceed one page) 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) (Your answer must not exceed half a page) [10] QUESTION 4 4.1 With reference to the Companies Act 71 of 2008, outline any five of the statutory duties of an audit committee. (5) (Your answer must not exceed one page) 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) (Your answer must not exceed two pages) 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) (Your answer must not exceed one page) 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) (Your answer must not exceed half a page) [20] TOTAL: [80] THE END Examiners : First : Mr V Madlela (Unisa) Second : Prof R Cassim (Unisa) External : Prof TH Mongalo (University of the Witwatersrand)