LML4806 PORTFOLIO MEMO - OCT./NOV. 2023 - SEMESTER 2 - UNISA - DUE 3 NOVEMBER 2023 - DETAILED ANSWERS WITH FOOTNOTES & BIBLIOGRAPHY- DISTINCTION GUARANTEED!

LML4806 PORTFOLIO MEMO - OCT./NOV. 2023 - SEMESTER 2 - UNISA - DUE 3 NOVEMBER 2023 - DETAILED ANSWERS WITH FOOTNOTES & BIBLIOGRAPHY- DISTINCTION GUARANTEED! QUESTION 1 1.1 Briefly outline the values that are embodied in the African philosophy of ubuntu and discuss, with reference to the Companies Act 71 of 2008, whether the values of ubuntu have been infused in the law regulating companies in South Africa. (10) 1.2 The Memorandum of Incorporation of CH Adventures (Pty) Ltd (‘the Company’) provides that the Company is incorporated for purposes of the achievement of the objects as set out in clause 4. Clause 4 contains the following provisions: 4. OBJECTS OF THE COMPANY 4.1. The principal objective of the Company is to operate the business of arranging and conducting luxury camping and hiking trips for international and local visitors to remote and mountainous areas in South Africa. 4.2. The ancillary objectives of the Company are to purchase and provide camping and hiking equipment that is necessary for arranging and conducting hiking and trekking excursions. John, the managing director of CH Adventures (Pty) Ltd, is authorised by the board of directors to purchase all equipment on behalf of the Company. John attends a ten days’ exhibition of boating and aquatic sports equipment at Aqua Equipment Ltd, a supplier of high-quality diving and snorkelling equipment, and ski boats. Aqua Equipment Ltd has a limited offer on ski-boats, which it is selling at the exhibition. John decides to purchase five ski-boats for CH Adventures (Pty) Ltd from Aqua Equipment Ltd as he is of the opinion that the Company should extend its future operations to include water sports, diving and snorkelling. Lindiwe, a shareholder of CH Adventures (Pty) Ltd, who also attends the exhibition, becomes aware of the fact that John is purchasing the ski-boats for the Company. Vusi, a trade union representative of most of the employees in CH Adventures (Pty) Ltd, also becomes aware that John is purchasing the ski- boats for the Company. With reference to appropriate sources and the relevant legal principles: 1.2.1 Discuss whether a contract concluded by John and Aqua Equipment Ltd for the purchase of ski-boats would be binding and enforceable against CH Adventures (Pty) Ltd. (8) 1.2.2 1.2.3 QUESTION 2 Advise Lindiwe whether she has any remedies in the event that she objects to the purchase of the ski-boats from Aqua Equipment Ltd. (5) Explain whether Vusi can prevent the purchase of the ski-boats from Aqua Equipment Ltd. (2) [25] CONFIDENTIAL Page 8 of 11 Tebogo, Mbali and Dominique are the directors of Jenkins Investments Ltd (‘the Company’). The Company’s business is to subscribe for shares and invest in property development companies. Tebogo is an admitted attorney. Mbali and Dominique are chartered accountants and have considerable experience as directors of various property companies. Pursuant to resolutions supported by all the directors at a board meeting, the Company enters into the following transactions: • The Company borrows R50 million from the bank and uses the money to acquire a 10% shareholding in Abby Realtors Ltd, a company that is controlled by Tebogo’s wife, Abigail. Although Tebogo convinces Mbali and Dominique that there will be a 100% return on the investment within 24 months, all the directors are aware that Abby Realtors Ltd has for a long time been experiencing financial difficulties and that its business is on the verge of collapsing. After eight months, Abby Realtors Ltd is liquidated and the Company loses its entire investment of R50 million. In the meantime, the Company has not yet repaid the loan taken from the bank and interest on the loan has increased. • The Company pays its directors a salary of R5 million each, which is considerably above what comparable companies are paying their directors. • The Company makes unsecured loans totaling R8 million to Mbali and Dominique interest-free. Mbali and Dominique use the money to subscribe for shares in the Company. The Company does not have any employee share scheme. The loans are made without the knowledge or approval of the shareholders. Mbali and Dominique do not repay the loans, resulting in the company losing at least R8 million. When they become aware of the above transactions, the shareholders of Jenkins Investments Ltd are dissatisfied with the way the directors are managing the affairs of the Company, which has resulted in the Company suffering the above losses. LML4806 October/November 2023 CONFIDENTIAL Page 9 of 11 With reference to the relevant statutory provisions and the facts provided, advise the shareholders on the following matters: 2.1 Whether the directors of Jenkins Investments Ltd have breached their duties and whether they may be held liable for the losses that the Company has suffered. (12) 2.2 What the so-called statutory business judgment rule entails and whether the directors of Jenkins Investments Ltd may rely on this rule to avoid any liability that may arise out of their decision to cause the Company to acquire 10% shareholding in Abby Realtors Ltd. (8) 2.3 Whether the shareholders would have any valid grounds to make an application to have the directors of Jenkins Investments Ltd declared delinquent. (5) QUESTION 3 [10] Catalyst Holdings Ltd is a company that invests in property, insurance and banking businesses. According to its consolidated financial statements, its business undertaking consists solely of its shareholdings in three companies, as follows: • It holds 70% of the ordinary shares in Tyrex Properties Ltd, the fair value of which is R5.5 billion Rand. • It holds 100% of the ordinary shares in RIS Insurance Ltd, the fair value of which is R500 million. • It holds 25% of the ordinary shares in ATM Bank Ltd, the fair value of which is R2 billion. The board of directors of Tyrex Properties Ltd makes an announcement that Tyrex Properties Ltd will sell all its business operations and assets to a third party for a cash consideration of R6 billion (‘the proposed transaction’). Tyrex Properties Ltd gives notice to its shareholders of a general meeting to be held on 15 December 2023, at which a resolution will be put to the shareholders of Tyrex Properties Ltd to consider and approve the proposed transaction. Robyn, who holds 3% of the shares in Catalyst Holdings Ltd, is dissatisfied with the proposed transaction. He is of the view that the offered cash consideration of R6 billion is significantly lower than the market value of Tyrex Properties Ltd’s business operations and assets. He is concerned that even though he is not a shareholder of Tyrex Properties Ltd, the proposed transaction will have a significant negative impact on the value of the shares that he holds in Catalyst Holdings Ltd. LML4806 October/November 2023 CONFIDENTIAL Page 10 of 11 With reference to the relevant statutory provisions, case law and the facts provided: 3.1 Identify the type of transaction that is proposed in the scenario above. (2) 3.2 Explain whether Catalyst Holdings Ltd and Tyrex Properties Ltd are related. (2) 3.3 Advise Robyn on whether he would be entitled to vote in regard to the proposed transaction or to seek the appraisal remedy in the event that the board of directors of Tyrex Properties Ltd proceeds to implement the proposed transaction. (6) QUESTION 4 [20] 4.1 Kerusha is a director of a women’s fashion magazine, Style Trends (Pty) Ltd. Kerusha is concerned that business has dropped in recent months because of the move towards online publishing. Although Style Trends (Pty) Ltd is not insolvent and is not in financial distress at this stage, she is considering entering into an agreement with the creditors of Style Trends (Pty) Ltd in terms of which Style Trends (Pty) Ltd offers to pay 75% of all creditors’ claims against the company in full and final settlement. Kerusha knows the offer will be accepted by most of the creditors, but a small minority might reject the offer. Kerusha approaches you for legal advice in order to establish whether there is a specific procedure in the Companies Act 71 of 2008 that makes it possible to make the settlement agreement binding on all creditors if the offer is accepted by most of them. With reference to appropriate sources, advise Kerusha on the following: 4.1.1 The name of a suitable procedure that may be used for this purpose and the relevant section in the Companies Act 71 of 2008 governing this procedure. (2) 4.1.2 Discuss who can initiate this procedure, how it would be conducted and the requirements that must be met under the Companies Act 71 of 2008 if the transaction is approved. Do not discuss the contents of the relevant documentation. (10) 4.2 Hennie and Samson are best friends. Hennie is the financial advisor of a listed company called Runaway Ltd. Samson is a stockbroker and he deals in securities for various clients. As the financial advisor of Runaway Ltd, Hennie becomes aware that a successful global company called Snowy Ltd has concluded an agreement in terms of which it will acquire Runaway Ltd at a premium. Hennie phones Samson and says the following to him: “Don’t ask me how I know, LML4806 October/November 2023 scenario. (6) TOTAL: [80] CONFIDENTIAL Page 11 of 11 but now is a perfect time for you to buy Runaway Ltd shares”. Samson is aware that Hennie is the financial advisor of Runaway Ltd and must, as such, be privy to some valuable information. Samson buys a large number of Runaway Ltd’s shares on behalf of his clients. A few days later, the news about the acquisition breaks out. The share price of Runaway Ltd immediately increases substantially. Samson promises to reward Hennie richly for the profits that will be made from the subsequent sale of the Runaway Ltd shares on behalf of his clients. With reference to the relevant legislation and the facts provided: 4.2.1 Identify the specific offence that Hennie has committed. (2) 4.2.2 Discuss the liability that may be imposed on Hennie because of his actions in the above THE END © UNISA 2023 LML4806 October/November 2023