LML4806 PORTFOLIO MEMO - MAY/JUNE 2024 - SEMESTER 1 - UNISA - DUE DATE :- 17 MAY 2024 - DETAILED ANSWERS - DISTINCTION GUARANTEED!

LML4806 PORTFOLIO MEMO - MAY/JUNE 2024 - SEMESTER 1 - UNISA - DUE DATE :- 17 MAY 2024 - DETAILED ANSWERS - DISTINCTION GUARANTEED! QUESTION 1 [20] 1.1 According to Milton Friedman, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…” With reference to the principle of corporate social responsibility, discuss the meaning of corporate social responsibility and whether you agree with Milton Friedman’s view above. Also assess the extent to which engaging in corporate social responsibility activities may benefit a company that engages in such activities. (10) 1.2 Jane, John and Jabulani are the directors of Touring Africa by Bicycle (Pty) Ltd (“the company”), a company that is based in Johannesburg. The memorandum of incorporation of the company provides that only the board of directors have the authority to enter into contracts on behalf of the company. James, the branch manager of the company in Durban, attends an outdoor show in Durban to scout for useful new products for the company’s cycling excursions. At the outdoor show one of the exhibitors, Cycle for Life (Pty) Ltd, has a limited special offer on electric bicycles for the amount of R120 000.00 per bicycle. James contacts the directors of the company by way of a Zoom call, and while speaking to the directors of the company on the Zoom call, James keeps his mobile phone on speakerphone. The directors instruct James to purchase six of the electric bicycles on behalf of the company. Nancy, the representative of Cycle for Life (Pty) Ltd, hears the instruction, and because James has previously entered into agreements with Cycle for Life (Pty) Ltd without any problems, she enters into an agreement with James for the sale of six electric bicycles to Touring Africa by Bicycle (Pty) Ltd. The electric bicycles are delivered to the company’s Durban office. When Cycle for Life (Pty) Ltd sends an invoice for payment of the total amount of R720 000.00 for the six electric bicycles, Touring Africa by Bicycle (Pty) Ltd refuses to pay, arguing that it is not bound by the contract as James did not have the authority to act on its behalf. Nancy approaches you for legal advice. 1.2.1 Briefly outline and explain the different types of authority that a director or other person (agent) who contracts on behalf of a company must have in order to do so. (5) 1.2.2 With reference to the relevant authority/principle and the facts, advise Nancy on what Cycle for Life (Pty) Ltd must allege and prove in order to prevent Touring Africa by Bicycle (Pty) Ltd from arguing that it is not bound by the contract concluded by Nancy and James. (5) CONFIDENTIAL Page 8 of 10 LML4806 May/June 2024 QUESTION 2 [20] 2.1 Big Money Ltd intends to make a primary offer to the public in order to raise funds. The directors of Big Money Ltd are aware of certain information that could potentially discourage the public from purchasing shares in Big Money Ltd. After deliberation, the directors of Big Money Ltd decide not to include that information in the prospectus. With reference to the Companies Act 71 of 2008, discuss whether the directors of Big Money Ltd can be held personally liable to persons who acquire the securities of Big Money Ltd and who may potentially suffer loss or damage as a result of the omission of that information from the prospectus. (10) 2.2 Strada (Pty) Ltd will be holding its first annual general meeting at its registered office. The company’s memorandum of incorporation allows shareholders to appoint proxies to represent them at shareholders’ meetings, subject to clause 10.3 of the Memorandum of Incorporation, which provides as follows: “An instrument appointing a proxy must be submitted to the Transfer Secretaries or the Chairperson of the Company not less than 48 (FORTY-EIGHT) hours before the commencement of the Annual General Meeting or Shareholders’ Meeting at which the proxy is to participate. ” One of the shareholders, Busi, feels strongly about some of the proposed resolutions set out in the notice of the annual general meeting, and wants to express her views on these matters to the board of directors. About two hours before the meeting, Busi has an emergency to which she must attend, which makes it impossible for her to attend the annual general meeting. With reference to the Companies Act 71 of 2008, case law and the facts above, advise Busi whether she can validly appoint a proxy to exercise her right to vote and to express her views at the annual general meeting of Strada (Pty) Ltd. Also consider in your answer whether clause 10.3 of the company’s Memorandum of Incorporation is a valid clause. (10) QUESTION 3 [20] 3.1 Skylab (Pty) Ltd wishes to have a database designed and installed that will receive, process and store information generated by the work done in its laboratory. It wants to appoint a service provider to design and install this system, and also wants the service provider to maintain the database for the next ten years. Internet World (Pty) Ltd is keen to conclude this contract with CONFIDENTIAL Page 9 of 10 LML4806 May/June 2024 Skylab (Pty) Ltd as it is a very profitable contract. It appoints Lerato, one of its directors, to enter into negotiations with Skylab (Pty) Ltd for this purpose. After a few weeks of negotiations, Skylab (Pty) Ltd decides that it does not want to conclude the contract with Internet (Pty) Ltd but wishes to enter into the contract with Lerato in her personal capacity. It offers the contract to Lerato personally. Lerato subsequently resigns as a director of Internet World (Pty) Ltd and informs the company that she wishes to take early retirement and travel the world before she gets too old. Internet World (Pty) Ltd appoints Themba to continue the negotiations with Skylab (Pty) Ltd in place of Lerato. When Themba tries to arrange a meeting with Skylab (Pty) Ltd for this purpose, he is informed by Skylab (Pty) Ltd that it had already concluded a contract with Lerato in her personal capacity for the design and installation of the database, and that Lerato had recently commenced working on the database. Internet World (Pty) Ltd wishes to pursue legal action against Lerato for a breach of her fiduciary duties. Lerato argues that she signed the contract with Skylab (Pty) Ltd only after she had resigned from Internet World (Pty) Ltd and that she had therefore not breached her fiduciary duties to Internet World (Pty) Ltd. With reference to the Companies Act 71 of 2008, relevant case law and the facts provided, discuss whether Lerato has breached any specific fiduciary duties she owed to Internet World (Pty) Ltd. Also consider the validity of Lerato’s argument that she did not breach her fiduciary duties to Internet World (Pty) Ltd since she signed the contract with Skylab (Pty) Ltd only after she had resigned from Internet World (Pty) Ltd. (15) 3.2 With reference to the Companies Act 71 of 2008, indicate when, and by whom, the company secretary of a public company may be appointed. (5) QUESTION 4 [20] 4.1 Boaz is a business rescue practitioner of a company that is under business rescue. Due to complications in the company, Boaz applied to court to extend the duration of the business rescue proceedings for two additional months. The additional two months have lapsed and the business rescue proceedings have not ended. Boaz wants the business rescue proceedings to continue as the company is slowly recovering from its financial distress. With reference to the relevant provisions of the Companies Act 71 of 2008, advise Boaz on what he should do under these circumstances. (5) 4.2 Bongani is the chief executive officer of Bafenyi Ltd. While receiving a haircut from Lulu at a hair salon he learns from an e-mail received on his phone that the upcoming earnings report of CONFIDENTIAL Page 10 of 10 LML4806 May/June 2024 Bafenyi Ltd will be substantially better than anticipated, which means that he will receive a much bigger bonus than he had expected. In his excitement he tells Lulu this good news. Lulu informs her sister, Leila, of this news. Leila immediately contacts her broker, Chris, and instructs him to purchase shares in Bafenyi Ltd on her behalf. Leila also buys shares through Chris for her stepdaughter, Anele. Lulu further advises her brother Msimang to buy shares in Bafenyi Ltd. However, Msimang decides not to buy the shares, because Lulu will not tell him the reason why he should buy the shares. When the earnings report of Bafenyi Ltd is made public a few days later, the price of the shares of Bafenyi Ltd increases substantially. Explain whether the following persons have committed any offences relating to insider trading under the Financial Markets Act 19 of 2012 (Do not include a discussion of the definitions of an “insider” or “insider trading” in your answer and do not discuss the defences to the insider trading offences): 4.2.1 Lulu (5) 4.2.2 Leila (5) 4.2.3 Chris (3) 4.2.4 Msimang (2) TOTAL: [80]