AUE1601
REVISION
PACK
,EXAM REVISION QUESTION 19 marks
Company Y Ltd has a net asset value of R25 million and a current net asset value of R8
million. The company has two classes of shares, namely 1 500 000 authorised and issued
class A shares and 100 000 authorised and issued class B shares. All the class B
shareholders are also directors of the company. The company has 12 directors.
The Memorandum of Incorporation of company Y requires that a special resolution be
obtained in order to approve distributions made to directors.
Below is an extract of the minutes of the meeting of the board of directors of Company Y,
held on 1 February 2015. This meeting was called by the managing director, after four of
Company Y’s directors required for the meeting to be called.
COMPANY Y LTD
MINUTES OF MEETING OF THE BOARD OF DIRECTORS HELD ON
1 February 2015
Matters for discussion:
1. Share buy-back
A share buy-back of 1 000 000 of Company Y’s class A shares from the general
public at a fair market value of R1 per share. The matter was put to vote and the
buy-back was unanimously approved by the directors.
2. Dividend declaration
A dividend declaration of 50c per share to all the class B shareholders of Company
Y was proposed. The matter was put to vote and the dividend declaration was
unanimously approved by the directors.
3. Resignation of company secretary
At the board meeting, the company secretary announced his resignation from the
board and from his position as company secretary. This came as a surprise to the
board.
REQUIRED Marks
1 Discuss in general the conduct of the board meeting of Company Y
held on 1 February 2015, having regard to only the following matters:
i. Calling a directors’ meeting. (2)
ii. Conducting a meeting via electronic communication. (2)
iii. Approving a directors’ resolution. (2)
iv. Determining the quorum for a directors’ meeting. (2)
,2 Taking the background information into account, refer only to
matter 2 on the agenda:
i. Discuss the legality of the dividend declaration to the class B
shareholders of Company Y by first listing the requirements of the
Companies Act and then applying it to the scenario. (8)
3 Refer only to matter 3 on the agenda:
i. Discuss whether the correct procedure was followed by the
company secretary in order to resign as company secretary of (3)
Company Y.
Suggested solution
1 (section 73)
(i) In accordance with section 73, a director, authorised by the board (unless a
company’s MOI provides otherwise)
May call a meeting of the board at any time (1)
Must call such a meeting if required to do so by at least 25% of the directors (where
the board consists of at least 12 members); or (1)
Two directors in any other case.
Company Y has 12 directors, and a meeting was requested by four of its 12
directors. Therefore the managing director acted correctly in calling this meeting.
(1½)
(ii) Unless a company’s MOI provides otherwise a meeting of the board may be
conducted by electronic communication (1)
One or more directors may participate in a meeting by means of
electronic communication, as long as all persons participating in that
meeting are able to communicate effectively and concurrently with
each other without an intermediary. (2)
(iii) A resolution at a director’s meeting will be approved if 50% of the directors
vote in favour of the resolution. (1)
Therefore, as the directors voted unanimously on all decisions taken,
this quorum will be met. (1½)
(iv) The quorum for a director’s meeting is more than 50% of all directors. (1)
As Company Y has 12 directors, this would mean that the quorum
would be 7 directors. (1½)
, Maximum (8)
2
(i) Discuss the legality of the dividend declaration to the class B shareholders
of Company Y.
In accordance with the Companies Act (section 46):
• A company must not make any proposed distribution unless it is pursuant to an
existing legal obligation or court order; or (1)
• The board of the company (unless stated otherwise in the MOI), by resolution,
has authorised the distribution; and (2)
• It reasonably appears that the company will satisfy the solvency and liquidity test
immediately after completing the proposed distribution; and (1)
• The board of the company, by resolution, has acknowledged that it has applied
the solvency and liquidity tests. (1)
• The MOI of Company Y requires that any dividend declared to a director should
be approved by a special resolution of shareholders. (1½)
• The scenario states that all of the class B shareholders are in fact directors of
Company Y; thus a special resolution is required. (1½)
• However, the decision to declare this dividend was approved by the board of the
company, thus contrary to the Act. (1½)
• Company Y will meet the solvency and liquidity tests, as it is in a net-asset and
current net-asset position (as given in the scenario). (1½)
• The directors of Company Y can be held liable in accordance with section 77 of
the Act. (1)
Maximum (8)
3
(i) Discuss whether the correct procedure was followed in order to resign as
company secretary of Company Y
Resignation as company secretary
Section 89 requires a company secretary to give one month’s written notice of
his/her resignation; or (1½)
Less than one month with the approval of the board. (1)
Application
As his/her resignation came as a surprise to the board, it is clear that notice was not
given as required by the Act. (1½)
The board can however still approve the resignation by a board resolution. (1)
Maximum (3)
REVISION
PACK
,EXAM REVISION QUESTION 19 marks
Company Y Ltd has a net asset value of R25 million and a current net asset value of R8
million. The company has two classes of shares, namely 1 500 000 authorised and issued
class A shares and 100 000 authorised and issued class B shares. All the class B
shareholders are also directors of the company. The company has 12 directors.
The Memorandum of Incorporation of company Y requires that a special resolution be
obtained in order to approve distributions made to directors.
Below is an extract of the minutes of the meeting of the board of directors of Company Y,
held on 1 February 2015. This meeting was called by the managing director, after four of
Company Y’s directors required for the meeting to be called.
COMPANY Y LTD
MINUTES OF MEETING OF THE BOARD OF DIRECTORS HELD ON
1 February 2015
Matters for discussion:
1. Share buy-back
A share buy-back of 1 000 000 of Company Y’s class A shares from the general
public at a fair market value of R1 per share. The matter was put to vote and the
buy-back was unanimously approved by the directors.
2. Dividend declaration
A dividend declaration of 50c per share to all the class B shareholders of Company
Y was proposed. The matter was put to vote and the dividend declaration was
unanimously approved by the directors.
3. Resignation of company secretary
At the board meeting, the company secretary announced his resignation from the
board and from his position as company secretary. This came as a surprise to the
board.
REQUIRED Marks
1 Discuss in general the conduct of the board meeting of Company Y
held on 1 February 2015, having regard to only the following matters:
i. Calling a directors’ meeting. (2)
ii. Conducting a meeting via electronic communication. (2)
iii. Approving a directors’ resolution. (2)
iv. Determining the quorum for a directors’ meeting. (2)
,2 Taking the background information into account, refer only to
matter 2 on the agenda:
i. Discuss the legality of the dividend declaration to the class B
shareholders of Company Y by first listing the requirements of the
Companies Act and then applying it to the scenario. (8)
3 Refer only to matter 3 on the agenda:
i. Discuss whether the correct procedure was followed by the
company secretary in order to resign as company secretary of (3)
Company Y.
Suggested solution
1 (section 73)
(i) In accordance with section 73, a director, authorised by the board (unless a
company’s MOI provides otherwise)
May call a meeting of the board at any time (1)
Must call such a meeting if required to do so by at least 25% of the directors (where
the board consists of at least 12 members); or (1)
Two directors in any other case.
Company Y has 12 directors, and a meeting was requested by four of its 12
directors. Therefore the managing director acted correctly in calling this meeting.
(1½)
(ii) Unless a company’s MOI provides otherwise a meeting of the board may be
conducted by electronic communication (1)
One or more directors may participate in a meeting by means of
electronic communication, as long as all persons participating in that
meeting are able to communicate effectively and concurrently with
each other without an intermediary. (2)
(iii) A resolution at a director’s meeting will be approved if 50% of the directors
vote in favour of the resolution. (1)
Therefore, as the directors voted unanimously on all decisions taken,
this quorum will be met. (1½)
(iv) The quorum for a director’s meeting is more than 50% of all directors. (1)
As Company Y has 12 directors, this would mean that the quorum
would be 7 directors. (1½)
, Maximum (8)
2
(i) Discuss the legality of the dividend declaration to the class B shareholders
of Company Y.
In accordance with the Companies Act (section 46):
• A company must not make any proposed distribution unless it is pursuant to an
existing legal obligation or court order; or (1)
• The board of the company (unless stated otherwise in the MOI), by resolution,
has authorised the distribution; and (2)
• It reasonably appears that the company will satisfy the solvency and liquidity test
immediately after completing the proposed distribution; and (1)
• The board of the company, by resolution, has acknowledged that it has applied
the solvency and liquidity tests. (1)
• The MOI of Company Y requires that any dividend declared to a director should
be approved by a special resolution of shareholders. (1½)
• The scenario states that all of the class B shareholders are in fact directors of
Company Y; thus a special resolution is required. (1½)
• However, the decision to declare this dividend was approved by the board of the
company, thus contrary to the Act. (1½)
• Company Y will meet the solvency and liquidity tests, as it is in a net-asset and
current net-asset position (as given in the scenario). (1½)
• The directors of Company Y can be held liable in accordance with section 77 of
the Act. (1)
Maximum (8)
3
(i) Discuss whether the correct procedure was followed in order to resign as
company secretary of Company Y
Resignation as company secretary
Section 89 requires a company secretary to give one month’s written notice of
his/her resignation; or (1½)
Less than one month with the approval of the board. (1)
Application
As his/her resignation came as a surprise to the board, it is clear that notice was not
given as required by the Act. (1½)
The board can however still approve the resignation by a board resolution. (1)
Maximum (3)
