LML4806
EXAM
PACK
2023
LATEST ELABORATE QUESTIONS
& ANSWERS
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CONFIDENTIAL
Page 5 of 9
LML4806
October/November 2021
QUESTION 1 [22]
1.1 Exclusive Properties (Pty) Ltd (the company) has four shareholders, each holding 25% of the
voting rights in the company. All of the shareholders are also directors of the company. The
Memorandum of Incorporation of the company has not changed the default position in terms of
the Companies Act 71 of 2008 regarding the threshold required to pass ordinary resolutions.
The company held a board meeting at which three directors were present. Some of the decisions
taken by the board of directors related to matters that were required to be referred to the
shareholders for approval by an ordinary resolution. Without issuing a notice of a shareholders’
meeting or convening a shareholders’ meeting, the board meeting proceeded to consider the
proposed ordinary resolutions. All the directors who were present at the meeting voted on the
proposed ordinary resolutions in their capacity as shareholders. Oliver, a director and
shareholder of the company who was not present at the meeting, objects to the passing of the
ordinary resolutions at the meeting in this manner. He argues that (i) the voting on the ordinary
resolutions was invalid as no notice of a shareholders’ meeting was properly given, (ii) the
quorum requirements for a shareholders’ meeting were not satisfied, and (iii) the threshold
required for the approval of the ordinary resolutions was not satisfied.
With reference to the Companies Act 71 of 2008 and the facts provided, advise Oliver whether
his arguments hold merit, and whether the ordinary resolutions were validly passed at the
meeting. (12)
1.2 The Memorandum of Incorporation of Generators Unlimited (Pty) Ltd provides that only the
board of directors, or any director authorised by the board, has the power to conclude contracts
on behalf of the company. It also states that any transaction that exceeds R10 million must first
be authorised by the company’s shareholders at a general meeting by way of an ordinary
resolution. One of the directors, Nthabiseng, is authorised by the board of directors to conclude
contracts on behalf of the company. Nthabiseng enters into a contact with Matthews for the
purchase of power distribution transformers to the value of R15 million, without first obtaining
the authorisation for the purchase by the company’s shareholders at a general meeting.
Matthews is aware of the provision in the Memorandum of Incorporation requiring shareholder
approval because he has dealt with the company on previous occasions. However, he does not
know that the purchase in fact has not been authorised by an ordinary resolution of the
company’s shareholders.
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CONFIDENTIAL
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LML4806
October/November 2021
With reference to appropriate authority and the facts provided, discuss whether Generators
Unlimited (Pty) Ltd is bound by the contract concluded by Nthabiseng and Matthews. (10)
QUESTION 2 [16]
2.1 Jaydin, a shareholder of Thaba Indle Ltd, approaches you for legal advice. He tells you that the
board of directors of Thaba Indle Ltd recently resolved to issue, and subsequently issued, a
specific number of the company’s authorised ordinary shares to the following persons:
• Nathi, who is a non-executive director of Thaba Indle Ltd.
• Mario, who has agreed to become a director and chief executive officer of Thaba Indle
Ltd when the term of the company’s current chief executive officer comes to an end in
eight months’ time.
• Certain employees of Thaba Indle Ltd in terms of the company’s employee share
scheme.
Jaydin is convinced that there is something wrong with the action taken by the board of directors
of Thaba Indle Ltd as the board did not seek and obtain the approval of the company’s
shareholders prior to issuing the shares. However, the board is adamant that the Companies
Act 71 of 2008 regards the decision to issue shares as a management decision with the
consequence that the board can resolve to issue the company’s authorised shares at any time
without having to first obtain the approval of the company’s shareholders. The board further
draws Jaydin’s attention to the fact that the company’s Memorandum of Incorporation does not
contain any special requirements regarding the board’s power to issue shares.
Explain to Jaydin whether the board of directors of Thaba Indle Ltd contravened the provisions
of the Companies Act 71 of 2008 in the following circumstances:
2.1.1 When the board issued the ordinary shares to Nathi. (3)
2.1.2 When the board issued the ordinary shares to Mario. (3)
2.1.3 When the board issued the ordinary shares to the employees of Thaba Indle Ltd. (3)
2.2 Mandy is a director of Global Textiles Ltd. Global Textiles Ltd needed to appoint a marketing
agent to market and advertise its products in South Africa. At a meeting of the board of directors,
Mandy persuaded the board to appoint Premium Brands (Pty) Ltd by convincing the board that
this company would be ideal for this task. However, Mandy did not disclose to the board the fact
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CONFIDENTIAL
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LML4806
October/November 2021
that her husband, Johan, is the sole shareholder and director of Premium Brands (Pty) Ltd. She
also did not disclose to the board the fact that Premium Brands (Pty) Ltd did not have the
necessary capacity and experience to market diverse products for a large company such as
Global Textiles Ltd. Premium Brands (Pty) Ltd was appointed as the marketing agent for Global
Textiles Ltd, but a few months later it became clear that Global Textiles Ltd had suffered
substantial losses in South Africa because its products were not being advertised effectively. A
number of shareholders of Global Textiles Ltd are upset by the loss suffered by the company
as a result of the appointment of an inexperienced marketing agent.
With reference to the Companies Act 71 of 2008 and the facts, advise the shareholders of Global
Textiles Ltd whether they would have any grounds for the court to make an order declaring
Mandy to be a delinquent director. (4)
2.3 Sipho was appointed as the company secretary of Stein Hardware Ltd three years ago under a
five-year contract of employment with the company. Sipho also serves as a trustee of the
Lenfesty Foundation. Sipho has recently been accused of theft involving large sums of money
which he allegedly withdrew from the Lenfesty Foundation’s bank account for his personal use.
As a result of this accusation, the board of directors of Stein Hardware Ltd has decided to
remove Sipho from office as the company secretary. Sipho denies that he has committed theft.
Advise Sipho on the steps that he could take under the Companies Act 71 of 2008 following his
removal from office if he disputes the reason for his removal as company secretary. (3)
QUESTION 3 [20]
3.1 Beta Ltd holds 40% of the general voting rights associated with the issued shares in Lumina
(Pty) Ltd. Beta Ltd also holds 100% of the general voting rights associated with the issued
shares of both Cato (Pty) Ltd and Lexis (Pty) Ltd. Cato (Pty) Ltd and Lexis (Pty) each holds 30%
of the general voting rights associated with the issued shares in Lumina (Pty) Ltd.
With reference to the Companies Act 71 of 2008 and the facts provided, advise the board of
directors of Beta Ltd on the following matters:
3.1.1 Whether Lumina (Pty) Ltd and Cato (Pty) Ltd are related. (5)
3.1.2 Whether Lumina (Pty) Ltd is a wholly-owned subsidiary of Beta Ltd. (5)
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EXAM
PACK
2023
LATEST ELABORATE QUESTIONS
& ANSWERS
, Stuvia.com - The study-notes marketplace
CONFIDENTIAL
Page 5 of 9
LML4806
October/November 2021
QUESTION 1 [22]
1.1 Exclusive Properties (Pty) Ltd (the company) has four shareholders, each holding 25% of the
voting rights in the company. All of the shareholders are also directors of the company. The
Memorandum of Incorporation of the company has not changed the default position in terms of
the Companies Act 71 of 2008 regarding the threshold required to pass ordinary resolutions.
The company held a board meeting at which three directors were present. Some of the decisions
taken by the board of directors related to matters that were required to be referred to the
shareholders for approval by an ordinary resolution. Without issuing a notice of a shareholders’
meeting or convening a shareholders’ meeting, the board meeting proceeded to consider the
proposed ordinary resolutions. All the directors who were present at the meeting voted on the
proposed ordinary resolutions in their capacity as shareholders. Oliver, a director and
shareholder of the company who was not present at the meeting, objects to the passing of the
ordinary resolutions at the meeting in this manner. He argues that (i) the voting on the ordinary
resolutions was invalid as no notice of a shareholders’ meeting was properly given, (ii) the
quorum requirements for a shareholders’ meeting were not satisfied, and (iii) the threshold
required for the approval of the ordinary resolutions was not satisfied.
With reference to the Companies Act 71 of 2008 and the facts provided, advise Oliver whether
his arguments hold merit, and whether the ordinary resolutions were validly passed at the
meeting. (12)
1.2 The Memorandum of Incorporation of Generators Unlimited (Pty) Ltd provides that only the
board of directors, or any director authorised by the board, has the power to conclude contracts
on behalf of the company. It also states that any transaction that exceeds R10 million must first
be authorised by the company’s shareholders at a general meeting by way of an ordinary
resolution. One of the directors, Nthabiseng, is authorised by the board of directors to conclude
contracts on behalf of the company. Nthabiseng enters into a contact with Matthews for the
purchase of power distribution transformers to the value of R15 million, without first obtaining
the authorisation for the purchase by the company’s shareholders at a general meeting.
Matthews is aware of the provision in the Memorandum of Incorporation requiring shareholder
approval because he has dealt with the company on previous occasions. However, he does not
know that the purchase in fact has not been authorised by an ordinary resolution of the
company’s shareholders.
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CONFIDENTIAL
Page 6 of 9
LML4806
October/November 2021
With reference to appropriate authority and the facts provided, discuss whether Generators
Unlimited (Pty) Ltd is bound by the contract concluded by Nthabiseng and Matthews. (10)
QUESTION 2 [16]
2.1 Jaydin, a shareholder of Thaba Indle Ltd, approaches you for legal advice. He tells you that the
board of directors of Thaba Indle Ltd recently resolved to issue, and subsequently issued, a
specific number of the company’s authorised ordinary shares to the following persons:
• Nathi, who is a non-executive director of Thaba Indle Ltd.
• Mario, who has agreed to become a director and chief executive officer of Thaba Indle
Ltd when the term of the company’s current chief executive officer comes to an end in
eight months’ time.
• Certain employees of Thaba Indle Ltd in terms of the company’s employee share
scheme.
Jaydin is convinced that there is something wrong with the action taken by the board of directors
of Thaba Indle Ltd as the board did not seek and obtain the approval of the company’s
shareholders prior to issuing the shares. However, the board is adamant that the Companies
Act 71 of 2008 regards the decision to issue shares as a management decision with the
consequence that the board can resolve to issue the company’s authorised shares at any time
without having to first obtain the approval of the company’s shareholders. The board further
draws Jaydin’s attention to the fact that the company’s Memorandum of Incorporation does not
contain any special requirements regarding the board’s power to issue shares.
Explain to Jaydin whether the board of directors of Thaba Indle Ltd contravened the provisions
of the Companies Act 71 of 2008 in the following circumstances:
2.1.1 When the board issued the ordinary shares to Nathi. (3)
2.1.2 When the board issued the ordinary shares to Mario. (3)
2.1.3 When the board issued the ordinary shares to the employees of Thaba Indle Ltd. (3)
2.2 Mandy is a director of Global Textiles Ltd. Global Textiles Ltd needed to appoint a marketing
agent to market and advertise its products in South Africa. At a meeting of the board of directors,
Mandy persuaded the board to appoint Premium Brands (Pty) Ltd by convincing the board that
this company would be ideal for this task. However, Mandy did not disclose to the board the fact
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CONFIDENTIAL
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LML4806
October/November 2021
that her husband, Johan, is the sole shareholder and director of Premium Brands (Pty) Ltd. She
also did not disclose to the board the fact that Premium Brands (Pty) Ltd did not have the
necessary capacity and experience to market diverse products for a large company such as
Global Textiles Ltd. Premium Brands (Pty) Ltd was appointed as the marketing agent for Global
Textiles Ltd, but a few months later it became clear that Global Textiles Ltd had suffered
substantial losses in South Africa because its products were not being advertised effectively. A
number of shareholders of Global Textiles Ltd are upset by the loss suffered by the company
as a result of the appointment of an inexperienced marketing agent.
With reference to the Companies Act 71 of 2008 and the facts, advise the shareholders of Global
Textiles Ltd whether they would have any grounds for the court to make an order declaring
Mandy to be a delinquent director. (4)
2.3 Sipho was appointed as the company secretary of Stein Hardware Ltd three years ago under a
five-year contract of employment with the company. Sipho also serves as a trustee of the
Lenfesty Foundation. Sipho has recently been accused of theft involving large sums of money
which he allegedly withdrew from the Lenfesty Foundation’s bank account for his personal use.
As a result of this accusation, the board of directors of Stein Hardware Ltd has decided to
remove Sipho from office as the company secretary. Sipho denies that he has committed theft.
Advise Sipho on the steps that he could take under the Companies Act 71 of 2008 following his
removal from office if he disputes the reason for his removal as company secretary. (3)
QUESTION 3 [20]
3.1 Beta Ltd holds 40% of the general voting rights associated with the issued shares in Lumina
(Pty) Ltd. Beta Ltd also holds 100% of the general voting rights associated with the issued
shares of both Cato (Pty) Ltd and Lexis (Pty) Ltd. Cato (Pty) Ltd and Lexis (Pty) each holds 30%
of the general voting rights associated with the issued shares in Lumina (Pty) Ltd.
With reference to the Companies Act 71 of 2008 and the facts provided, advise the board of
directors of Beta Ltd on the following matters:
3.1.1 Whether Lumina (Pty) Ltd and Cato (Pty) Ltd are related. (5)
3.1.2 Whether Lumina (Pty) Ltd is a wholly-owned subsidiary of Beta Ltd. (5)
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