LML4806
EXAM PACK
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
MAY / JUNE 2023
LML4806
COMPANY LAW
STUDENT NUMBER: 43355749
QUESTION 1
1.1 Section 20(7) of the Companies Act 71 of 2008 (hereinafter referred to as ‘the
Act’) provides that 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 the formal and procedural requirements in terms of this
Act, its Memorandum of Incorporation 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 such requirement.
In terms of common law Turquand rule, an outsider contracting with the
company in good faith is entitled assume that all internal requirements and
procedures have been complied with. 1 The company would be bound by the
contract even if the internal requirements and procedures have not been
complied with except for the following circumstances:
- where the outsider was aware of the fact that the requirements and
procedures had not been complied with; or if the circumstances in which the
contract was concluded were suspicious.
The test to be applied in the circumstances is an objective test- It displaces the
presumption if the third party ‘reasonably ought to have known.2
In Wopert v Uitzigit Properties (Pty) Ltd 3 the court found that an outsider with
express or constructive notice of the Articles could assume that someone was
1
Royal British Bank v Turquand (1856) El. & Bl; 119 ER 886.
2
Companies and other Business Structures in South Africa, Davis D, Geach W, Mongalo T, Buttler D, Loubser A,
Coetzee L and Burdette D, at 7.3.2.
3
1961 (2) SA 257 (W).
1
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
authorised to sign the notes, but not that a specific person was authorised to
do so.
On the facts provided, it is clear that Mathews is aware of the provision in the
Memorandum of Incorporation of Generators Unlimited (Pty) Ltd requiring
shareholder approval as he has dealt with the company on previous occasions,
however, he was not aware of the fact that Nthabiseng was not authorised by
an ordinary resolution of the company`s shareholders. It is clear that
Nthabiseng was not authorised, therefore she did not comply with a procedural
requirement and has acted in bad faith.
Having regard to the authorities stated above and the facts of this case, it is my
submission that the contract is valid, and the company will be bound by it.
1.2 Section 76 of the Act requires a director to act in good faith and in the best
interest of the company. The common law position is also that a director has a
fiduciary relationship with the company and therefore should act with the degree
of care, skill and diligence that may reasonably be expected of a reasonable
man/woman in that position. Directors may not use their position as director or
information gained as a director to make secret profit or gain advantage for
themselves or someone else or to cause harm or detriment to the company.
Section 75 provides that directors are required to disclose any personal
financial interest if they are in conflict with those of the company.4
The court in Robinson v Randfontein Estates Gold Minining Co Ltd stated as
follows:
“Where one man stands to another in a position of confidence involving a duty
to protect the interest of that other, he is not allowed to make a secret profit at
the other`s expense or place himself in a position where his personal interest
conflicts with his duty”
Even non-executive directors have a fiduciary relationship with the company.5
4
Learning Unit 3, UNISA at page 12.
5
CyberScene Ltd and Others v i-Kiosk internet and Information (Pty) Ltd 2000 (3) SA 806 (C).
2
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
In terms of the above authorities, Mark as a director of Pristine Properties Ltd is in
a fiduciary relationship with the company. He has not disclosed his financial
interest/conflict of interest to ACS Real Estate he would be purchasing the
residential buildings. This, accordingly is in breach of his fiduciary duties as a
director.
QUESTION 2
2.1 A shareholders meeting is a meeting of shareholders who are entitled to
exercise rights in relation to a matter. The board of directors or any other person
specified in the Memorandum of Incorporation may call a shareholders meeting
at any time. Section 62(1)(a) of the Act requires that a notice of a shareholders
meeting must be delivered at least fifteen (15) business days before the
meeting is to begin although in terms of section 62(2) of the Act, a company`s
Memorandum of Incorporation may provide for a longer or shorter minimum
notice. The notice itself must include the general purpose of the meeting.
ATF is a public company and therefore the notice should have been delivered
by Mr Skunk at least 15 business days. Mr Skunk has delivered the notice to
the shareholders 10 business days instead of 15 business days. This notice
period is invalid unless the Memorandum of Incorporation makes provision for
a shorter period and therefore the notice is invalid.
2.2 In terms of section 69(11) of the Act a court has a discretion to grant an
exemption despite a disqualification. Section 69(8)(b)(iii) a disqualification in
terms of this section ends at the later of 5 years after the date or removal from
office, or at the completion of the sentence imposed for the relevant office, or
at the end of one or more extensions as determined by a court from time to
time, on application by the Commission.
Mrs Meerkat was removed from her office by Qhuba (Pty) Ltd as a director on
15 January 2020. A period of 5 years has not elapsed since her removal and
even if she makes an Ex Parte application to court for a permission to act as a
director, she will have to prove to the court that she has been rehabilitated and
can be trusted again with the responsibilities of directorship. It is my submission
3
EXAM PACK
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
MAY / JUNE 2023
LML4806
COMPANY LAW
STUDENT NUMBER: 43355749
QUESTION 1
1.1 Section 20(7) of the Companies Act 71 of 2008 (hereinafter referred to as ‘the
Act’) provides that 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 the formal and procedural requirements in terms of this
Act, its Memorandum of Incorporation 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 such requirement.
In terms of common law Turquand rule, an outsider contracting with the
company in good faith is entitled assume that all internal requirements and
procedures have been complied with. 1 The company would be bound by the
contract even if the internal requirements and procedures have not been
complied with except for the following circumstances:
- where the outsider was aware of the fact that the requirements and
procedures had not been complied with; or if the circumstances in which the
contract was concluded were suspicious.
The test to be applied in the circumstances is an objective test- It displaces the
presumption if the third party ‘reasonably ought to have known.2
In Wopert v Uitzigit Properties (Pty) Ltd 3 the court found that an outsider with
express or constructive notice of the Articles could assume that someone was
1
Royal British Bank v Turquand (1856) El. & Bl; 119 ER 886.
2
Companies and other Business Structures in South Africa, Davis D, Geach W, Mongalo T, Buttler D, Loubser A,
Coetzee L and Burdette D, at 7.3.2.
3
1961 (2) SA 257 (W).
1
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
authorised to sign the notes, but not that a specific person was authorised to
do so.
On the facts provided, it is clear that Mathews is aware of the provision in the
Memorandum of Incorporation of Generators Unlimited (Pty) Ltd requiring
shareholder approval as he has dealt with the company on previous occasions,
however, he was not aware of the fact that Nthabiseng was not authorised by
an ordinary resolution of the company`s shareholders. It is clear that
Nthabiseng was not authorised, therefore she did not comply with a procedural
requirement and has acted in bad faith.
Having regard to the authorities stated above and the facts of this case, it is my
submission that the contract is valid, and the company will be bound by it.
1.2 Section 76 of the Act requires a director to act in good faith and in the best
interest of the company. The common law position is also that a director has a
fiduciary relationship with the company and therefore should act with the degree
of care, skill and diligence that may reasonably be expected of a reasonable
man/woman in that position. Directors may not use their position as director or
information gained as a director to make secret profit or gain advantage for
themselves or someone else or to cause harm or detriment to the company.
Section 75 provides that directors are required to disclose any personal
financial interest if they are in conflict with those of the company.4
The court in Robinson v Randfontein Estates Gold Minining Co Ltd stated as
follows:
“Where one man stands to another in a position of confidence involving a duty
to protect the interest of that other, he is not allowed to make a secret profit at
the other`s expense or place himself in a position where his personal interest
conflicts with his duty”
Even non-executive directors have a fiduciary relationship with the company.5
4
Learning Unit 3, UNISA at page 12.
5
CyberScene Ltd and Others v i-Kiosk internet and Information (Pty) Ltd 2000 (3) SA 806 (C).
2
, lOMoARcPSD|18222662
ABONGILE TSHETE STUDENT NO.43355749 LML4806
In terms of the above authorities, Mark as a director of Pristine Properties Ltd is in
a fiduciary relationship with the company. He has not disclosed his financial
interest/conflict of interest to ACS Real Estate he would be purchasing the
residential buildings. This, accordingly is in breach of his fiduciary duties as a
director.
QUESTION 2
2.1 A shareholders meeting is a meeting of shareholders who are entitled to
exercise rights in relation to a matter. The board of directors or any other person
specified in the Memorandum of Incorporation may call a shareholders meeting
at any time. Section 62(1)(a) of the Act requires that a notice of a shareholders
meeting must be delivered at least fifteen (15) business days before the
meeting is to begin although in terms of section 62(2) of the Act, a company`s
Memorandum of Incorporation may provide for a longer or shorter minimum
notice. The notice itself must include the general purpose of the meeting.
ATF is a public company and therefore the notice should have been delivered
by Mr Skunk at least 15 business days. Mr Skunk has delivered the notice to
the shareholders 10 business days instead of 15 business days. This notice
period is invalid unless the Memorandum of Incorporation makes provision for
a shorter period and therefore the notice is invalid.
2.2 In terms of section 69(11) of the Act a court has a discretion to grant an
exemption despite a disqualification. Section 69(8)(b)(iii) a disqualification in
terms of this section ends at the later of 5 years after the date or removal from
office, or at the completion of the sentence imposed for the relevant office, or
at the end of one or more extensions as determined by a court from time to
time, on application by the Commission.
Mrs Meerkat was removed from her office by Qhuba (Pty) Ltd as a director on
15 January 2020. A period of 5 years has not elapsed since her removal and
even if she makes an Ex Parte application to court for a permission to act as a
director, she will have to prove to the court that she has been rehabilitated and
can be trusted again with the responsibilities of directorship. It is my submission
3
