LML4806
Assignment 2
Semester 2
Due September 2025
,LML4806
Assignment 2 Semester 2
DUE September 2025
Corporate Law in South Africa
In South Africa's evolving corporate landscape, legal precision is no longer optional—it’s
a competitive advantage. This briefing dissects two complex legal disputes—Zentech
Solutions Ltd’s alleged breach of fiduciary duty and Falcon Airlines Ltd’s
business rescue conflict—offering high-level insights into the strategic and legal
implications. These cases highlight how fiduciary norms and statutory obligations are
actively shaping the terrain of corporate power and rescue.
1. Zentech Solutions Ltd: Breach of Fiduciary Duty & Share Dilution
Key Issue: Did Zentech’s board use its share issuance powers to advance corporate
goals—or to manipulate shareholder control in favor of a takeover bid?
Fiduciary Duties Under the Companies Act 71 of 2008 (Section 76(3)(b))
South African directors are required to act for a proper purpose and in the best interests
of the company. When these principles are applied to control battles or takeovers,
tension often emerges between legal form and strategic intent.
Insight: Courts do not rely on directors' subjective good faith alone. They examine the
true purpose behind the decision—particularly when the powers exercised (like issuing
shares) impact control. Directors must prove that their action served the company’s
broader objectives, not just shifted power dynamics.
, Proper Purpose Doctrine: Control vs Corporate Advancement
In Howard v Herrigel (1991), the court invalidated share issuance intended to thwart a
takeover, affirming that the exercise of power for control manipulation is not a proper
purpose. In the current scenario, Zentech’s issuance of shares to Ndugu Holdings
seems strategically aimed at diluting Imali Ltd’s majority interest, raising red flags about
intent.
Actionable takeaway: Boards should contemporaneously document detailed
commercial reasons for share issuance—particularly in acquisition contexts. Failure to
show economic or strategic rationale may lead courts to infer an improper motive.
Legal Remedies: Share Issuance as Voidable Conduct
Under section 20(9), the share issuance may be declared voidable if found to be
beyond the directors’ proper purpose. Additionally, section 163 offers protection for
shareholders like Imali Ltd who can demonstrate unfair prejudice, particularly where
their rights are diluted for no genuine corporate gain.
Imali Ltd’s Litigation Prospects
Strong. The board's move to issue shares appears timed and targeted to dilute Imali’s
influence and favor Ndugu’s bid, rather than being rooted in a capital or growth strategy.
The fact that Ndugu’s bid is only marginally higher undermines the claim that this was in
the company’s best interests.
Strategic insight: South African jurisprudence is leaning toward higher accountability in
board decisions where control shifts are involved. Courts are increasingly testing board
actions not just against outcomes, but against clearly articulated, fact-based intentions.
Assignment 2
Semester 2
Due September 2025
,LML4806
Assignment 2 Semester 2
DUE September 2025
Corporate Law in South Africa
In South Africa's evolving corporate landscape, legal precision is no longer optional—it’s
a competitive advantage. This briefing dissects two complex legal disputes—Zentech
Solutions Ltd’s alleged breach of fiduciary duty and Falcon Airlines Ltd’s
business rescue conflict—offering high-level insights into the strategic and legal
implications. These cases highlight how fiduciary norms and statutory obligations are
actively shaping the terrain of corporate power and rescue.
1. Zentech Solutions Ltd: Breach of Fiduciary Duty & Share Dilution
Key Issue: Did Zentech’s board use its share issuance powers to advance corporate
goals—or to manipulate shareholder control in favor of a takeover bid?
Fiduciary Duties Under the Companies Act 71 of 2008 (Section 76(3)(b))
South African directors are required to act for a proper purpose and in the best interests
of the company. When these principles are applied to control battles or takeovers,
tension often emerges between legal form and strategic intent.
Insight: Courts do not rely on directors' subjective good faith alone. They examine the
true purpose behind the decision—particularly when the powers exercised (like issuing
shares) impact control. Directors must prove that their action served the company’s
broader objectives, not just shifted power dynamics.
, Proper Purpose Doctrine: Control vs Corporate Advancement
In Howard v Herrigel (1991), the court invalidated share issuance intended to thwart a
takeover, affirming that the exercise of power for control manipulation is not a proper
purpose. In the current scenario, Zentech’s issuance of shares to Ndugu Holdings
seems strategically aimed at diluting Imali Ltd’s majority interest, raising red flags about
intent.
Actionable takeaway: Boards should contemporaneously document detailed
commercial reasons for share issuance—particularly in acquisition contexts. Failure to
show economic or strategic rationale may lead courts to infer an improper motive.
Legal Remedies: Share Issuance as Voidable Conduct
Under section 20(9), the share issuance may be declared voidable if found to be
beyond the directors’ proper purpose. Additionally, section 163 offers protection for
shareholders like Imali Ltd who can demonstrate unfair prejudice, particularly where
their rights are diluted for no genuine corporate gain.
Imali Ltd’s Litigation Prospects
Strong. The board's move to issue shares appears timed and targeted to dilute Imali’s
influence and favor Ndugu’s bid, rather than being rooted in a capital or growth strategy.
The fact that Ndugu’s bid is only marginally higher undermines the claim that this was in
the company’s best interests.
Strategic insight: South African jurisprudence is leaning toward higher accountability in
board decisions where control shifts are involved. Courts are increasingly testing board
actions not just against outcomes, but against clearly articulated, fact-based intentions.
