LML4806 EXAM PORTFOLIO SUPER SEMESTER 2021

QUESTION 1 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. 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 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) 3.2 The board of directors of Express Airlines Ltd is considering an offer from the board of directors of Easy Airways Ltd, a company involved in the same type of business, for the two companies to amalgamate or merge their businesses because both companies are competing in a fairly small market. The proposal is that Easy Airways Ltd will acquire and hold all the assets and liabilities of Express Airlines Ltd. Express Airlines Ltd will then be deregistered and cease to exist. Neither Easy Airways Ltd nor any person related to it holds or controls any voting rights in Express Airlines Ltd. The board of directors of Express Airlines Ltd suspects that a group of shareholders holding between 10% and 20% of the voting rights in Express Airlines Ltd will be opposed to the amalgamation or merger because Express Airlines Ltd is far more successful than Easy Airways Ltd, and they want to retain their shares in Express Airlines Ltd. The board seeks your advice regarding the possibility of this group of shareholders being able to prevent the amalgamation or merger. With reference to the Companies Act 71 of 2008, advise the board of directors of Express Airlines Ltd on how (if at all) the group of shareholders opposed to the amalgamation or merger would be able to prevent the amalgamation or merger from taking place. (10) QUESTION 4 [22] 4.1 Infinity Workspace Ltd specialises in the rental of office space. The current difficult economic conditions caused by the global Covid-19 pandemic has resulted in many office tenants defaulting on their rental payments to the company. For the past six months, the company has been receiving as little as 50% to 60% of its major tenants’ rent. This has caused cash flow problems for the company, which is now struggling to pay its own creditors and some of these creditors have already started instituting legal actions against the company. However, the board of directors of Infinity Workspace Ltd expects that the company’s cash flow will improve and that the company will return to profitability once the economic conditions improve in the near future. With reference to the Companies Act 71 of 2008, advise the board of directors of Infinity Workspace Ltd on the following matters: 4.1.1 The criteria that is used to determine whether a company is financially distressed for purposes of the Companies Act 71 of 2008. (2) 4.2.1 Thandi 4.2.2 Reka (6) (3) TOTAL: [80] 4.1.2 The grounds on which the board of directors may resolve to place Infinity Workspace Ltd under voluntary supervision. (3) 4.1.3 The consequences that business rescue proceedings will have on the contracts that Infinity Workspace Ltd has with its current creditors and on the legal actions that some creditors have already instituted against Infinity Workspace Ltd. (8) 4.2 Thandi is a director of Apple Supermarkets Ltd, a listed company. Thandi and her friend Reka keep regular email contact. Thandi knows that Reka usually reads her emails at 7h00 every day. Thandi sent Reka an email at 6h00 saying Apple Supermarkets Ltd will post excellent results, which will be published at 10h00 on the same day, and that Reka should buy as much shares in the company as possible. On that day, Reka, for some unknown reason only read her emails at 9h30. However, at 9h00, Reka had instructed her broker, Lebo, to buy 1 000 shares in Apple Supermarkets Ltd because she had a feeling that the company was going to publish good results. Discuss whether the following persons have committed any offence(s) relating to insider trading under the Financial Markets Act 19 of 2012: