LML4806 Assignment 1 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED

LML4806 Assignment 1 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ..... Question: 1 Jane, John and Jabulani are the directors of Touring Africa by Bicycle (Pty) Ltd (“the company”), a company that is based in Johannesburg. The memorandum of incorporation of the company provides that only the board of directors have the authority to enter into contracts on behalf of the company. James, the branch manager of the company in Durban, attends an outdoor show in Durban to scout for useful new products for the company’s cycling excursions. At the outdoor show one of the exhibitors, Cycle for Life (Pty) Ltd, has a limited special offer on electric bicycles for the amount of R120 000.00 per bicycle. James contacts the directors of the company by way of a Zoom call, and while speaking to the directors of the company on the Zoom call, James keeps his mobile phone on speakerphone. The directors instruct James to purchase six of the electric bicycles on behalf of the company. Nancy, the representative of Cycle for Life (Pty) Ltd, hears the instruction, and because James has previously entered into agreements with Cycle for Life (Pty) Ltd without any problems, she enters into an agreement with James for the sale of six electric 4 bicycles to Touring Africa by Bicycle (Pty) Ltd. The electric bicycles are delivered to the company’s Durban office. When Cycle for Life (Pty) Ltd sends an invoice for payment of the total amount of R720 000.00 for the six electric bicycles, Touring Africa by Bicycle (Pty) Ltd refuses to pay, arguing that it is not bound by the contract as James did not have the authority to act on its behalf. Nancy approaches you for legal advice. With reference to the relevant authority/principle and the facts, advise Nancy on what Cycle for Life (Pty) Ltd must allege and prove in order to prevent Touring Africa by Bicycle (Pty) Ltd from arguing that it is not bound by the contract concluded by Nancy and James. (5) Question: 2 Tebogo, Mbali and Dominique are the directors of Jenkins Investments Ltd (“the Company”). The Company’s business is to subscribe for shares and invest in property development companies. Tebogo is an admitted attorney. Mbali and Dominique are chartered accountants and have considerable experience as directors of various property companies. Pursuant to resolutions supported by all the directors at a board meeting, the Company enters into the following transactions: • The Company borrows R50 million from the bank and uses the money to acquire a 10% shareholding in Abby Realtors Ltd, a company that is controlled by Tebogo’s wife, Abigail. Although Tebogo convinces Mbali and Dominique that there will be a 100% return on the investment within 24 months, all the directors are aware that Abby Realtors Ltd has for a long time been experiencing financial difficulties and that its business is on the verge of collapsing. After eight months, Abby Realtors Ltd is liquidated and the Company loses its entire investment of R50 million. In the meantime, the Company has not yet repaid the loan taken from the bank and interest on the loan has increased. • The Company makes unsecured loans totaling R8 million to Mbali and Dominique interest-free without the knowledge or approval of the shareholders. Mbali and Dominique do not repay the loans, resulting in the company losing at least R8 million. When they become aware of the above transactions, the shareholders of Jenkins Investments Ltd are dissatisfied with the way the directors are managing the affairs of the Company, which has resulted in the Company suffering the above losses. 5 With reference to the Companies Act 71 of 2008 and the facts provided, advise the shareholders on the following matters: 2.1 Whether the directors of Jenkins Investments Ltd have breached their duty of care, skill and diligence, and whether they may be held liable for the losses that the Company has suffered. (7) 2.2 What the so-called statutory business judgment rule entails and whether the directors of Jenkins Investments Ltd may rely on this rule to avoid any liability that may arise out of their decision to cause the Company to acquire 10% shareholding in Abby Realtors Ltd.