LML4806/201/2/2020

Tutorial Letter 201/2/2020

Company Law

Semester 2

Department of Mercantile Law

This tutorial letter contains important information

about your module.

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CONTENTS
Page
1 FEEDBACK ON ASSIGNMENT 01 .............................................................................................. 3
2 FEEDBACK ON ASSIGNMENT 02 .............................................................................................. 5
3 THE OCTOBER/NOVEMBER 2019 EXAMINATION PAPER ....................................................... 8
4 FEEDBACK ON THE OCTOBER/NOVEMBER 2019 EXAMINATION PAPER .......................... 12
5 GENERAL COMMENTS REGARDING THE EXAMINATION .................................................... 22

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Dear Student
By now you should have received Tutorial Letter 101 and Tutorial Letter 102. Tutorial Letter 101
contains information about the assignments and the format of the exam paper. Tutorial Letter
102 introduces the lecturers in the module.

The aim of this tutorial letter is to provide you with guidelines to answering the compulsory
assignments, Assignments 01 and 02, and the concept examination paper that was provided to
you on myUnisa. These guidelines are not model answers. Please also consult the relevant
sections of the study guide and the prescribed textbook that you are referred to for further
details.

Please note that the concept exam paper merely serves as an example of how questions will be
asked in the examination. In order to pass this module, all the prescribed work must be studied.

1 FEEDBACK ON ASSIGNMENT 01

QUESTION 1.1

 Section 72 of the Companies Act 71 of 2008 regulates board committees.

 Except where the Memorandum of Incorporation provides otherwise, the board of
directors may appoint committees and delegate functions of the board to these
committees.
 The directors will remain liable for the due and proper performance of the duties
delegated to such a committee.
 The Companies Act 71 of 2008 places the same standards of conduct and liability on
non-director members of a board committee as on directors.
 Yes, the board can (or is allowed) to appoint a remuneration committee.

Note:

 Although the Companies Act 71 of 2008 does not make specific provision for the
appointment of a remuneration committee, such a committee may be appointed in terms
of section 72.

 Even though King IV recommends the appointment of a remuneration committee, such a

committee will still be appointed and regulated in terms of section 72 of the Companies
Act 71 of 2008.

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 Some committees, such as the social and ethics committee and the audit committee, are
specifically provided for in the Companies Act 71 of 2008. See section 72(4) and section
94 respectively.

See study guide sub-unit 2.14 and textbook par 12.18.

QUESTION 1.2

 Generally, the board may appoint persons who are not directors to be members of board
committees. (section 72(2)(a)).
 However, section 72(2)(a)(i) prohibits ineligible persons and disqualified persons to board
committees. This is provided for in section 69 of the Companies Act 71 of 2008.
 Section 69(8)(b)(i) provides that an unrehabilitated insolvent is disqualified from being a
director of the company. Such a person is, therefore, also prohibited from being a
member of a board committee in terms of section 72(2)(a)(i).
 Section 69(9) limits the period of time by which a person can be disqualified or by which
such a period can be extended by a court to five years.
 Section 69(10) sets out the procedure for extending a disqualification or
 a person disqualified in terms of section 69(8)(b) can be exempted from being
disqualified. (Section 69(11)).

An unrehabilitated insolvent such as Sipho cannot, therefore, be appointed as a member of a

board committee, unless:

 Sipho was sequestrated more than five years before and such order has not been
extended by a court in terms of section 69(9) and 69(10), or,
 a court has exempted Sipho from the application of subsection (8)(b).

See study guide sub-unit 2.14, textbook par 12.18, section 72 and the relevant provisions
of section 69 referred to in section 72(2)(a)(i).

QUESTION 1.3
The board must establish whether the company is required to appoint a social and ethics
committee in circumstances prescribed by the Minister of Trade and Industry in terms of section
72(4) of the Companies Act 71 of 2008. It must be desirable in the public interest for the
Minister to appoint the social and ethics committee.

Section 72(4) lists the factors the board must take into account:

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 The annual turnover of the company

 The size of the company’s workforce
 The nature and extent of the activities of such companies

A state-owned company must have a social and ethics committee (reg 43(1) of the Companies
Regulations, 2011).

A company having a public interest score of more than 500 points in any two of the previous five
years, must also appoint a social and ethics committee. (reg 26(2)).

Unless section 72(4) of the Companies Act 71 of 2008 read with regulation 43(1) applies, a
private company does not need to appoint a social and ethics committee.

See study guide sub-unit 2.14 and textbook par 12.18

2 FEEDBACK ON ASSIGNMENT 02

QUESTION 1.1

 An offering to the public is defined in section 95 of the Companies Act 71 of 2008.

 The offer in question falls within that definition as it is an offer of securities to be issued to
the public, or a section thereof, by a public company.
 In addition, the offering provided for in the set of facts is not excluded in terms of section
96, which sets out offers that are not considered to be public offers.
 Therefore, the offering by Actionometrics Ltd is a primary offer to the public as defined in
section 95 of the Companies Act (an offer by the company of its own securities, or the
securities of a company in the same group of companies, or the securities of a proposed
merger or amalgamation partner by an unlisted company).
 Actionometrics Ltd must issue a prospectus that satisfies the requirements of the Act.
 These provisions do not apply to private companies and personal liability companies as
these companies are not allowed to offer their securities to the public.
See study guide sub-unit 5.11.1 and textbook pars 16.2 and 16.4

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QUESTION 1.2

What is a prospectus?

 A prospectus details all the information an investor reasonably requires to assess the
assets and liabilities, financial position, profits and losses, cash flow and prospects of the
company in which the rights or interest is to be acquired.
 In addition, it must also provide information about the securities on offer and the rights
attached to those securities.

What is the purpose of a prospectus?

 The purpose of a prospectus or the regulation of public offerings of securities, is to

protect prospective investors by providing them with sufficient information to enable the
investor to make an informed decision on whether the specific shares on offer is, or will
be, a good investment.

The accuracy of the information in a prospectus

 A company may not omit information required by the Companies Act 71 of 2008 as the
Act provides for both civil and criminal liability in the event of a failure to adhere to the
strict requirements.
 When an omission misleads the public, irrespective of whether the Act requires such
information or not, the information must be provided to the public as it will be relevant to
the investment decision by members of the public (see section 95(4)).

However, section 100(9) of the Companies Act 71 of 2008 provides that the Commission may,
on application, allow the required information to be omitted from a prospectus if the Commission
is satisfied that:

 Publication of the information would be unnecessarily burdensome on the applicant,

seriously detrimental to the company whose securities are the subject of the prospectus,
or the disclosure thereof would be contrary to public interest; and
 Users will not be unduly prejudiced by the omission.

The application for omission of certain information must be made in writing and must be
accompanied by the prescribed fee.

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Conclusion

Therefore, the board must include all information required in the prospectus, unless it applies in
writing to the Commission for the exclusion of the information in terms of section 100(9) of the
Companies Act 71 of 2008.

See study guide sub-units 5.11.2 and 5.11.3, and textbook pars 16.7 and 16.9.

QUESTION 1.3

Section 100(11) of the Companies Act 71 of 2008 provides that, as long as the initial or primary
offering remains open, any person responsible for information in the prospectus who becomes
aware of it must:

 correct any error,

 report on any new matter
 report on any change of a matter included in the prospectus

provided the above information is relevant or material in terms of chapter 4 of the Companies
Act 71 of 2008.

In terms of section 104 of the Companies Act 71 of 2008, if the board fails to correct the
information, the board members will be held personally liable for untrue statements in the
prospectus, the purpose of which is to protect the public and to ensure that they receive reliable
and correct information.

Therefore, the board must correct the error in the prospectus while the offer of shares is open in
order to escape personal liability.

In addition, the board must comply with the requirements of section 100(12) regarding
registration of the correction or report. The correction will also impact on persons who have
subscribed to the securities. They may withdraw these subscriptions by written notice within
twenty business days after the subscription. (Section 100(13)(a))

The correction will have further consequences for the company. The company may act in terms
of section 100(13)(b) by accepting withdrawal by subscribers and restoring the consideration
paid, or by applying to court for an order negating the right of the subscriber to withdraw the
offer, or to reverse the transaction. Section 100(13)(c) authorises the court to make any order it
deems just and equitable.
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See study guide sub-unit 5.11, textbook pars 16.7, 16.9 and sections 100 and 104 of the
Companies Act 71 of 2008.

QUESTION 1.4

No, a prospectus in terms of chapter 4 of the Companies Act 71 of 2008 will not be required for
a primary public offering of listed securities as set out in the assignment, as it is specifically
excluded in section 100(1) of the Companies Act 71 of 2008.

However, section 100(1) provides that a prospectus is required when the public offering by a
listed company is an initial public offering (see section 100(1) of the Companies Act 71 of 2008).

Listed companies making a primary public offering must comply with the requirements of the
exchange where they are listed. In South Africa that will normally be the listing requirements of
the Johannesburg Stock Exchange Ltd.

See study guide sub-unit 5.11.2, textbook par 16.2, and section 100 of the Companies Act
71 of 2008.

3 THE OCTOBER/NOVEMBER 2019 EXAMINATION PAPER

QUESTION 1 [20]

1.1 ABC (Pty) Ltd (‘the company’) has five shareholders, each of whom holds 20% of the
voting rights in the company. All of them are also directors of the company. The
Memorandum of Incorporation of the company has not changed the default position
regarding a quorum for a meeting. It has also not changed the default position regarding
the threshold required to pass ordinary resolutions.

The company held a board meeting at which four 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 resolutions in their capacity as shareholders.

Simphiwe, 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 resolution was invalid as no notice of a
shareholders’ meeting was properly given, (ii) the quorum requirements for a
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shareholders’ meeting were not satisfied, and (iii) the threshold required for the approval
of the ordinary resolution was not satisfied.

With reference to the relevant provisions of the Companies Act 71 of 2008 and the facts,
advise Simphiwe on whether his arguments have any merit and whether the ordinary
resolutions were validly passed at the meeting. (15)

1.2 Cool Coals (Pty) Ltd ('the company') operates within a poor community and has made
three times the usual profit at the end of 2018. The board of directors of the company
debates whether the company should issue university bursaries to learners in the
community who have completed grade 12 in 2018 Some of the directors are opposed to
this view They claim that the company should be managed exclusively in the interests of
the shareholders with the result that (i) the interests of other stakeholders such as the
community and its grade 12 learners cannot be taken into account, and (ii) all the profits
of the company must be distributed to the company's shareholders. As the secretary of
the company, the board of the company approaches you for advice.

With reference to the principle of Ubuntu as expressed by Madala J in the case of S v

Makwanyane 1995 (6) BCLR 665 (CC) and the facts in the scenario above, advise the
board on whether the payment of university bursaries may be justified on the basis of the
principle of Ubuntu or whether the profits of the company should exclusively be
distributed its shareholders. (5)

QUESTION 2 [25]

2.1 Nonhlanhla holds 40% of the shares and voting rights in SLM (Pty) Ltd (‘the company’).
The Company’s Memorandum of Incorporation does not contain any special provisions
regarding the issue of shares other than that the Companies Act 71 of 2008 shall
regulate any issue of shares. The board of directors has resolved that the Company will
issue 4 million of its authorised shares for cash. Nonhlanhla wants to subscribe to all the
shares that the board of directors has resolved to issue. None of the other existing
shareholders of the Company wants to subscribe for any of these shares.

However, the board of directors has negotiated an agreement with Always On

Investments (Pty) Ltd, which is currently not a shareholder of the Company and which is
not related to the company. In terms of the agreement, Always On Investments (Pty) Ltd
will subscribe for up to 60% of the shares resolved to be issued. The agreement also
provides that the consideration for the shares will be paid for by a loan obtained by
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Always On Investments (Pty) Ltd from Sharevest Bank Ltd and the company will stand
surety for this loan.

2.1.1 With reference to the relevant provisions of the Companies Act 71 of 2008, advise
Nonhlanhla whether she will be able to compel the board of directors of SLM (Pty)
Ltd to issue all the 4 million new shares to her. (5)

2.1.2 Critically discuss the requirements of the Companies Act 71 of 2008 that must be
complied with for SLM (Pty) Ltd’s agreement to stand surety for the loan to be
obtained by Always On (Pty) Ltd from Sharevest Bank Ltd to be valid. Also explain
whether Nonhlanhla may be able to prevent this agreement from becoming
operative. (10)

2.2 The Memorandum of Incorporation of Pure Gold Ltd (‘the company’) 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 R50
million must first be authorised by the shareholders by way of an ordinary resolution.

Maki, a director who is authorised by the board of directors to conclude contracts on

behalf of the company, enters into a contract with Judith for the purchase of gold
processing equipment to the value of R100 million, without first obtaining the
authorisation for the purchase by the shareholders.

Judith knows about the provision in the Memorandum of Incorporation because she has
dealt with the company before. However, she does not know that the transaction has not
been authorised by way of an ordinary resolution by the shareholders of the company.

2.2.1 With reference to the Companies Act 71 of 2008 and the facts, discuss whether
Pure Gold Ltd is bound by the contract concluded by Maki and Judith. (6)

2.2.2 Suppose that after seven years the board has withdrawn Maki’s authority to
conclude contracts on behalf of the company by way of a board resolution and by
amending the MOI of the company. However, the board of directors of the
company has allowed Maki to conclude contracts on behalf of the company with
Judith. One day out of the blue the board of directors argues that Maki is not
authorised to conclude contracts on behalf of the company and that the contract
concluded with Judith is invalid.

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With reference to the relevant authority and the facts, advise Judith on what to
prove in order to prevent the company from arguing that it is not bound by the
contract. (4)

QUESTION 3 [15]

3.1 Thein (Pty) Ltd (‘Thein’) holds 23% shares in Gote (Pty) Ltd (‘Gote’). Risa (Pty) Ltd and
Soloi (Pty) Ltd are both subsidiaries of Thein and each holds 14% shares in Gote. With
reference to the Companies Act 71 of 2008 and the facts, advise the board of directors of
Thein (Pty) Ltd on the following matters
3.1.1 Whether Thein and Gote are related. (5)
3.1.2 Whether Thein controls Gote. (5)
3.1.3 Whether Gote is a subsidiary of Thein. (5)

QUESTION 4 [20]

4.1 Coffee Bean Lovers (Pty) Ltd (‘the company’) is a company that buys coffee from Kenya
and distributes it to different coffee shops in South Africa. Due to an infestation of bugs at
one of the coffee plantations, Coffee Bean Lovers (Pty) Ltd will not able to get deliveries of
coffee from Kenya for the next three months. Instead the company will have to import
coffee from Uganda at a much higher cost. As a result the company’s cash flow will be
severely affected. Pat, one of the directors of Coffee Bean Lovers (Pty) Ltd, has informed
Jane and Steven, two of the employees of the company, that the company may face
serious financial difficulties in the next three to twelve months and that they will not be paid
their salaries for the next two months as the company will first have to pay other creditors.

Jane and Steven have heard about business rescue and are of the view that it may be
appropriate in the circumstances to assist the company to survive and to ensure that they
will still be paid their salaries. Jane and Steven approach you for advice on business
rescue proceedings.

4.1.1 With reference to the Companies Act 71 of 2008, explain what business rescue is
and the circumstances of the company in which business rescue proceedings may
be used. (5)

4.1.2 With reference to the Companies Act 71 of 2008, advise Jane and Steven on how
business rescue proceedings may be commenced. In your answer also indicate

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whether Jane and Steven, in their capacity as employees, would have any means
of ensuring that the business rescue proceedings are commenced. (5)

4.2 Jacques is an executive director of Ubuntu (Pty) Ltd and is employed by the company. He
receives a letter from the board of directors stating that he would no longer be employed
by the company and henceforth his status is that of a non-executive director. The letter
states further that while Jacques could still attend all meetings of directors he would no
longer be involved in the day-to-day management of the company’s affairs. Jacques is
unhappy about the fact that he will no longer be involved in the day-to-day management of
the company’s affairs. With reference to the appropriate authority, advise Jacques on the
following:

4.2.1 The difference between an executive director and a non-executive director. (4)

4.2.2 Whether Jacques is entitled to be involved in the day-to-day management of the

company’s affairs. (6)

TOTAL: [80]

4 FEEDBACK ON THE OCTOBER/NOVEMBER 2019 EXAMINATION

PAPER

Please note that the feedback given below is not a detailed memorandum. It serves as a
guideline to assist you in answering the questions. The guidelines below should not be regarded
as model answers. Please also consult the sections of the study guide and prescribed textbook
that you are referred to. In answering application type questions, please note that you must do
the following:

Identify the legal principle in issue.

You will not be awarded marks if you do not identify the correct legal principle in issue. If you
write about legal principles which do not apply to the facts provided, you will not earn any
marks. Do not waste time writing about legal principles which are not relevant or that do not
answer the question that is asked.

You should let the mark allocation of the question guide you on how much to write. For
instance, if you only write five relevant points for a question which is worth 20 marks, you
cannot expect to receive full marks for your answer.

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Explain the legal principle and refer to its source.

State whether the legal principle comes from a case or from the Companies Act 71 of 2008. You
must know the prescribed cases.

Apply the legal principle to the facts provided to you.

Application of the legal principle to the facts given to you is very important. It is not sufficient to
simply write about the legal principle in issue, but you also have to apply the legal principle to
the specific facts given to you. Failure to apply the legal principle to the facts will render your
answer incomplete and you will forfeit marks.

Reach a conclusion that answers the question.

Finally, you must briefly conclude your answer and ensure that you have answered the question
posed to you. Re-read the question and make sure that your conclusion answers the specific
question that you were asked. This way the examiner will know that you understand how to
apply the legal principles to the facts, and you will be credited with the marks allocated for doing
so.

It is important to ensure that you complete the paper and that you answer all the questions
properly. For this reason, you must know your work well and you must properly time yourself in
answering the questions.

With the above in mind, consider the proposed solutions to October/November 2020 question
paper.

QUESTION 1

1.1 If every shareholder of a company (other than a state-owned company) is also a director of
the company, any matter that is required to be referred by the board to the shareholders for
decision may be dealt with in terms of section 57(4) of the Companies Act 71 of 2008. The
effect of this section is that a matter may be referred by the board to the shareholders
without notice or compliance with any internal formalities. However, this is subject to the
Memorandum of Incorporation which may provide otherwise.

Therefore, as all the shareholders of ABC (Pty) Ltd are directors of the company, section 57(4)
of the Companies Act 71 of 2008 would be applicable, unless the Memorandum of Incorporation
provides otherwise.
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Section 57(4) requires the following:

 Every person must be present at the board meeting when the matter was referred
to them in their capacity as shareholders.

 A sufficient number of persons must be present in their capacity as shareholders

to satisfy the quorum requirements as set out in section 64 of the Companies Act.

 A resolution adopted by the shareholders be supported by shareholders holding at

least the percentage of shares required for adopting an ordinary resolution at a
properly constituted shareholders’ meeting.
In this case, Simphiwe was not present at the meeting. Therefore, the first proviso is not
satisfied because not every person was present at the board meeting when the matter was
referred to them in their capacity as shareholders.

The default position for a quorum to be satisfied is that at least 25% of all the voting rights
eligible to be exercised in respect of at least one matter to be decided at the meeting must
be present before the meeting may start. Since four out of five shareholders were present
at the meeting, the quorum requirements for the meeting were satisfied.

The default position for the support of an ordinary resolution is that shareholders holding
more than 50% of the voting rights exercised must vote in favour of the resolution.

In conclusion, Simphiwe’s objection is valid because not every person was present at the
board meeting when the matter was referred to them in their capacity as shareholders.
Therefore, the ordinary resolutions were not validly passed.

Refer to section 57(4) Companies Act 71 of 2008, par 11. 4.3 of the prescribed textbook
and page 3 of the study guide.
1.2 Ubuntu refers to the saying umuntu ngumuntu ngabantu, which means a person is a person
through others. In the case of S v Makwanyane 1995 (6) BCLR 665 (CC), Madala J
expressed the view that ubuntu advocates social justice and fairness.

In the set of facts provided, the view of the directors that the company should be managed
solely in the interests of the shareholders is not in line with the principle of ubuntu which
advocates for social justice and fairness.

This approach fails to acknowledge the responsibility of the company towards the community
within which it operates. Based on the principle of ubuntu which promotes social justice and
fairness, the company’s payment of bursaries can be justified.

Refer to page 28 of Tutorial letter 101.

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QUESTION 2

2.1.1 Whether or not Nonhlanhla will be able to compel the board to issue all the new
shares to her

Section 39 of the Companies Act 71 of 2008 is relevant.

If a private company, such as SLM (Pty) Ltd, proposes to issue shares, each existing
shareholder of that company has a right, before any other person who is not a shareholder of
that company, to be offered and, within a reasonable time to subscribe for, a percentage of the
shares to be issued equal to the voting power of that shareholder’s general voting rights
immediately before the offer was made (section 39(2)).

Nothing in the facts indicates that the Memorandum of Incorporation has limited, negated,
restricted or placed conditions upon this right (section 39(3)).

The exceptions in section 39(1)(b) do not apply in this scenario.

Section 39(4) determines that except to the extent that the Memorandum of Incorporation
provides otherwise -

o A shareholder may subscribe for fewer shares than the shareholder would be
entitled to subscribe for; and

o shares not subscribed for by a shareholder within a reasonable time, may be

offered to other persons (i.e. outsiders such as Always On (Pty) Ltd in this
scenario) to the extent permitted by the Memorandum of Incorporation.

 Therefore, if the Memorandum of Incorporation permits it, shares not taken up by the
other shareholders of SLM (Pty) Ltd may be offered to persons other than shareholders.

Nonhlanhla can only force the company to offer her a percentage of the shares equal to the
voting power of her general voting rights immediately before the offer was made.

Refer to section 39 of the Companies Act 71 of 2008, par 9.10 of the prescribed textbook
and page 27 of the study guide.
2.1.2 The requirements of the Companies Act 71 of 2008 that must be complied with

The transaction in question (provision of guarantee/surety, of security or otherwise) amounts to

financial assistance for the subscription of the company’s securities. Accordingly, the
requirements of section 44 of the Companies Act 71 of 2008 must be complied with.

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o In terms of section 44(3)(a)(ii) the financial assistance must be provided pursuant
to a special resolution of the shareholders adopted within the previous two years.
The assistance must be approved either for the specific recipient or generally for a
category of potential recipients. The specific recipient must fall within that
category.

o In terms of section 44(3)(b)(i), the board of directors must be satisfied that

immediately after providing the financial assistance the company would continue
to satisfy the solvency – and liquidity test in section 4 of the Companies Act 71 of
2008.

This means that, considering all reasonably foreseeable financial circumstances of the company
at the time:

o the assets of the company as fairly valued must exceed the liabilities
of the company as fairly valued, and

o it must appear that the company will be able to pay its debts as they
become due in the ordinary course of business for a period of twelve
months after the date on which the test is considered.

o In terms of section 44(3)(b)(ii) the board of directors must be satisfied that the
terms under which the financial assistance is proposed to be given are fair and
reasonable to the company.

o The board of directors must also ensure that any conditions or restrictions relating
to the granting of the loan which are set out in the Memorandum of Incorporation
of the company (if any) have been satisfied (section 44(4)).

Application

If the requirements of section 44 are not complied with, the agreement of SLM (Pty) Ltd to stand
surety for the loan to be obtained by Always On (Pty) Ltd from Sharevest Ltd will be invalid.

Nonhlanhla would be able to prevent the agreement (or part thereof) from becoming operative
by simply voting against the resolution for the approval of financial assistance. She holds
enough voting rights to prevent the passing of the requisite special resolution.

Refer to section 44 of the Companies Act 71 of 2008, par 10.5 of the prescribed textbook
and page 36 of the study guide.

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2.2.1 Whether Pure Gold LTD is bound to the contract concluded between Maki and
Judith

 Refer to section 20(7) of the Companies Act 71 of 2008.

 A third party dealing with the company in good faith may assume that the company has
complied with all the formal and procedural requirements in terms of the Companies Act
71 of 2008, the Memorandum of Incorporation and the company’s rules unless he or she
knew or reasonably ought to have been aware that they had not been complied with.

Application

 There is no indication from the facts that Judith knew or reasonably ought to have known
that Maki failed to comply with the procedural requirement in terms of the Memorandum
of Incorporation.

 There is also no indication that Judith was aware of the fact that Maki did not comply with
procedural requirement, and that she had acted in bad faith.

 The contract is, therefore, valid and the company will be bound by it.

Refer to section 20(7) of the Companies Act 71 of 2008, par 7.3 of the textbook and page
21 of the study guide.
2.2.2 What Judith must prove in order for the company to be bound by the contract if the
company relies on Maki’s lack of authority
Judith must prove the requirements of estoppel. She must prove that:

o Pure Gold Ltd misrepresented (i.e the misrepresentation was made by the
company).

o The misrepresentation that Maki had the necessary authority to represent the
company was made intentionally or negligently.

o she, as a reasonable third party, was induced to deal/ conclude the contract with
Maki on the basis of the misrepresentation.

o she was prejudiced/ suffered damage due to the misrepresentation.

 Refer to Freeman & Lockyer v Buckhurst Park Properties as authority.

See page 20 of the study guide and par 7.4.2.1 of the textbook.

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QUESTION 3

3.1

3.1.1

 In terms of section 2(1)(c) of the Companies Act 71 of 2008, a juristic person is related to
another juristic person if either of them, directly or indirectly, controls the other or the
business of the other as determined in accordance with subsection 2;

 If either is a subsidiary of the other; or

 A person directly or indirectly controls each of them or the business of each of them, as
determined in accordance with subsection 2.

Application

The facts indicate that Thein directly holds 23% of the voting rights in Gote and indirectly holds
28% of the voting rights in Gote through Risa and Soloi who hold 14% each.

In total, Thein indirectly controls the majority (51%) of the voting rights in Gote.

This means that Thein and Gote are related.

Refer to section 2(1) of the Companies Act 71 of 2008, page 39 of the study guide and par
8.4 of the textbook.

3.1.2 Does Thein control Gote?

In terms of section 2(2) of the Companies Act 71 of 2008

o a person controls another juristic person or its business if that juristic person is a
subsidiary of the person in terms of section 3(1)(a); or

o if together with any related person or interrelated person is directly or indirectly

able to exercise or control the exercise of a majority of the voting rights associated
with the securities of that company, whether pursuant to a shareholder agreement
or otherwise.

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Application

 The facts indicate that Thein is able to directly exercise 23% of the voting rights in Gote
and is also able to indirectly exercise 28% of the voting rights in Gote through Risa and
Soloi.

 In total, Thein is able to directly and indirectly exercise control over the majority (51%) of
voting rights in Gote.

This means that Thein controls Gote.

Refer to section 2(2) of the Companies Act 71 of 2008, page 39 of the study guide and par
8.2 of the textbook.
3.1.3 Is Gote a subsidiary of Thein?

 In terms of section 3(1) of the Companies Act 71 of 2008, a company is a subsidiary of

another juristic person if that juristic person, one or more other subsidiaries of that juristic
person, or one or more nominees of that juristic person or any of its subsidiaries, alone or
in any combination is or are directly or indirectly able to exercise or control the exercise
of, a majority of the general voting rights associated with issued securities of that
company, whether pursuant to a shareholder agreement or otherwise.

 A company also qualifies as a subsidiary company if the company or its

subsidiary/subsidiaries has or have the right to appoint or elect or control the
appointment or election of directors of that company who control a majority of the votes
at a meeting of the board.

Application

 On the facts, Thein is able to directly exercise 23% of the voting rights in Gote and is able
to indirectly control 28% of the voting rights in Gote through Risa and Soloi.

 In total, Thein is able to indirectly control the majority of 51% of the voting rights in Gote.

 This means that Gote is a subsidiary of Thein.

Refer to section 3(1) of the Companies Act 71 of 2008, page 39 of the study guide and par
8.2 of the textbook.

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QUESTION 4

4.1.1 What is business rescue?

 Section 128(1)(b) of the Companies Act 71 of 2008 defines business rescue as

proceedings to facilitate the rehabilitation of a financially distressed company by:

o The temporary supervision of the company and of the management of its affairs,
business and property.

o A temporary moratorium on the rights of claimants against the company or in

respect of its property in its possession.

o The development and implementation, if approved, of a plan to rescue the

company, or, if not possible, a plan to achieve a better return for the company’s
creditors than the payment they would have received if the company had been
liquidated immediately.

Circumstances in which business rescue can be used

 In terms of section 128(1)(f) of the Companies Act 71 of 2008 a company will be

financially distressed when:

o the company is reasonably unlikely to be able to pay all its debts as they become
due and payable within the next six months, or

o the company is reasonably likely to become insolvent within the next six months.

Refer to section 128(1)(b) and (f) of the Companies Act 71 of 2008 and par 20.2 of the
textbook.
4.1.2 The commencement of business rescue proceedings

 In terms of section 129(1) of the Companies Act 71 of 2008, business rescue

proceedings will commence:

o When the board of the company resolves by means of a majority vote that the
company begin business rescue proceedings if

 it has reasonable grounds to believe that the company is financially

distressed and

 there appears to be a reasonable prospect of rehabilitating the company.

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 The proceedings will become effective only when the resolution is filed with the
Companies and Intellectual Property Commission.

 The proceedings can also be initiated by a court application in terms of section 131 of the
Companies Act 71 of 2008.

o Any affected person may apply to court for an order to commence business
rescue proceedings and place the company under supervision.

 The proceedings will become effective when an application is made to court, or if made
during liquidation – when the actual order for business rescue is made.

 In terms of section 128(1)(a) of the Companies Act 71 of 2008, an affected person is

either a shareholder, creditor, registered trade union, and employees not represented by
a trade union.

Application

It is, therefore, possible for Jane and Steven to bring an application.

Refer to sections 129 and 131 of the Companies Act 71 of 2008, pars 20.3.1 and 20.3.2 of
the textbook and pages 49-50 of the study guide.

4.2 Section 66(1) of the Companies Act 71 of 2008 provides that the business of the
company must be managed by, or under the direction of its board, which has the authority to
exercise all the powers and perform any of the functions of the company except to the extent
that the Companies Act or the company’s Memorandum of Incorporation provides otherwise.
The directors of a company, therefore, have a duty to manage the company.

An executive director has a service contract with the company and works for the company in a
full-time capacity. A non-executive director attends and votes at board meetings but does not
work full-time for the company and does not have a service contract.

The facts of this scenario are similar to the prescribed case of Kaimowitz v Delahunt. In this
case the court held that a director is not as of right entitled to participate in the day-to-day
running of the company’s affairs. The court stated that the overall supervision of the
management of a company rests with the board which may delegate such management powers
to a managing director or a board committee. Therefore, a director has no right as such to be
involved in the day-to-day management of the company’s affairs.

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In conclusion, Jacques is not entitled as of right to be involved in the day-to-day management of

the company’s affairs if this right is not delegated to him by the board of directors.

Refer to section 66 of the Companies Act 71 of 2008, par 12.2 of the textbook and pages
6-7 of the study guide.

5 GENERAL COMMENTS REGARDING THE EXAMINATION

5.1 Preliminary October/November 2020 examination arrangements

As you are aware, the University has resolved that following the May/June online examinations,
all future examinations of Unisa will be held online. Plans are currently underway to ensure that
the October/November exams are successfully held online.

As was the case during the May/June exams, most modules will require you to have a device
(smartphone, tablet, iPad, laptop or desktop) and data to ensure that you successfully write the
exams. Some modules, however, will require additional technical specifications such as web
cams and high-speed internet, and your lecturer will communicate with you about such
requirements in the next few weeks.

The details regarding the different exam formats and platforms for your respective modules will
be communicated together with the timetable, which will be published in due course.

Please note that the exam will not be in the format as described in the Tutorial Letter 102. Due to
the national lockdown, the exam for the October/November 2020 exam session will be a Portfolio
exam. You will be required to access the Portfolio exam questions, and to submit your answers to
the examination online. Please note that you will be allowed to access and use all the prescribed
study material for the module during the examination. The exam timetable and further details
regarding the procedure will be e-mailed to you on your mylife email account. Please check the
announcements on myUnisa regularly for important updates and/or changes. Please read the
instructions to the examination very carefully. Kindly note that you are granted 24 hours to
complete the examination and submit your answers. Last semester several students submitted
the Portfolio questions instead of the answers or erroneously submitted the answers to portfolio
examinations in other modules. Unfortunately, these students got 0 for the exam. Please be very
careful when you submit that you submit the correct document for us to mark.

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5.2 Answering of examination (portfolio) questions

Read the questions carefully before attempting to answer them. Let the mark allocation of each
question guide you regarding the required length of the answer. Always reread your answer and
ensure that you have answered what was asked. Please take note of our suggested answers
and comments. Do not hesitate to contact us if you experience any problems with the study
material. Also, regularly visit the myUnisa module site for LML4806 for the latest information and
arrangements regarding the upcoming examination. Detailed information on the examination
format will be released shortly. Also, be on the lookout for the new examination timetable that
will be released soon.

5.3 Referencing in the examination (portfolio)

For purposes of the October/November 2020 LML4806 examination you do not need to make
use of footnotes or prepare a bibliography.

However, it is important that when referring to the Companies Act 71 of 2008 that you clearly
state the section you are referring to. You can refer to the applicable section(s) in the text of
your answer. The same principle applies when you are referring to case law. When referring to
case law you need to state the full name of the case.
You do not need to cite the study guide or prescribed textbook in your answers. We know that
you have consulted the study guide and the prescribed textbook.

When using sources that are not prescribed you need to give the full reference/citation of the
source. As explained above the examination paper has been drafted in such a way that you
need only your prescribed study material to answer the questions. Do not waste time in
searching or consulting sources that are not prescribed.

We wish you all the best with the examination.

YOUR LECTURERS

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