Company Law Summary Notes (1)

LML4806

Company Law

Abbreviations used:

Co company

MOI Memorandum of Incorporation

Sh shareholders

Agm - agreement

Unit 1: Shareholders and company meetings

1 Introduction

Company has no physical existence, acts thru its members, directors and employees.

Person must be duly authorized to act obo the company

Day to day running of Co is respons of its executive directors

Shareholders dont have duties towards the Co, but may hav oblig towards each other ito

shareholders agm

Def of shareholder = person who is entitled to exercise any voting rights in relation to a

company, irresp of the form, title or nature of the securities to which the voting rights are

attached (S57(1))

General comments regarding meetings:

i. Must be properly convened

ii. Prescribed notice give by persons with relevant authority

iii. Notice must be given to all persons who are entitled to receive a notice

iv. Must be convened for a time, date and place thats accessible to members of the Co

v. May commence only if quorum is present

vi. Board of co may set record date for purposes of determining which shareholders are

entitled to receive notice of a meeting, partic in and vote, decide any matter by written

consent/e-comm, exercise pre-emptive rights, receive a distribution

vii. Record date may not be earlier that date on which the record date is determined. Must

be published to shareholders in manner that satisfies any prescribed req.

Section 66(1) of the Companies Act of 2008 provides that the business and affairs of a 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 this

Act or the companys Memorandum of Incorporation provides otherwise. The directors

therefore have a duty to manage the company but shareholders retain control over the

directors by their power to appoint and remove directors. Many important decisions taken by

the directors must furthermore be approved by the shareholders.

2 Notice of meetings

This is the first step in convening a meeting (Section 62 of the Companies Act):

1 Must be in writing

2 Must include date, time and place for meeting

3 Where record date has been set for meeting, notice must include the record date

4 Public company and non-profit company with voting members:

a. Notice must be given 15 business days prior to meeting

b. Ten days for other companies

c. May be longer if contained in Memorandum of Incorporation

5 Notice should explain general purpose of meeting and any other specific purposes

6 Copy of any proposed resolutions received by the company which is to be considered at the

meeting must be added to notice

7 Should indicate the percentage of voting rights required for resolution to be adopted

8 Notice convening Annual General Meeting must contain a summary of the financial statements

that will be tabled at the meeting. Notice must also explain procedure that shareholder can follow

to get complete copy of annual finance statements for preceding financial year

9 Must have a prominent statement that a shareholder is entitled to appoint a proxy to attend,

participate in and vote at meetings in place of shareholder

10 Should indicate that meeting participant will be required to provide satisfactory proof of identity

at the meeting

Failure of notif / defect in notif:

o Meeting may proceed if persons who may vote iro each item on the agenda are present

at the meeting +

o Acknowledge actual receipt of notice and agree to waive the notice or if defect, ratify

the defect

o If defect only affects one item, that item may be taken off the agenda, notice remains

valid for remaining items on the agenda

o Immaterial defect/accid/inadvert failure in delivery does not invalid any action taken

at the meeting

o A shareholder present at meeting deems to have received notice of such meeting

3. Representation by Proxy

Proxy = person appointed to represent a shareholder at a meeting

Common law did not have above right. But written into Comp Act

Provisions of Memo of Inc may allow shareholder to appoint 2 or more proxies

Once appointed, proxy will be allowed to attend, partic in, speak and vote at shareholders meeting

Ingre v Maxwell:

o There must be at least 2 persons present to constit a meeting. It is not a meeting

where one is in attendance and holds proxies of all other persons who were entitled to

attend the meeting

Conditions of appointing proxy:

o Must be in writing and signed by the shareholder

o Valid for one year

o Proxy may be appointed for a spec period of time

o Appointm may be for 2 or more persons concurrently exercising voting rights for

different shares

o Proxy may delegate authority to act obo the shareholder to another person

o Copy of proxy appt form must be delivered to the comp before the shareholders

meeting

o A shareholder is not compelled to make an irrevoc proxy appt

o A shareholder may alter the proxy appt by cancelling it in writing, appointing another

proxy and delivering a copy of the revocation to the proxy and comp.

Shareholder can indicate on the proxy form whether the notice of meetings has to be delivered to the

shareholder or the proxy. If must be deliv to proxy, company can charge shareholder a reasonable fee

Proxy is entitled to vote as he thinks fit unless shareholder indic on proxy appt form whether the

proxy should vote in favour of or against a partic resolution.

Comp can give a list of names of proxies to appoint. Shareholder not obliged to choose from this list

Appt form should have sufficient space to provide name of proxy and indicat vote in favour of or

against resol

Davey and other v Inyaminga Petroleum:

o Prescribed proxy form required the proxy-giver to set out the number of shares iro

which he was authorising the proxy to vote

o This was not done

o In this case it was essential to provide this info = material omission proxy was thus

incomplete and invalid

4. Demand to convene a shareholders meeting

Board (or person authorised in Memo of Inc) may call a shareholders meeting at any time

Meeting may be convened if req by Memo of Inc (for eg to elect a director), or demanded by

shareholders with at least 10% voting rights

Requirements for demand of meeting:

o Demand must specif purpose for which the meeting is proposed

o Must be signed by holders of at least 10% of the voting rights

o Memo of Inc may specif a lower percentage than 10%

o Com or shareholder may apply to court for an order setting aside a demand for a meeting on

grounds that it is frivolous, vexatious, or calls a meeting for no other purpose than to

reconsider a matter that has already been decided by shareholders

o Shareholder who submitted the demand may withdraw it before start of the meeting

5. Shareholders acting other than at a meeting

A resolution voted on at meeting can instead be submit for consideration to the sh and voted on in

writing by sh entitled to exercise voting rights. Will have same effect as if it was adopted at a meeting

Election of a director can be done in the same way

In 10 bus days after adopting resolution, Co must deliver a statement describing results of the vote,

consent process, or election to every sh who was entitled to vote

Gohlke and Schneider v Westies Minerale:

o Members may validly appoint a director to the board w/o any formal meeting if there is

evidence of unanimous consent

In re Duomatic Ltd

o Unan approval of directors remuneration by the two directors holding all the voting shares in

a company could be regarded as a resolution of a gen meeting approving the payment

Change:

o Resolution can be adopted in writing. Unan assent no longer necessary

o Business of a company which must be conducted at AGM may not be conducted in this way.

6. Annual General Meeting

Public Co: must occur not more than 18 months after the Co date of Incorp. Subsequent agms: not

more than 15 months thereafter

Companies tribunal may grant extension if good cause is shown

Following matters must be discussed:

o Presentation of Directors Report,

o audited financial statements for immediate preceding financial year

o and Audit Committee report;

o Election of directors;

o Appoint of Auditor for the ensuing financial year and appointment of the Audit Committee;

and

o Any matters raised by shareholders, with or w/o advance notice by the Co

7. Convening a meeting in special circumstances

S61(11):

o Co cant convene a meeting because it has no directors, or they are incapicated

o Any other person authorised by Memo of Inc may then convene the meeting

o If not other person is authorised, any sh may request the Comp Tribunal to issue and admin

order for a sh meeting to be convened

S61(12):

o If a comp fails to convene for any reason, shareholder may apply to a court for an order req the

Com to convene a meeting on a date, and subj to any terms court considers appropr.

o Co must compensate a shareholder who applies to Com Tribunal for the costs of those

proceedings

8. Quorum

25% of all the voting rights iro one matter must be present.

Meeting cant begin without sufficient persons

Memo of Inc may specify a lower or higher percentage in place of 25%

If Co has more than 2 sh, meeting may not begin, unless at least 3 sh are present, provided they have

at least 25% voting rights.

9. Conduct of meetings

Voting done by show of hands or a poll

Each person only has 1 vote, doesnt matter how many shares

Poll: any member entitled to exercise all his voting right attached to this shares

Meeting may be conducted electronically or one or more can participate electronically

Where person abstains in vote, deemed to have voted against resolution

Only votes of sh who actually exercise their voting rights will be taken into consideration

10. Majority RuleMajority RuleMajority RuleMajority Rule

When a person becomes sh, he agrees to be bound by the decisions of the majority. (common law rule)

11. Exercise of Voting rights

Sh of profit Co with only 1 sh may exercise all voting rights. The rules of setting dates, proxies, etc

not apply to Profit co with only 1 member.

Profit Co has only 1 Director, director may exercise any power at any time, w/o notice

Where every sh of particular Co is also director of the Co, any matter that must be referred by board

to sh may be decided by sh at any time w/o notice

Every director must be personally present when matter referred in capa

present

Board that holds securities of a 2nd

2nd Co

Pender v Lushington:

o Sh, unlike directors, dont exercise their voting rights for the benefit of the Co and

entirely in their own interest.

o A sh has a right to have his vote recorded, even if it made not difference to the final result

12. Shareholder Resolutions

Ordinary resolutions 1 Decision taken at a sh meeting, with support o

50% of the voting rights exercised

2 Memo of Inc may require higher percentage vote

3 Companies Act: there should be a margin of at least 10 percentage points between requirements for adoption of a special resolution and those for an ordinary resolutions

Decisions can be taken without convening meetings

When board of directors propose a resolution to the shareholders, board may decided whether it be

decided by meeting vote or written consent vote

Sh or director of opinion resolution is not clear, may apply to court for restrain order to put resolution

to a vote until defect is remedied.

13. Decisions that require a special resolution

1. amendement of the Co Mem of Inc;

2. Approving the voluntary winding up of the Co and

3. Approval of a sale of assets, merger, an amalgamation or a scheme of arrangement

4. Memo of Inc may req a special resolution to approve any other matter

14. Postponement and adjournment of meetings

May be postponed for a week under the following conditions:

Within 1 hour after the appointed time for a meeting to begin, a quorum is not present;

o Chairperson may extend the 1 hour limit for a reasonable length of time on grounds of

exceptional circumstances

When a quorum is not present at the

in person/proxy will be deemed to constitute a quorum

o Meeting may go ahead if at least one shareholder at meeting has voting rights.

If there is other business on the agenda of the meeting, c

to a later time in the meeting without motion or vote.


to sh may be decided by sh at any time w/o notice

Every director must be personally present when matter referred in capacity as sh

nd Co may authorise any person to act as rep at any sh meeting of that

Sh, unlike directors, dont exercise their voting rights for the benefit of the Co and

entirely in their own interest.

A sh has a right to have his vote recorded, even if it made not difference to the final result

Special resolutions Decision taken at a sh meeting, with support of more than 75%

Memo of Inc may require higher percentage vote May provide for lower percentage

Companies Act: there should be a margin of at least 10 percentage points between requirements for adoption of a

al resolution and those for an ordinary resolutions

ditto

Decisions can be taken without convening meetings


decided by meeting vote or written consent vote


to a vote until defect is remedied.

13. Decisions that require a special resolution

amendement of the Co Mem of Inc;

ding up of the Co and

Approval of a sale of assets, merger, an amalgamation or a scheme of arrangement

Memo of Inc may req a special resolution to approve any other matter

14. Postponement and adjournment of meetings

ollowing conditions:


Chairperson may extend the 1 hour limit for a reasonable length of time on grounds of

exceptional circumstances

When a quorum is not present at the postponed or adjourned meeting, the members of the Co present

in person/proxy will be deemed to constitute a quorum

Meeting may go ahead if at least one shareholder at meeting has voting rights.

If there is other business on the agenda of the meeting, consideration of that matter may be postponed

to a later time in the meeting without motion or vote.


city as sh. A quorum must be

Co may authorise any person to act as rep at any sh meeting of that

Sh, unlike directors, dont exercise their voting rights for the benefit of the Co and can act

A sh has a right to have his vote recorded, even if it made not difference to the final result

May provide for lower percentage



Approval of a sale of assets, merger, an amalgamation or a scheme of arrangement


Chairperson may extend the 1 hour limit for a reasonable length of time on grounds of

postponed or adjourned meeting, the members of the Co present

Meeting may go ahead if at least one shareholder at meeting has voting rights.

onsideration of that matter may be postponed

Unit 2: Directors, Board Committees and the Co Secretary

1. Intro

Co cant act on its own behalf, its conducted by reps.

2. Meaning of the word director and different types of directors

Member of the board of a Co: incl any person occupying the position of a director or alternate

dir.

A person becomes a director only when:

i. He has given written consent

ii. Appointed, electing, holding office wrt S66 of Act

King Code = guidelines which indic principles that a Co should adhere to for purposes of good

governance

King code: 3 types of directors

i. Exec director

1. Have a service contract, work full time for Co

ii. Non-exec

1. Attend and vote at board meetings

2. Do not work full time for the Co and have no service contract

3. According to King, 4 NB functions:

a. Bring special expertise and knowledge to bear on the strategy,

enterprise, innovative ideas and bus planning of the Co

b. They can monitor and review performance of non-exec management

more objectively than exec dir

c. They can play a role in resolving conflict of interest situations

d. They can act as a check and balance against the exec directors

iii. Independent (de facto directors)

1. 2 categ:

a. Act as directors w/o having been appointed

b. People appointed to office of director, although qualifications dont

comply with the req

c. Re Hydrodam ltd

i. To establish de facto director, necessary to plead and prove

that he undertook functions in relation to the Co which would

probably only be done by the director

Companies Act: 5 types

i. Ex officio

ii. Memo of Incorp appointed

iii. Alternate

iv. Elected

v. Temp (in order to fill vacancy)

3. Directors and Managers

Manager = employee; director does not have to be employee

Managing Director

i. Moresby White v Rangeland ltd

1. Director who is vested by board of directors with all/subst part of its general

powers of the control of affairs of the Co

2. Direct and immed rep of the Board, fully recogn for legal purposes

3. His relation to the Co must come from the actual terms of agm between the

Co and himself

Directors Managers Leadership Board provides intrinsic leadership

and direction at the top of the organisation

Carry thru the strategy obo directors

Decision Making Determine future of Co Protect assets and reputation Consider how decisions relate to stakeholders

Implement decisions and policies of the board

Duties and responsibilities Long term prosperity of the Co Apply skill and care in exercising their duty May be personally liable in civ and crim law if in breach of duty Owe duties to stakeholders

Fewer legal respons, can act contrary to the interest of the employer

Relationship with shareholders Accountable to the sh for Cos performance and can be removed from office by them Act as fiduciaries of the sh and act in their best interest, also take into account best interest of Co.

Appointed and dismissed by directors, do not interact with sh

Ethics and values Have key role in determination of the values and ethical position in the Co

Must enact Co ethos, taking their direction from the board

Co administration Responsible for Co admin Related duties can be delegated to managers, but ultimate respons is that of directors

Stat provisions in general There are many Not held respons under the act Disqualification Under the act or ito Mem of Inc Control over manager rest with

board and exercised in accordance with managers employment contract

4. Number of directors and consent

Priv/person liabil Co must have at least 1 director

Public/ non-profit must have at least 3

S66(11): where Co does not have min directors, does not negate or limit the authority

of the board, or invalidate anything done by the board

Person appointed must also give written consent to act as director of the Co

i. S v Vandenberg (directors must be properly appointed):

1. Certain persons were criminally charged under companies act

2. Court made it clear that the offence could only be committed by a director of

the Co

3. Of the 3 charged, only 1 was duly appointed director

4. The other 2: occupied positions of directors and controlled the Co

5. Court: if act speaks of directors, does not include de facto directors, becos the

act has its own definition of a director

5. Directors: the act and a Co MOI

The 2008 Act Memo of Incorp Number of Directors

a priv Co/person liab have at least 1

public/non-profit: 3

where does not have min, any act done by board remains valid

can specify higher nr than req of Act

not possible for mem to lower req nr than prescribed in Act

cant invalidate the acts of board where does not have prescribed min

Appointment Memo of Inc of a profit Co must provide that the sh will be entitled to elect at least 50% of directors and 50% of alternate directors

Memo of Inc can provide that any person will have the power to appoint and remove directors, but there must still be min directors for profit Co

Removal S71:

despite a Mem of Inc or rules; and

despite any agreement between the Co and a director; and

despite any agreement between any sh and a directr,

a director may be removed by an ordinary resolution adopted at a sh meeting

Cant entrench the position of any director and cant override the will of ordinary sh as expressed in ordinary resolution

Ex officio Memo of Inc may provide for a person to be an ex officio director.

Ditto

Alternate Directors

2008 act does not insist one one Can provide for appointm or election of one

Remuneration does not have automatic right to remuneration

Co may pay remun to a director, unless prohib in Mem of Inc

Remun must be approved by a special resolution within the previous 2 years

Memo of inc can provide for payment of directors

Term of Office Elected to serve indef term or fixed term as set out in MOI

Ditto

Ineligib and disqualify

(next paragraph) Can provide for additional grounds of ineligib or disqualify of directors, but cant override the provisions of Act

Qualific Memo of Inc can prescribe minim qualify to be met by the directors.

6. Ineligible and disqualified persons

If person is inelig to be appointed, he is absolutely prohib from being director. No exceptions

exist. The following persons are inelig:

i. A juristic person

ii. Minor or person under similar legal disability (under 18 years)

iii. Any person who does not satisfy any req in a Co MOI

If person is disqualified: may still be appointed with permission by court. The following

persons are disqualified:

i. A person prohib by a court of law

ii. A person who has been declared to be delinquent

iii. An unrehabilitated insolvent

iv. A person who is prohib ito any public regulation

v. Removed from an office of trust because of dishonesty

vi. Has been convicted and imprisoned without the option of a fine for theft, fraud,

forgery, perjury..

vii. Disqual ito Co MOI

Disqualify apply to all types of directors

When a person is inelig/disq, he must not be appointed as director or consent to being

appointed as one

Co must not knowingly permit an inelig/disq person to serve as a director

Any such person must cease to be a director and vacate the office immediately.

7. Director disqualifications: Exemptions

S69(11) give court discretion to avoid disqualify.

Exemptions by a court:

i. Court may exempt certain disq persons. The following persons may apply:

1. An unrehab insolvent

2. A person who was removed due to dishonesty

a. Must prove has been rehab from wrongful ways. Must prove can be

trusted with responsibl of director

b. Ex parte Schreuder:

i. Applic previously convicted of fraud and imprisoned for a

year. After came out, became dir of 7 companies without

permission of court

ii. Was then convicted of contravening insolvency act.

Imprisoned for 9 months

iii. He brought application to court to allow him to be director

iv. Court took into consideration following factors:

1. Nature of offence

2. Circumstance under which it took place

3. Applicants behaviour since commission of the offence

4. Whether the applicant has committed any other

offences with element of dishonesty

5. To what extent the entities that the applic is involved

in trusts him

6. The applicants biz acumen and knowledge of

companies

7. The time period that has elapsed from date of

conviction and date of application to be permitted

c. Ex Parte Tayob:

i. Applicants were involved in bribery

ii. One year after conviction, brought application to be permitted

iii. Court: bribery and corruption hold serious threat to open and

honest community

iv. Court: too little time lapsed between convict date and date of

applic

3. Convicted of a crime

ii. Person must make an ex parte applic to the court for permission

Exemptions for certain private companies

i. Despite being disqualify a person may act as director of a private Co if:

1. All the shares are held by that disqualify person alone or

2. All shares are held by the disqualify person and persons related to such person

each one has consent in writing that he be directore

3. Ex parte Barron:

a. Applic was director of several priv Co. him and wife was only

shareholders

b. He was tried and convicted of fraud

c. Court: factors which affect discretion of court:

i. Type of offence

ii. Whether or not it was a first conviction

iii. Type of punishment imposed

iv. Whether it was a public Co where applic wants to be a

director or if its a priv Co

v. Attitude of shareholders and whether all the shareholders

support the application

vi. Court: will be more lenient in a case where priv Co is affected

that a public Co. reason: director of public Co deals with funds

in which a vast number of people may have an interest.

8. Application to declare a person delinquent or under probation

The following persons can apply to court for such an order

i. A Co

ii. Shareholder

iii. Director

iv. Co secretary or prescribed officer of a Co

v. Registered trade union that represents employees of the Co

vi. Any other rep of the employees of the Co

vii. The Commission or

viii. The Takeover Regulation Panel

Declared delinq = disqual from being a director

Grounds for application Order sought Effect of order The person acted as director while he was inelig or disqualify

delinquency declaration is unconditional and exists for the lifetime of the person declared delinq.

Person acted as dir while under probation and in contravention of order under co Act

Delinquency Same as above

Person grossly abused the position Delinq Conditions which court consider just. Declaration exists for 7 years from date of order. Act provide that court may order the person concerned:

Undertake a designated programme of remedial education relevant to the nature of the persons conduct as a director

Carries out a designated programme of community service or

Pays compensation to any person adversely affected by his conduct as director

Took personal advantage of info or an opportunity contrary to the Act

Delinq Same as above

Intentionally or by gross neglig inflicted h arm on the Co or a subsid of the Co


Acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust


Person acted in manner contemplated in S 77(3)


Was present at a meeting and failed to vote against a resolution despite the inability of the Co to satisfy the solvency and liquid test

Probation Subj to conditions imposed by the court for no more than 5 years. Court may order person concerned:

Same as first three bullets above

Be supervised by a mentor in future partic as a director while the order remains in force or

Be limited to serving as a director of a priv Co, or of Co of which he is sole shareholder

Person acted in a manner materially inconsistent with the duties of a director

Probation As above

Person acted in or supported the decision of the Co to act in an oppressive or unfairly prejudicial manner

Probation As above

Where applic is the Commission or Takeover Regulation Panel: can apply for any of the grounds above as well

as these below:

1. The person has repeatedly been personally subj to a compliance notice or sim enforce mechanism ito

any legislation; or

2. Has at least been 2 personally convicted of an offence, or subj to an admin fine ito any legisl; or

3. Was a director of one or more Co or managing member of one or more CC or controlled a juristic

person, that were convicted of an offence within period of 5 yrs. Position must be proven at time of

contravention

Court will grant a delinq order onlyl if satisf that this declaration is justified.

Application to court:

A person declared delinq may apply to court as follows:

To suspend the order, substit order of probation, w or w/o conditions, at any time more than

3 yrs after the order of delinq was made; or

To set aside the order at any time more than 2 yrs after it was suspended (as above)

On considering, court may not grant order unless applic has satisfied all the conditions that were

attached to the order

9. First directors of a Co

Every Incorp of a Co is deemed to be the director until suffic directors have been appointed

10. Vacancies on the board

Vacancy arises in the following circumstances:

1. Period of fixed term contract expires as provided in MOI

2. Person resigns

3. Dies

4. Position of ex officio director becomes vacant if person ceases to hold the office

5. Ceases to reside in SA at a time when there are no directors of the Co resident in the country

6. Becomes incapac to extent unable to perform functions of a director and is unlikely to regain

that capac within a reason time

7. Declared delinq

8. Placed on probation

9. Becomes ineligible or disqualify

10. Removed from office by resolution of sh or resolution of the board or order of court

11. Filling of vacancies

Must be filled within 6 months after the vacancy arose

If no remaining directors, any sh with voting rights may convene a meeting to elect directors

Co must file notice within 10 business days after person becomes or ceases to be a director

12. Removal of directors

12.1 removal by sh

May be removed by an ordinary resolution adopted at a sh meeting. This may happen no

matter the terms of the agm

Notice of the meeting must be given to the director prior to considering the resol to remove.

He must be allowed reason opport to make a represen (n person or thru rep) to the meeting,

before resol is put to vote

12.2 removal by board of directors

Grounds:

If Co has more than 2 directors and its alleged by sh/direct that a diretor of the Co has

become inelig or disqual;

Director has become incapac to the extent he is unable to perform functions of dir and

unlikely to regain cap within reasonable time

Director is no longer resident in republic in circums where there are no other

directors resid in Rep

Has neglected/been derelict in perform of functions

Where the Board took resolute to remove dir, dir may apply to court to review determination

of the board. Must be brought in 20 bus days from date of decision.

Above rules do not apply to company with less than 3 dir. If so, dir/sh may apply to

Companies Tribunal to determine any matter above.

12.3 removal and breach of contract

Removal as a dir ito the Bill can constit breach of contract. The dir will retain the right to

claim ito of comm. law for damag or other compensation for loss of office as dir

13. Board Committees

Co Act: Board of dir may appoint any number of committees and may delegate any authority to the

comm..

King Code: Board is the focal point of corp governance, it may delegate author, there is an NB

distinction between delegation and abdication of powers. The board is respons for carrying out its

duties properly and this cant be avoided by shielding behind a comm..

Co Act: Dir remains liable for proper performance despite delegation of duty to a comm.

A non-dir appointed to comm. will nt have any voting rights on any matter decided by the comm..

Min of T&I may prescribe social and ethics comm. if desir in public interest, having regard to:

Annual turnover

Size of the workforce

Nature and extent of its activities

a) Committees and the King Code

Should be established to assist dir by giving detailed attention to important areas.

Public listed Co should have at least and audit and remun comm.

Industry and co spec issues will dictate the req of other comm.

14. Board Meetings

Dir authorised by board may call a meeting of the board at any time. Dir meeting be called in follow

circumst:

If req to do so by nr of % of dir specif in Co MOI;

If req to do so by at least 25% of the dir, where the board has at least 12 members

Where

Where board has less than 12 members and meeting is req by 2 dir

Committees and their responsibilities (King Code)

a) E-communication

The Bill makes it possible to conduct board meetings by e-commun.

b) Notice

Form of notice and notice periods are determined by the board of dir. Req: should comply with req in

Mem of Inc.

c) Quorum

Majority must be present before a vote may be called.

d) Voting

Every director has one vote. In the event of a tied vote, Chair may cast deciding vote.

e) Minutes and Resolutions

Minutes must be kep. Must incl any declarations given by dir and resolutions adopted by the board. Min

signed by Chair are evidence of proceedings of that meeting.

f) Directors acting other than at meeting

A dec that could be voted on, may instead be adopted by written consent of a major of dir given in

person or electron. Has same effect as if it has been approved by a vote.

15. Company Secretary

a) Appointment & Duties

Mandatory appointment o All public companies with share capital excl share block company o Secretary =

Permanently resident in SA In opinion of directors requisite knowledge & experience to carry out duties of

secretary of public company.

First appointment o Majority of subscribers to memorandum, or o Directors appoint first secretary

Casual vacancy o Directors must fill < 90 days o Failure company must notify Registrar within 7 days o Failure to appoint = offence

Consent o Accept appointment as secretary lodge consent [CM27] o Appointment has no legal force until prescribed form lodged. [CM29]

Duties o Providing guidance to directors re duties, responsibilities and powers o Making directors aware of all law, legislation relevant to company + reporting any

compliance failures at director or shareholder meetings o Ensuring that meetings are minuted o Certifying in AFS that annual returns were submitted and that returns are true, correct

and up to date o Ensuring that copy of AFS is sent to every person entitled thereto

Resignation o Company must notify Registrar within 21 days

Removal o Secretary may request AFS statement why removed o Written notice before end of financial year during which removed

b) Relationship towards company

Chief administrative officer

Fiduciary duties

Employee of company

May also be a director, if permitted by articles

Secretary may not be auditor of public company

Private company may act as auditor provided o All shareholders consented o None of the shares are held by public company o Registered with ito PAAA o Relevant facts set out in auditors report

i. In re Maidstone Buildings Provisions Ltd

Secretary while merely performing secretarial duties -not concerned in the management of the company

May be concerned in other capacity

ii. Panorama Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd

Contractual powers Secretary entered into fraudulent contracts without companys knowledge Very humble role no authority to enter into contracts or make representations obo company Times changed officer with extensive duties and responsibilities Entitled to enter into contracts wrt administrative side of business Thus company bound to contracts entered into by secretary

16. Registration of company secretary and auditor S85 of Companies Act:

1. Every company that makes an appointment contemplated in section 84(4), irrespective of whether

the company does so as required by that section or voluntarily as contemplated in section 34(2), must

a. maintain a record of its company secretaries and auditors, including, in respect of each person appointed as company secretary or auditor of the company i. the name, including any former name, of each such person; and ii. the date of every such appointment; and

b. if a firm or juristic person is appointed i. the name, registration number and registered office address of that firm or juristic

person; and ii. the name of any individual contemplated in section 90(3), if that section is applicable;

and c. any changes in the particulars referred to in paragraphs (a) and (b), as they occur, with

the date and nature of each such change.

2. To protect personal privacy, the Minister, by notice in the Gazette, may exempt from the application of subsection (1)(a) categories of names as formerly used by any person

a. before attaining majority, or by persons who have been adopted, married, divorced or widowed; or

b. in other circumstances prescribed by the Minister.

3. Within 10 business days after making an appointment contemplated in subsection (1), or after the termination of service of such an appointment, a company must file a notice of the appointment or termination, as the case may be, subject to subsection (4).

4. The incorporators of a company may file a notice of the appointment of the companys first company secretary, auditor or audit committee as part of the companys Notice of Incorporation.

Unit 3: Duties of directorsUnit 3: Duties of directorsUnit 3: Duties of directorsUnit 3: Duties of directors 1. Duties of Directors

Dir need to know what their duties are.

Courts may still have regard for common law, incl past case law when interpret provis of the Bill

Certain duties have thus been codified:

Complete codif: body of rigid rules. Cant accomm an environ

Partial codif: adopt gen princ of law but allows some room for developm of common law

At common law dir are subj to fiduciary duty to act in good faith and in the best interest of the Co

Fiduciary duties generally entail:

1. Avoiding a conflict of interest between the directors personal interests and the interests of the

co

2. Not exceeding the limitations of his power

3. Maintaining an unfettered discretion

4. Exercising his or her powers for the purpose for which they were conferred

a) Standards of Dir conduct

Common law directed the conduct previously. Dir was subj to fiduc duties to act in good faith to

benefit of Co as a whole.

Co Bill introd new provisions

Summary of newly codified duties

1. Disclose to the Board any personal financial interest in matters in which the Co has a material

interest

2. Not to use the position of director, or info obtained while acting in the capac of director, to

gain an advantage for himself or another person, or knowingly cause harm to the Co or

subsidiary

3. Disclose to the board any material info that comes to a directors attention

4. Act in good faith and for a proper purpose

5. Act in the best interest of the Co

6. Act with a reasonable degree of care, skill and diligence

b) Dir must not abuse position or inform and must act in a certain way when there is a

personal financial interest (the first 3 duties above)

Must not use his position to gain personal advantage or for anyone else other than the Co itself.

S75 deals specif with a directors personal finance interest: if in conflict with those of Co, director

must disclose the interest to sh or board.

2 situations regulated in S75:

1. If director is only director but not only sh, must disclose any personal inter in

an agm in which Co has material inter to the sh. Must obtain prior approval

by an ordinary resolution before he enters into this agm.

2. Other cases: disclosure must be made to the board of directors of any personal

finan inter in a matter to be considered at the board meeting. This director

may not be present at this meeting or take part in the discussion.

May disclose the interest in advance by writ notice (nature, extent of personal interest) to board or

sh. Valid until changed or withdrawn.

Director is prohib from executing any doc obo Co in relation to the matter unless he has been

specif requested to do so by the Board.

If dir acquires info in agreement that was approved, must promptly disclose to the board

Any interested person may apply to court for a court order validating a trans or agm that was

approved by board or sh despite the failure of director to satisfy disclose req.

S75(6): director or person related to director acquires fin inter in an agm in which Co has material

inter, after Co has approved the agm. The director is obliged to disclose:

1. Nature and extent of his finan inter

2. Material circumstances relating to the director or related persons acquisition of that

interest

Circumstances under which provision does not apply:

1. Not applic to director wrt a decision that may have an effect on:

a. All the directors of the Co in their capac as directors;

b. A class of persons, despite the fact that the director is one of the members of this

class

2. Not applic to dir wrt a proposal to remove the director from office

3. No applic to Co or its director, if one person holds all the beneficial inter of all the issued

certif. of the Co and is the only director.

Where a person is the only director but does not hold all the benef inter such a person may not:

1. Approve or enter into any agm in which he/related person has a personal fin inter; or

2. As a director, determine any other matter in which the person/related person has a

personal fin interest unless ordinary resolution approv the agm or determination, after

director disclosed info the interest.

S76(2)(b): Dir must communic to board any info that comes to his attention unless he reason

believes that info is:

1. Immater to Co

2. Gen avail to public

3. Known to other directors

Not compelled to disclose info where legal or ethic oblig prevents him from doing so

Regal Hastings Ltd v Gulliver:

o Conflict of interest o Regal was unable to buy all the shares in X company o Director and friends subscribed for 60% of Xs shares o New shareholders took over Regal and X director and friends made profit o Regal instituted action against director action succeeded o Test for liability:

Profit acquired by director on grounds of occupation of office Profit also acquired in the execution of the directors office Even though honest & well intentioned

o If Gulliver obtained approval from general meeting, could have retained profit.

Robinson v Randfontein Estates Gold Mining Co Ltd

o Conflict of interest o Chairman purchased farm in his own name after his company could not finalise deal o Subsequently sold farm to company for profit o Apellate division held:

Robinson not entitled to make profit from his office Ordered to repay profit to company Director is not allowed to make a secret profit at the companys expense or place

himself in a position where his personal interest conflict with his duty

Atlas Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd

Conflict of interest

Managing director sabotaged his companys chances to obtain a contract

Started own company during notice period

Managing director actively employed can not hold directorship at competing company

Mere incorporation of competing firm during notice period not necessarily conflict of interest

Took over that contract unlawful competition? Absence of restraint of trade agreement o Diverted certain raw material contracts o Induced employees of Atlas to join Pikkewyn

Sibex Construction (SA) (Pty) Ltd v Injectaseal CC

Conflict of interest

Directors used confidential information to prepare tenders in competition with their former company (Sibex)

Breached fiduciary duties towards Sibex o Fiduciary duty remains even after resignation from office o If occurred as a result of breach which existed prior to termination of office.

Fiduciary duty stem from position of power iro company

Provisional interdict was granted

c) Acting in good faith and with a certain degree of care, skill and diligence

Must exerc powers and perform functions of dir in good faith and in best interest of Co

New Act partially codified this duty of skill and care

Objective test is applied to determine what the reason director would do in same situation. This

contains subj elements, gen knowl, skill and experi.

Must take reason diligent steps to become informed about a particular matter. Co Bill introduces

the business judgement rule into SA Co Law_S76(4):

Dir will not be held liable for breach of fid duties and satisfied his oblig if he can prove that he

took reason dilig steps to become informed about the matter

Will also not incur liab if he disclosed the conflict of interest req by the Bill

Director is entitled to rely on:

1. One or more employees of the Co whom the Dir reason believes to be reliable and

competent in the functions performed;

2. The info, opin, reports or statements provid by legal counsel, accountants or other pros

retained by the Co;

3. The board/comm. As to matters involve skills/exper that the dir reason believes are

matters within the partic persons prof or expert competence

Fisher Developm Corp v Jorgensen:

extent of dir duty of skill largely depends on the nature of Co business, the law does not req of

a dir to have special bus acumen and dir assume that officials will perform their duties

honestly.

Degree depends on o Nature of companys business o Particular obligations assigned to or assumed by director

Difference between full time/executive director & non-executive

Participate in day-to-day management v intermittent involvement

Care reasonably expected of a person with his knowledge and experience

Not liable for mere errors of judgment

May trust officials to perform duties honestly o Not trust blindly o Due consideration & exercise own judgment

d) Liability of dir and prescribed officers

The Co may recover loss, damages or costs sustained by the Co from the dir under following

circum:

Ito princ of comm. Law or prov of the law of delict relating to breach of fid dut;

Where a dir acted in name of Co or signed anything obo the Co while he knew he lacked

author to do so;

Conducted Co business in contravention of prov in the Bill to pre-incorp contracts;

Party to an act/omiss by the Co despite knowledge that it is to defraud a credit, employee

or sh of the Co or any other fraudulent purp;

Signed, consented to, author the publication of finance statements that were false or

misleading in a material respect;

Signed, consented to, author public of prospectus or writ statem that contained an untrue

statem or to the effect that a person had consented to be dir of the Co, despite knowing

statem was false, misleading;

Was present at meeting or decision-making where there was non-compliance with

formalit as prescribed in Bill;

Failed to vote against issue of unauthor shares, despite knowled it was unauth;

Partic in issue of author securities, despite knowl that issuing did not comply with prov of

Bill;

Partic in granting of options to any person despite knowing any shares for which options

could be exerc had not been author;

Partic in decis to grant finan assistance to any person for acquis of secur of the co, despite

know its inconsist with S44 of Co MOI.

Dir is provided with a loan despite knowl that prov of finan assist was inconsist with S45

of Bill or MOI

Partic in resolution approving distrib despite distrib was contrary to provisions of S46

Acquis by the Co of any of its shares despite knowing its contrary to s46 or 48

Allotment of shares contrary to prov of Ch 4 of the Bill

Dir will be jointly and severally liab with any other persons. Proceedings to cover costs may not

be commence more than 3 years after act that gave rise to liab.

Bus judg rule: dir should not be held liab for decis that lead to undesir results, where the decis

were made in good faith, with care and on an informed basis. Support for the rule: apart from

exempt from liab, serves as motivation for capable persons to undertake the position of

directorship

Against rule:

degree of duty of care and skill is below a level std;

dir cant be held liab for mere errors in judgem just becos the court disagrees with a decis a

judge made;

the exact content of rule is difficult to define

e) Indemnification and dir insurance

Co is entitled to take out indem insur to protect a dir against any liab for which the Co is

permitted to indem a dir. Can also insure itself with indem

Co may not indem in follow circum:

Director acted in name of Co while knowing he lacked author to do so;

Acquiesced in carrying of Co busin in insolv circum while knowing that it was being

conducted;

Was a party to an act by the Co despite knowing the act was to defraud a cred, employee

or sh

Co loss or liab arose fromwillful misconduct or breach of trust on part of dir; or

Liab to a fine for an offence contrav of any national legisl

Co may claim restit from a dir for any money paid by the Co in any manner inconsist with the

above restrictions.

Indemnif applies to current and former directors

Unit 4: Capacity and representation of a CompanyUnit 4: Capacity and representation of a CompanyUnit 4: Capacity and representation of a CompanyUnit 4: Capacity and representation of a Company

1. Legal capacity of a Co and the Ultra Vires Doctrine

73 Act: Determined by obj clause of the MOI

Co = legal person

Contract that fall out of this scope = null and void

Ultra vires some act/transact with Co is beyond legit powers of the Co as defined by its obj clause

Objection to ultra vires contract is that it could not make it.

Purpose: to protect sh and creditors

Legal conseq: between Co and other party of contract = null and void. Between co, dir = dir liable to

Co for breach of fiduc diuty

Crit:

Co are able to circumvent the doctrine by specif in detail and as widely as possible in their obj clause

all the bus activ which the Co might conceivably wish to pursue with a list of ancillary powers.

Att-Gen v Mersey Railway: court explained that whther a partic contract falls within capac and

powers of the Co is a question of fact.

S36 of 73Act partially abolished this doctrine by repeal the comm. Law rule that the doctrine was null

and void. Provided: no ultra vires contract shall be void, in any legal proceed neither the Co or party

to contract could assert on lack of capacity.

But dir continues to be liab for breach of fid duty. Members of the Co are still entitled to restrain dir

from entering into ultra vires contracts.

2. Representation

Person acting under the co authority. Authority can be given expressly or by implication. Whether

authority has been conferred is a question of fact.

A Co may be bound to a contract on basis of estoppel where person concluding a contracted lacked the

necessary authority, but other party had been misled believing that person had authority.

S19(4)

Subj to subs 5, person must not be regarded as having received notice of contents of any do relating to

Co merely because:

(a) Has been filed or

(b) Is accessible for insp at an office of the Co

S19(5)

A person must be regarded as having received notice and knowledge of:

(a) Any prov of Co MOI contemplated in S15(2)(b) if Co notice of Incor has drawn atten to

the provi; or

(b) Effect of sub 3 on a personal liab co

S20(2)

Co MOI limits powers of the Co, or limit author of dir, sh may (by spec resolution) ratify any action by

Co/dir that is inconsist with any such limit subj to subs 3

S20(3)

An action above may not be ratif if in contrav of this Act

S20(5)

One or more sh may take proceed to restrain Co from doing anything inconsist with any limit in sub 2

but any such proceed are w/o prejuc to any rights to damages of a 3rd party who:

(a) Obtained those rights in good faith; and

(b) Didnt have actual knowl of the limit

S20(6)

Each sh has claim for damages against any person who fraudulently or due to gross neglig causes Co

to do anything inconsist with:

(a) This Act or

(b) A limit ito sub 2

S20(7)

A person dealing with Co in good faith is entitled to presume that the Co has complied with all formal

req ito Act, MOI

S20(8)

Sub 7 must be construed concurrent with any relevant comm. Law princ relating to the presumed

valid of actions of Co

3. The doctrine of constructive notice

Doctrine partially abolished by Co Bill of 2008:

S19(4): Third parties will no longer be deemed to have notice of contents of publ docs of a Co merely

because they have been filed with Comm or are accessible for inspection

Protects the Co from unauthor acts of its directors

S19(5): 2 exceptions to the above:

1. A person is deemed to have knowl of any provision of Co MOI ito S15(2)(b)

2. Personal liab co: a person is regarded as having notice and knowl of effect of s19(3) on a

personal liab co

4. The Turquand rule

Royal British Bank v Turquand:

According to common law Turquand rule: an outsider contracting with the Co in good faith is entitled

to assume that all internal req and procedures have been complied with. The co will be bound by the

contract even if internal req and proced have not been complied with.

Exceptions:

1. If outsider was aware of the fact that req have not been complied with

2. Circumst under which contract was concluded were suspicious

Special rule of Co law intended to mitigate the severe effects of the doctrine of constructive not by

entitl a bona fide 3rd party to assume that the Co has complied with its internal formalities as spec in

its Cons

Protects innocent 3rd parties by ensuring that failure by the Co to comply with its own formalities

does not prejud the 3rd party.

Co Bill abolishes constr notice but keeps Turq rule. Also excl 3rd party from invoking this rule where

he ought reasonab have known of non-compl by the Co

The comm. Law on turq rule has been extended to trusts, techs and trade unions

S20(7) of Act

A person dealing with a Co in good faith, other than internal person, is entitled to presume the Co has

complied with all formal proced

Wolpert v Uitzigt Properties (Pty) Ltd:

The articles of Co provided that board could authorise a person to sign promissory notes on its behalf.

One of the directors signed promissory notes without authorisation. Is outsider entitled to assume

director was authorised?

Court: outsider with express notice of the articles could assume that someone was authorised but not

that the specif person was author to do so.

Req for turquand rule to come into operation:

1. The person who acted must have possessed actual authority, subj to an internal formality

Tuckers Land and Devlopm Corp v Perpellief: 3rd parties may not automatically assume that a branch

mng or ordinary director has authority to act obo the Co.

5. The doctrine of estoppel

Applies only when the agent did not have actual author to bind the Co. Misrepresent must have been

made by the Co as princ. Co will be estopped from denying liab if the 3rd party can prove:

Co intention/neglig misrep the agent concern as hav necess author to repress the Co

Misrepres was made by the Co

3rd party was induced to deal with the agent because of the misrep

3rd party was prejudiced by the misrep

Unit 5: Corporate finance: shares and debentures 1. Introduction

Co obtains the funds it needs by 2 possible means: equity financing and debt financing.

Equity financing: issuing of shares in return for money = share capit of Co

Debt financing: loans = bank loans or debt securities. Tradition debt secur = debenture

Providers of equity finance = sh. They receive a return on their investments in the form of dividends

If Co is wound up and all the creditors have been paid, the sh are entitled to balance of assets of Co.

Providers of loan capital creditors return on investment is interest on the loan

If a Co is doing well it might be in interest of sh to increase debt financing and decrease equity

financing. The advantage is apparent from effect of gearing or leveraging

Gearing:

Co has 100 sh and share capit of R100 000. Debentures of R100 000 bearing 10% inter per annum.

Co has raised capit of R200 000. Its debt-equity ratio is 1:1.

Co will have to show annual profit of at least R10 000 to pay the interest due. If it shows less profit, sh

will not receive any dividends

All profit above R100K will be avail for divid.

If Co is performing well, it can afford to have fewer sh who receive higher roi

If Co shows profit of R100. The first R10K must go twards the service of the debt instrument. R90K is

then avail for the distribute of divid.

If the Co did not make use of gearing, but chose to raise all capit in form of equity. It raised R200K

from the issuance of 200 shares to 200 sh. The full R100K is avail for divid distrib, but since it has to

be divid by 200 sh, they may only receive R500 divid

Ito new Co Act: no longer possible to issue par value shares. Minister may make further regulations to

assist in the conversion of these shares into no par value shares.

2. Def of a share

Share = form of property. Its a measure of sh interest in a Co.

Standard Bank v Ocean Commodities: Share = bundle of personal rights, entitle holder to share in

profits

3. Classes of shares

Shares have 4 absolute rights:

Right to vote

Right to info

Right to share in profits once they are declared as divid

Right to share in net surplus capit of a Co on its winding-up

a. Preference shares

Holders enjoy pref over any other class iro payment of divid and sometimes return of capit on

winding up.

Rights depend on the Mem of articles of assoc

A co cant have pref shares, unless it also has ordinary shares or another class of shares.

A divid may be paid out of the co capital.

Prefer sh only get divid after they have been declared

Right to vote of pref shareholders:

Ito old Act pref sh always had the right to vote on resolutions which directly affected the

rights/interests attached to their shares. Winding up of Co and reduction of share capital were

expressly listed as these type of circumstances.

New Act does not mention proposed winding up of a Co as specif resolution on which pref sh

have a right to vote. The following court case provides guidance in this regard:

Utopia Vakansie-Oorde v Du Plessis

a. Court found that the concept of interests was much wider than the concept of rights

b. Court held that affect implies that rights/interests of pref sh must potentially be prejud

by the proposed resolution

c. It is submitted that the proposed winding up of a Co will directly affect the interests of

pref sh and this would still be a resolution on which pref sh will have the right to vote

under the new Act.

Cumulative pref shares

o Happens that co resolves not to declare a dividend on its pref shares. If pref

shares are non-cumulative, the pref dividend is lost forever

o If cumul: the arrear dividend will be carried forward to the next year

o Arrear and current div must be paid before div paid to ordinary sh.

o Since div must be declared before claimed, cum pref sh enjoy no pref on

winding up of Co to arrear divid that has not been declared.

o Rule: Pref shares are presumed to be cumul unless expressly provided

otherwise in Co Constit

Participating pref shares

o Pref sh are entitled only to their fixed prefere div but not entitled to share in

surplus profits after payment of divi (non-partici)

o Gen rule: pref shares are presumed to be non-participating

o If provided in con: pref sh may be given right to share on pro rata basis with

ordinary sh in distrib of surplus profits

Prefer rights to refund of capit on winding-up

o Gen rule: pref shares do not enjoy a right to repayment of their capital in prior

to ordinary shareholders on the winding up of the Co

o Where pref sh are given right to their capital on winding up, right =

exhaustive. They will then not share in any surplus assets on winding up

Convertible pref shares

o Conditions of issue of pref shares may give sh a right to convert their shares

after a given date into another class of shares.

b. Ordinary shares

Residual class. Constitutes the equity share capital of the Co

If Co has pref sh, ordinary sh receive their div that have been declared after pref divi

has been paid

Div paid to ordinary sh fluctuates in accordance with the profits of the Co

Enjoy right to vote at gen meetings of sh

New Act permits Co MOI to confer any class of shares

Disadv of voteless shares: enable sh holding only a small proportion of shares to

exercise effective control over the co

If co has only 1 class of shares, all of them have right to vote. If more classes, at least

one class must have right to vote

Have statut right to vote if there is a resolution proposed to amend pref, rights and

limitations of the shares

c. Deferred

Founders shares

Div only paid out if amount exceeds a certain threshold and after ordinary sh have

been paid.

They are last in line to receive div

d. Capitalisation

Co has converted its distributable profits into share capital instead of declaring div out

of it

The Co decides to reward current sh by allocating additional shares to them, rather

than paying out a cash div.

Terms of offer could give sh the option to receive a predetermined cash amount

instead of shares. The payout is then considered a distribution ito Act and must

conform to req of S46:

(1) A company must not make any proposed distribution unless (a) the distribution

(i) is pursuant to an existing legal obligation of the company, or a court order; or (ii) the board of the company, by resolution, has authorised the distribution;

(b) it reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution; and (c) the board of the company, by resolution, has acknowledged that it has applied the solvency and liquidity test, as set out in section 4, and reasonably concluded that the company will satisfy the solvency

4. Issue of shares

Co directors can only allot shares with prior approval of members in gen meeting

New Act: power to issue shares exercised by board of directors, if MOI explicitly authorises board to

do so

Issuing shares is seen as a management decision for directors to make

Issue of shares to be approved by a special resolution of Co sh:

1. Where shares are issued to directors incl future directors or certain prescribed

officers of the Co

2. Shares are issued to a person related/interrelated to the Co or a director or

prescribed officer

3. Shares are issued to a nominee of a director/prescribed officer

If voting power of shares to be issued exceed 30% of the voting power of all shares held by sh, a

special resolution of members of Co is required.

a. Right of pre-emption (only apply if proposes issue of new shares is for cash)

gen rule: sh in private companies will enjoy pre-emptive rights to new shares to be issued.

When Co issues new shares, these shares must be offered to existing sh first pro rata their

current shareholdings.

Pre-emptive rights protect the existing sh against dilution of ownership.

Eg: Southon Pty Ltd has 2 sh each holding 10 shares. At meetings they have equal

voting power. Southon Pty Ltd wants to issue 20 more shares. If a third person

acquires all 20 shares, he will have half the voting rights and the remaining two will

each only have 25% of the voting rights. If they exercise their right of pre-emption,

each will be entitled to half of the 20 new shares and retain the same voting power

b. Adequate consideration (s40 of Co Act)

S40: Board may only issue shares for adequate consideration. Board must determine what an

adequate consideration for the shares would be.

The determination may only be challenged on the grounds that it constitutes breach of std of

conduct expected of directors and is in breach of their fiduc duties

The effect that a successful challenge shall have on the subscriber remains uncertain

Van der Linde argues that the conseq will depend on whether the determination remains valid

or whether it is invalid by the challenge. If its invalid, subscriber might be liable for difference

between the consideration already tendered and the adequate determination as indicated after

the challenge. At this time, the effect remains unresolved.

5. Debentures

Def of debenture never finally been settled in SA law. For now use debt instrument or debenture

Debenture = doc issued by Co acknowledging that its indebted to the debenture holder of the amount

stated therein. Not every document acknowl debt is a debenture

Debentures are one of the ways of raising capital for a Co. eg loan from bank, hybrid securities. All

companies formed under old Act had plenary power, so the power to borrow money from bank posed

not difficulty.

Debenture holder is creditor of the Co. he is not member of sh. Debenture holders are entitled to a

copy of the Co annual finance statements.

Board of directors will hve power to issue secured/unsecured debentures unless MOI provides

otherwise. Debentures may carry right to attend and vote at gen meetings and appoint directors

unless MOI provides otherwise.

6. Hybrid Securities

Def: securities that hve some of the features/character of both equity and debt securities. They are a

dual form of securities.

Debt security: the holder is a creditor, not a member of the co. He receives interests instead of

dividends.

Is the return on investment a dividend or an interest? Tax on the two differs substantially.

Eg: pref shares resemble debt because they enjoy fixed prefer return just like interest due on a debt.

IN the same way as debt, they carry no voting rights, only in certain circumstances. But pref shares

are shares as they are paid out of distributable profits.

Convertible debenture: carries a right to be converted into equity at some future date or compulsory

convertible debenture which is automatically converted into equity after a number of years

USA case: John Kelley Co v Comm of Inland revenue: some of the features of a debt security are as

follows (whether they have voting rights or not):

1. A fixed rate of interest irrespective of profits

2. A fixed date for repayment of capital;

3. Priority payment to sh

7. Securities registration and transfer

Only uncertific securities may transfer on the JSE. The bona fide transferee is protected in case of

fraud, illeg or insolv of which he had no knowledge.

Securities exclude money market instruments.

Every co must maintain a register of its issued securities, with the prescribed info, incl total nr of

uncertif securities, names and addresses of each holder with certif. securies and nr of securities issued

The register is suffic proof of the facts recorded in it, in the absence of contrary evid.

Each certif. has to be signed by 2 persons authorised by the board. Sign can be affixed by

authographic, mechanic or electronic means. The certif. is bona fide proof that the person names is the

securities holder.

Transfer of certif. securities must be reflected in the Co securities register. Entry may be made only if

the transfer is evidence by a proper instrument of transfer. Co has to record

name and address of the transferee,

description of the securities or interest that was transferred,

date of transfer and

value of any outstanding consideration iro of shares

Unit 6: Capital Maintenance

1. Capital Maintenance

Protection of creditors form the abuse of ltd liab by directors and sh of a Co

Capit maint has little to do with ensuring that Co has adeq capit to meet the claims of creditors.

Capit maintenance ensures that the issued share cap of a Co is maintained, in the sense the Co may not

return or repay its issued share cap to its sh except where this is authorised by the Act

The share capit does not have to be adeq.

Rules:

1. Par value shares may not be issued at a discount except in accordance with s81 of Act

or s82 for no par value shares

2. Divid may not b paid out of share cap.

3. Comm. Law: inter may not be paid on shares out of share cap even if the share cap of a

Co is being used to finan a project or venture which will not make any profits until

completion

4. A sub could not be a member of its holding Co. now amended: sub can hold max of

10% of shares of its holding Co

5. A co could not redeem its redeemable pref shares except in accord with s98 of old Act.

6. Co could not purchase its own shares. Prohib has been repealed

7. Prohib against a Co giving fin assist for its shares which was perhaps origin linked to

the cap maint concept.

Co cant buy own shares: Trever v Whitworth: basis of rule = cap main concept tht req issued share

cap of a Co to be maintained. Reason court gave this decision:

a. A Co cant be member of itself

b. Purchase by a Co of its own shares is an unauthor reduction of cap

c. It would enable a Co to manip the price of its shares on the market

d. Enables directors to maintain themselves in control and to buy-off bona fide oppon of the

management

Decision in Trevor case applied to SA corp law until 1999 when it was repealed

New Act to replace capit maintenance with solv and liq test.

Solvency test: Considering all reasonably foreseeable financial circumstances of the Co at that

time, the assets of the Co, fairly valued, equal or exceed the liabilities of the Co as fairly valued.

Liquidity test: considering, it appears that the Co will be able to pay its debts as they become

due in the ordinary course of business for a period of 12 months after distribution.

Pmts for shre repurchases are to be treated as distribu by a Co and must also comply with req of S46

of the Act

Repurchases: Co will be allowed to repurchase their shares provided it reasonably appears the Co will

satisfiy the solv and liq tests immediately after completing the share repurchase. Board of director

must acknowledge it applied the tests and reasonably concluded Co will satisfy the tests.

In considering solv/liq test, board may consider only financial info that satisfies financial reporting

stds. In consider fair valuation of Assets and liabilities, board is entitled to consider any other

valuation reasonable in the circum.

The co may, in 2 years after acquis, apply to court for an order to have the repurchase reversed. Court

may then order:

d. Person from whom the shares were bought to return the

consideration received; and

e. Comp to issue to that person an equivalent nr of shares of the same

class as those acquired.

A director present at the meeting when shares were acquired was approved, and failed to vote against

it, will be liable for any loss, damages or costs sustained by the Co

2. Distributions

Old Act: Co may make pmts incl div to their sh. Pmt incl any transfer of money or other property to a

sh. Excludes a pmt iro of a share repurchase, redemption of redeemable shares, issue of capitalisation

of shares and acquis ito order of court.

S90 enables Co to pay div out of capital if complies with solv/liq test and not out of divisible profit as

with capital maintenance.

New Act: amount pd by Co for a share repurchase is also a distribution. S90 of old Act excluded share

repurchase from distribution.

Distribution must be completed in 120 days. If not, must make new solv/liq test

S46: following actions are regarded as distributions:

1. A direct/indir transfer by a Co of money or other prop of the Co, other than its own shares, to or

for the benefit of its own sh, or those of another Co within the same group of Co, in the form of

a. Dividend

b. Pmt in lieu of a capitalisation share

c. Consideration for acquis of its own shares or those of another Co in the group

d. Any other transfer of money iro any of the shares

2. Incurrence of a debt or other obligation by Co for benefit of one or more sh of any of the shares or

co within group

3. Forgiveness or waiver by Co of a debt or other obligations owed to the Co by one or more sh

Distributions may be made in the following circum:

1. Board of directors must authorise the distrib unless it is made ito existing legal obligation of the

Co or a court order

2. Must reasonably appear that the Co will satisfy the solv/liq test immediately after completing the

distribution

3. Board must acknowl, with resolution, that it has applied the tests and reasonably concluded that

the tests were satisfied immediately after completing the distribution.

3. Options

Option contract = right to buy/sell a specif quantity of a partic share/debenture within a stated period

of time at a stated price (strike price).

Co may grant an option in return for payment made to it. Or may be granted as remuneration for

services rendered. Option holder is contingent creditor.

New Act: Co may issue options for the allotment or subscriptions of authorised (unissued) shares or

other securities of the Co. Board of directors must determine the consideration or other benefit and

terms on which it is issued.

If board issues unauth shares contrary to Co MOI, directors who were aware and voted in favour of

granting them become personally liable for any loss, damages or costs sustained in conseq

4. Financial assistance for the purchase of shares

S44 of new Act: Co may assist a person in acquiring shares and other securities in the Co, provided the

assistance is not prohib by MOI and certain requirements are met.

The req:

1. Co MOI expressly permits the Co give such financial assistance

2. Any restrictions on Co MOI have been complied with

3. Finan assist is given in pursuance of an employee share-scheme

4. Pursuant to a special resolution passed within previous 2 years which approved such assistance

either for the spec recipient or gen for a categ of potential recip

5. Board is satisfied that immediately after providing finan assist the co would comply with solv/liq

test

6. Board is satisfied that the terms under which the fin assistance is to be given are fair and reason to

the Co

Fail to comply with above prov = trans being null and void. Respons director incur personal liability

for loss suffered by Co

Employee share schemes and money lending Co are exempt from the prhib

Lipschitz v UDC Bank: transaction must be assessed in 2 phases:

1. Must be ascertained whether there was financial assistance

a. Gradwell v Rostra Painters impoverishment test was formulated to assist in

determining whether financial assist was provided

b. Impov: effect of the transaction must leave the Co poorer. If so, finan assist was provided

c. Lipschitz: court found impov test was not only measurement. Provide security or exposing

Co to risk would also qualify (eg person made a loan to purchase shares in Co, and the Co

stood surety for the loan = fin assist)

d. If a Co buys assets from person to enable him to buy shares, the facts will determine

whether there was fin assist.

2. Must be determined whether assist was for buying shares

When trans passes these two phases it will comply with S44

Unit 7: Group

1. Definitions

Existence of several Co that are associated as a result of common or interlocking sh

Essential: existence of control thru 1 co of one or more subs Co.

Act: holding Co (not being wholly

2. Holding and subsidiary companies under the old act

One Co is holding Co of another, if that Co is a subs

Subs definit as follows:

f. Membership together with control of the board or

g. The holding of more than half of the equity share capit of the subs Co

h. Act: contro

i. Act: control over right to appoint or remove d

3. The 2008 Companies Act: Subsidiary relationships

Scan in S3 on p 73

Unit 7: Groups of Companies


Essential: existence of control thru 1 co of one or more subs Co.

Act: holding Co (not being wholly-owned) together with all its subs Co

ng and subsidiary companies under the old act

One Co is holding Co of another, if that Co is a subs

Membership together with control of the board or

The holding of more than half of the equity share capit of the subs Co

Act: control over maj of voting rights in the Co

Act: control over right to appoint or remove direc

The 2008 Companies Act: Subsidiary relationships


Membership together with control of the board or

The holding of more than half of the equity share capit of the subs Co

ctors

New act follows essential idea of act of 73: control is determined by voting power

4. Group of companies (2008 Act)

New def added: 2 or more comp that are related or interrelated.

Indiv is related to another indiv if they are married or live together ina relationship similar to

marriage or are sep by at least 2 degrees of natural affinity. (birth or adoption)

Spousal relationships are included

Indiv is related to a juristic person if that indiv is directly/ind controls juristic person ito def

of control

Juristi is related to another juristic if either of them dir/indir controls the other entity

Control: owns majo of members interest

5. Legal consequences of a group of comp

1. Holding Co must, as gen rule, produce group annual fin statem be4 its AGM

2. A sub may not become a member of its holding Co. Sub is permitted to hold a max of 10% of the

shares of its holding Co.

3. Prescribed info must be disclosed in its annual fin statem where a sub makes a loan to or provides

suc for its holding Co or fellow sub

4. Where sub co has an indp board of directors, its holding Co does not owe the sub any fiduc duties

or delictual duty of care.

5. Board of sub Co is depend: person who procures the election of the board of dir must observe the

utmost good faith in his dealings with the Co

6. Director of sub does not owe a fiduc duty to the holding co as his duties are owed solely to the sub

co.

7. Solvency and liq test:

a. Whether the Co assets equal or exceed its liab;

b. If Co is a member of a group, whether its aggreg assets equal or exceed its consol liab as

fairly valued.

Test applied is to the Co itself and not consolidated position. Crucial test should be of the assets and

liab of th Co, not the group.

Unit 8: Takeovers, offers and fundamental transactionsUnit 8: Takeovers, offers and fundamental transactionsUnit 8: Takeovers, offers and fundamental transactionsUnit 8: Takeovers, offers and fundamental transactions 1. Intro

Background:

The 73 Act dealt with above transactions under different sections. In new Bill they are all

dealt with in one chapter (Ch 5). Amalgamations and mergers are now part of SA Law.

The new Bill adopts some of the fundamental features of USA regulations of mergers:

1. uniform rules governing all fundamental transactions

2. considers mergers/amalg, schemes of arr and disposals of all or greater part of

Co assets as fundamental transactions

3. fund trans are prim governed by the decisions of concerned sh and judic

involvement is very minimal.

Fund transactions (FTs)

Ch 5 of the Bill is divided into 3 parts:

Part A approval of certain FT

Part B authority of Takeover Regulation Panel and the Takeover Regulations

Part C Regulation of affect Transactions and offers

Common Terms and definitions

FTs: amalgamations or mergers; disposal of all or the greater part of the assets or

undertaking; schemes of arrangement

Amalgamation/merger:

Transaction, series of transactions, involving 2 or more Co, resulting in the survival of

one or more of the merging Cos or the formation of 1 or more new Cos.

The Cos combine their assets and liabilities

Where new Co is started, all merging co cease to exist: eg SFW and Distillers

merge to form Distell

Disposal/sale of all/greater part of assets

Sale by a Co of all/greater part. It must be of 50% or more of the assets

Schemes of arrangement

Any arrangement/agm between Co and holder of any class of securities, incl reorgan

of the share capital of by Co by way of:

5. Consol of secure of different classes;

6. Division of secure into diff classes;

7. Expropr of secur from holders;

8. Exchanging any of its secure for other secure;

9. A re-acquis by the Co of its secure

10. Combination of methods above

2. Disposal or sale of all or the greater part of the assets or undertaking of Co

Regulated by S112 of the Bill

Exemptions:

Does not apply to sales/disposals of all/ in 3 distinct situations:

1. Where transaction is a result of a business rescue plan adopted in accordance

with Ch 6

2. Where transactions is between a wholly-owned subsid and its holding Co and

3. Where trans is between or among:

a. 2 or more wholly-owned subs of the same holding Co or

b. A wholly-owned sub of a holding Co on one hand, and its hold Co and

1 or more wholly-owned subs of that holding Co on the other hand

Legal reqs and process to follow

May not dispose unless it has been approved by a special resolution of the sh

A notice of sh meeting to consider the resolution must incl a written summary of the precise terms of

the trans to be considered at the meeting.

Any asset to be disposed of must be given its fair market value at the date of the proposal, in

accordance with finan reporting stds. (stds are issued by Min of Trade and Industry after consult with

fin report stds council)

The Bill requires that any agm by or obo Co is binding on Co only to the extent that the agm was

expressly authorised in advance by a special r

Company Law Summary Notes (1)

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