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.
ii.
iii.
iv.
v.
vi.

Must be properly convened

Prescribed notice give by persons with relevant authority
Notice must be given to all persons who are entitled to receive a notice
Must be convened for a time, date and place thats accessible to members of the Co
May commence only if quorum is present
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.

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

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

Majority Rule

10.

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 capacity
capacity as sh.
sh A quorum must be
present
Board that holds securities of a 2nd Co may authorise any person to act as rep at any sh meeting of that
2nd Co
Pender v Lushington:
o Sh, unlike directors, dont exercise their voting rights for the benefit of the Co and can act
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

1

Ordinary resolutions
Special resolutions
Decision taken at a sh meeting, with support of
o more than 75%
50% of the voting rights exercised

Memo of Inc may require higher percentage vote

Companies Act: there should be a margin of at least 10 ditto

percentage points between requirements for adoption of a
special
al resolution and those for an ordinary resolutions

May provide for lower percentage

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.
2.
3.
4.

amendement of the Co Mem of Inc;

Approving the voluntary winding
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

May be postponed for a week under the following
ollowing 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 postponed or adjourned meeting, the members of the Co present
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, consideration
consideration of that matter may be postponed
to a later time in the meeting without motion or vote.

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

Co administration

Directors
Board provides intrinsic leadership
and direction at the top of the
organisation
Determine future of Co
Protect assets and reputation
Consider how decisions relate to
stakeholders
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
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.
Have key role in determination of
the values and ethical position in
the Co
Responsible for Co admin

Stat provisions in general

Disqualification

There are many

Under the act or ito Mem of Inc

Leadership
Decision Making

Duties and responsibilities

Relationship with shareholders

Ethics and values

Managers
Carry thru the strategy obo
directors
Implement decisions and policies
of the board
Fewer legal respons, can act
contrary to the interest of the
employer

Appointed and dismissed by

directors, do not interact with sh

Must enact Co ethos, taking their

direction from the board
Related duties can be delegated to
managers, but ultimate respons is
that of directors
Not held respons under the act
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
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

Memo of Incorp
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:

Number of
Directors

Cant entrench the position of any

director and cant override the will of
despite a Mem of Inc or rules; and
despite any agreement between the Co ordinary sh as expressed in ordinary
resolution
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
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
The person acted as director while
he was inelig or disqualify

Order sought
delinquency

Person acted as dir while under

probation and in contravention of
order under co Act
Person grossly abused the position

Delinquency
Delinq

Effect of order
declaration is unconditional and
exists for the lifetime of the person
declared delinq.
Same as above
Conditions which court consider
just.
Declaration exists for 7 years from
date of order.
Act provide that court may order
the person concerned:

Took personal advantage of info or

an opportunity contrary to the Act
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

Delinq

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
Same as above

Delinq

Same as above

Delinq

Same as above

Delinq

Same as above

Probation

Person acted in a manner

materially inconsistent with the
duties of a director
Person acted in or supported the
decision of the Co to act in an
oppressive or unfairly prejudicial
manner

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
As above

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 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
o
o
o
o
o

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

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 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.
b.
c.
d.

A Co cant be member of itself

Purchase by a Co of its own shares is an unauthor reduction of cap
It would enable a Co to manip the price of its shares on the market
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: Groups
Group of Companies

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-owned)
wholly
together with all its subs Co
2. Holding
ng 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: control
contro over maj of voting rights in the Co
i. Act: control over right to appoint or remove direc
d ctors
3. The 2008 Companies Act: Subsidiary relationships
Scan in S3 on p 73

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 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.
6.
7.
8.
9.
10.

Consol of secure of different classes;

Division of secure into diff classes;
Expropr of secur from holders;
Exchanging any of its secure for other secure;
A re-acquis by the Co of its secure
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 resolution or expressly ratified by special resolution.
Example:
Alpha Ltd own a warehouse in Jhb. There is equipm stored in the warehouse. The co has a total net
asset value of R100 mill. Consoled value of the warehouse and equipm is R60 mill or 60% of the total
net asset value. Alpha decides to sell both the warehouse and the equipm in it.
This disposal constit above disposal/sale and is subj to rules of Ch 5

3. Amalgamations or mergers
Exemptions: co in business rescue proceedings
Legal reqs and process:
S113 of the Bill.
May amalgamate if after merger, each Co satisfies the solvency and liq test.
Profit Cos, the following types are recognised:
1. A priv co, ito MOI restricts the transfer of securities and prohib the offering of
its secur to the public;
2. Personal liab Co, ito MOI provide for joint and several liab of its directors for
debts incurred by the Co
3. Publ Co, which does not restrict transf of its secur and allows its secure to be
offered to the public
4. State-owned enterprise, registered ito Co Act as a comp is either state owned
or owned by Munic
Solvency test: the Co assets, fairly valued are equal to, or exceed it liabil
Liquid test: able to pay its debts as they fall in the ordin course of business.

The merging Co must enter into a written agm setting out the terms of effecting the merger. The agm
must set out the following:
1. Propsed MoI of any new Co to be formed by the merger;
2. Name and ID nr of each proposed director of any prop merged Co;
3. Manner in which the secur of each Co are to be converted into secur of any
propos merged Co, or exchanged for other property;
4. If any secur of any of the merging Co are not to be converted, the
consideration that the holders of those secur are to receive in addition to or
instead of secur of any proposed merged Co
Notice of sh meeting before merger special resolution must include:
a. Merger agm and
b. Provisions of s115 and 164 particulars of special resolution and appraisal rights (sh may
demand that Co pay the sh the fair value for all the shares of the Co hel by that person where
sh voted against resolution)
4. Scheme of Arrangement
Exemptions:
Co in liquid or in course of busin rescue proceedings
Legal reqs:
On initiative of Board and subj to approval may implem the arrange as in defin of SOA above.
Co must retain an indep expert to compile a report as required by the Bill. Person must be qualified
and hve the competence and experience necessary to:
a. Understand the type of arrang prop
b. Evaluate the conseq of the arrang
c. Assess the effect of the arrang on the value of secur and the rights and inters of a holders of
secur, or cred of Co
The expert must be able to express opinions, exerc judgement and make decisions impartially.
The expert must not:
d. Have any other relationshiop with the Co or with a propon of the arrang, that would lead
an reasonable 3rd party to believe that impartiality or obj has been compromised
e. Have had any relationship as in above with the immediate preceding 2 years or
f. Be related to a person who has had above type of relationship

Expert must prepare a report to the board and have it distributed to all sec holders which must incl:
1. All prescribed info relevant to the value of the sec affected by the prop arrang
2. ID every type and class of holder of Sec affected
3. Describe the material effects that the arrang wil hav on the rights and inters of
the persons mentioned abovec
4. Eval any material adverse effects of arrangm against:
a. Compens that any of those persons will receiv ito arrang; and
b. Any reason prob beneficial and signif effect of the arrang on the busin
and prospects of the co
5. Any material interest of any director or tr4ustee for sec holder and state the
effect of arrange on the interests and
6. A copy of s115 and s164

5. Court intervention in the implementation of fundamental transactions

Co may not proceed to implement any FT without the approval of the court (except for special
resolutions) if:
g. Resolution was opposed by at least 15% of the voting rights that were exercised or
h. Court sets aside the resolution where it finds:
i. The resol is manifestly unfair to any class of sec holders or
ii. The vote was materially tainted by conflict of interest, inadequate disclosure, failure to
comply to the Bill, MOI or any applic rules of the Co
The holder of any voting rights is entitled to seek an appraisal remedy (remedy avail to sh who voted
against ft to have his shares indep valued and bought back by Co) if that person:
1. Notified the Co in advance of the intention to oppose a special resol and
2. Was present at the meeting and voted against the resol.
6. Affected transactions and regulated companies
Takeover Regulation Panel has jurisdiction of affected transactions.
Affected transactions means:
a. Trans amounting to disposal of all/greater of assets or undertaking of regulated Co
b. Merger/amalg where it involves at least 1 regulated Co
c. SOA between a regul Co and its sh
d. Acquis of, announced intention to acquire, a benef inter in any voting sec of a regulated Co
amounting to 5, 10, 15 or any whole futher multiple of 5%
e. Announced intent to acq a benef interest in the remain vot sec of a regul Co no already held by
a person acting in concert;
f. Mandatory offer
g. Compul acq
Regulated co:
a. Public company
b. State-owned enterprise (except if exempted in S9)
c. Priv Co but only if:
a. % of issued sec have been transferred in period of 24 mths immed after date of a
particular affected trans or offer exceeds the prescribed %, being not less than 10% or
b. MOI of that Co expressly provides that Co and its sec are subj to Parts B and C of
Ch5
Affect trans has 2 broad categ:
1. All ft as discussed above if regul Co is involved
2. Acq of prescribed % in voting sec (mandat offers and comp acq)
7. Takeover regulation panel
Regulatory agency established ito Bill.
Main purpose: regulate affected trans in manner req by Ch 5
Purposes:
a. Ensure integrity of the marketplace and fairness to sec holders of regul Co
b. Ensure provisions of nec info to sec holders of reg co, to extent required to facilitate the
making of fair and informed decisions
c. Ensure the prov of adequate time for reg Co and sec hold to obtain and provide advice wrt
offers

d. Prevent actions by a reg Co designed to impede, frustrate or defeat an offer

Powers:
a. May require the filing, for approval or otherwise, of any doc wrt an affect trans or offer, if doc
is req to be prep ito Ch5
b. Issue clearance notices, if Panel is satis that the offer or trans satisf the req of Ch 5 and Takeo
Reg and
c. Initiate or receive complaints, conduct investigations and issue compliance notices wrt any
affect trans or offer in acc with Ch 7
Compliance order may:
a. Prohib or req any action by a person or
b. Order a person to diverst of an acq asset or account for profits
8. Common types of affected transactions
a. Mandatory offers
Trans where 1 or more persons who are related to attain a prescribed % of all voting sec in the
Co. when attaing the % persons are req to make an offer to acq any remaining sec on terms
determined in accord with tBill
Mand offers are triggered if either:
1. A regul Co re-acq any of its voting sec or
2. A person acting alone has, or 2/more interrelated, or 2 acting inconcert, have
acq a benef interest in any voting sec which enables them to exerc at least the
prescribed % fo all the voting rights
Within 1 day after date of a completed mand offer, the person in whom voting sec beneficially
vests must give notice in prescribed manner to the holders of remain sec.
Incl in notice:
1. A statem that they are in a posit to exerc at least the prescribed % of all voting
rights attached to sec of the regul Co and
2. Offering to acq any remaining sec on terms determined in accord with the Bill.
1 month after giving notice, person(s) must deliver a written offer, in compliance with Takeo
Regul, to holders of remain sec of that Co to acquire those sec.
b. Compulsory acquisitions and squeeze out
Person attains 90% of any class of sec in a Co.
4 months after date of offer, offer is accepted by at least 90% of holders, offeror may notify the
holders of the remain sec of the class:
i. That the offer has been accepted to that extent and
j. Offeror desires to acq all remain sec
In 30 busin days after receiv a notice, a person my apply to a court for an order:
k. Offeror is not entitled to acq the applic sec or
l. Imposing conditions of acq different from those of orig offer

Unit 9: Business rescue proceedings

1. Intro
Co Bill defines business rescue as:
Proceedings to facil the rehab of a co that is financially distressed by providing for
i. The temp supervision of Co, mng of its affairs, bus and property
ii. Temp mora on the rights of claimants against the Co or property in its possess
and
iii. Developm, approval and implementation of a plan to rescue the Co or, if thats
not possible, a plan that would achieve a better return for the Co cred than the
pmt they would have received if its immed liquid.
According to Bill Co is financially distress in following circum:
i.
ii.
iii.

Unable to pay its debts as they become payable and its liabil exc its
assets or
Co is reasonabl unlikely to be able to apy all its debts as they
become payable within the next 6 months;
Co is reasonabl likely to become insolvent within the next 6 months.

2 manners to commence rescue: resolution by board of directors or by a court order.

S128 of Co Act:
2. Resolution by board of directors to begin business rescue
a) Procedure
1. Business rescue resolution
Board of dir may take a formal decis to begin proceedings.
Resolution may not be adopted if steps have already been taken to liq
the Co
Once resolution adopted, Co may not start liq procedures
Rescue proceedings officially commence on date of filing at the
Commission
2. Notification
In 5 bus days after filing the resolution Co must notify every affected
person regarding the resolution, date on which it became effective and
grounds on which it was taken.
May be done electronically
If co does not notify, resolution becomes null and void. Co will not be
allowed to file another rescue within 3 months after the date of
adopting the one that has lapsed.
3. Appointm of a supervisor
In 5 bus days, appt a supervisor to oversee the Co and its rescue
proceedings

Person must meet the req of s138 and provide his written consent to b
appoint.
In 2 bus days after appointed, Co must file notice of appointment with
Comm and 5 days after filing this notice, Co must make a copy thereof
and give to every affected person.
If Co fails to do this, proceedings will be null and void and run the same
course as above.
b) Circumst under which a resolution may be taken
Dir of Co may pass resolution to begin proceedings only if it has reasonable grounds to
believe the the Co is financially distressed and there appears to be a reason prospect of
rescuing the Co.
c) Setting aside the bus rescue resolution or appointment of the supervisor
1. Application to court
Any affected person may apply to court to have it set aside. Grounds:
no reasonable basis to believe Co is in financial distress. Can apply for
supervisor appt be set aside cos does not meet req.
May also apply for supervisor to provide security to protect interest of
Co
2. Procedure
Applicant must serve a copy of the application on the Co and Commiss
and notify each affected person of it.
3. Powers of the court
Court may set aside resolution on any of the stipulated grounds on
which applic is based or simply because it regards it as just and equit
Court ask supervisor to report to the court whether there is reasonable
prospect of rescuing the Co
Court will not make an order for costs against a dir who can satisfy the
court that he acted in good faith
If court sets aside appt of superv it must appoint another supervisor
who meets req and recomm or accept by majority of cred who were
represented in court.
3. Court order to commence business rescue proceedings
Procedure
If Co has not adopted resol to commence proceedings, affected person may apply to court
to commence
Applic must serve copy of applic on Co and Comm and notify each affected person
thereof.
Applic for busin rescue maybe made even after proced for liquid have commenced, this
will effect suspending of the liq proceed

What the court may do

May make an order placing a co under supervision and commencing proceed if satisf that:
8. The Co is financially distressed; or
9. Co has failed to pay over any amt due to a govmt authority ito a statut oblig iro
its employees (ie employment insurance) or money due ito a contract oblig (eg
a med fund)
10. Its otherwise just and equit to do so for finance reasons and there is reasonable
prospect of rescuing the Co.
Co may not place itself under liquid until rescue has ended and must notify each affected
person in 5 bus days after the date of the order.
4. Legal consequences
General moratorium
Enforcement of claims against the co may be started or continued only with written
consent of the supervisor or if the court gives permission.
Protection of property interests
The power of Co to deal with its property is restricted during the rescue. It may only
dispose of property if it takes places:
a. In ordinary course of its business; or
b. In transaction of good faith to which the supervisor has giver her written
consent or
c. As part of the approved rescue plan of the co.
No person may deal with any property that is in the lawful possession of the Co, even
if the Co is not the owner, unless the supie has given her written consent.
If Co wants to sell property over which cred has rights (like mortgage bond) does not
need to ask permission from Cred if the proceeds of sale will be enough to pay cred in
full.
Post-commencement finance
S135(2) allows the Co to use its assets as security for loans and provides that these cred
must be repaid before any other unsecured cred.
Employment-related pmts are also regarded as post-comm finance. Must be paid
before post-comm cred are paid.
Employment contracts and employees
a. Employment contracts
Proceedings have no effect on these contracts. Employees and Co may agree to
different ts and cs. Entrenchm is subj to labor legisl.
New proc: its better for employees if Co is place under rescue than being liquid:
when Co is insolvent all contracts are suspended. Employees are not req to work,
but wont be paid either. After a stat period, contracts may be terminated.

But employees may intervene and apply for bus rescue. Co Bill provide that
contract stay the same under rescue
b. Unpaid remun before rescue
If employe is unpaid before rescue, he become preferred unsecured cred of Co

c. Employees Committee
Employees may form commt, even if there is trade union. Supie must convene
meet in 10 bus days after her appt to inform employees of Co future.
Committee may consult with supie and must ensure that employees interest are
properly represented, but may not give instructions to supie.
Other contracts
Supie may partially or entirely cancel/suspend almost any of Co other contracts, even if
agm provides that this may not be done.
The other party may only claim damages if this is done.
Shareholders
a. No change in rights
No alteration of issued shares are allowed during a rescue unless authoris by court or
contained in approved bus plan
b. Participation
Right to be notified of events and part in court proceedings. Do not have right to vote
on bus rescue plan
Directors
a. Duties and liabil
Must continue to perform their duties during the rescue but must do so under author
of supie. They must co-op with supie, deliver books and records of Co to her and in 5
bus days after begin of rescue, provide statem of Co affairs contain prescribed info
Acts for which approv of supie is req will be void if dir performs it without necess
approv.
b. Removal
Supie may apply to court for remov of a dir
5. The business rescue practitioner
Qualifications:
a. Be member in good standing of the prof organis chosen by the min to regulate the
practice of supervisors;
b. Not be subject to an order of probation ito s162(4);
c. Not be disqualify from acting as director of the Co ito s69(8)
d. Not have any relationship with the co that could interfere with the proper performance
of his duties, or be related to a person who has such a relationship

Removal and replacement:

Only be removed by a court order ito s130 or 139.
S139: applic can be made by an affected person or on courts own initiative based on
grounds stipulated in 139(2) {incompetence, neglig, unethical and illegal conduct}
If dies, resigns or removed from office, new superv must be appointed by the Co or the
creditor who nominated the previous one.
Powers and duties
Management
Takes over full mng of the Co from the board and other managers but may delegate his
powers to a dir or other member of mng. He may appoint a new member of mng or an
advisor, but if this persons relationship is doubt on impartiality, it must be approved
by court.
May remove director with permission from court. Where appropr have crimin acts
investigated
Investigation
Must investig affairs of the Co asap after his appt and decide whether Co has
reasonable chance of being rescued.
If he finds Co cant be rescued, must inform the court, Co and all affected persons and
apply to court for proceedings to end and Co to be placed in liquid.
If Co no longer in financial distress, must end bus rescue proceedings and let all above
parties know.
Rescue Plan
Most NB duty of supervisor is to develop rescue plan for the Co, and if adopted,
implement it
Liability
May not be held liable for any done in good faith in his capacity as supervisor, unless
grossly neglig.
He may not be appointed as liquidator if Co is liquidated when the business rescue
ends
Remuneration
Entitled to pmt by the Co in accordance with a tariff that will be prescribed by the Min
but may also enter into an agm with the Co that he will be pd an addit fee if a rescue
plan is adopted

Agm will be binding on the co only if approved by the majority in value of creditors
who attend the relevant meet
Cred/sh who disagree with agm can apply to court in 10 bus days after voting to have
it cancelled, if grounds are that its not just and equitable or highly unreasonable in the
light of Co finan circum.
6. The rights of creditors during proceedings
Right to participate
They are affected, so have a right to be notified and particip in all stages of
proceedings
Creditors committee
Supie must convene a meeting of creds in 10 days after his appt to inform them of Co
future and allow them to prove their claims. They have a right to form a committee to
represent their interest. Committee may not direct or instruct supie
Voting rights
Each cred has voting right = value of his claim against the Co
A concurrent cred whose claim would be subord in liquid will have a vote based only
on the amt that he could reasonably be expected to receive in case of liquid.
7. The plan
Preparation
Duty of supie to prep rescue plan for the Co, but must consult the creditors, other
affected persons and mng of the Co when doing so
Prescribed contents
Part A background

Complete list of assets and liab of Co

Indic which asset is held as security by cred

Specify where cred is a secured, pref or concurrent cred

The div cred should receive if co was to be liquid must also be added

Complete list of issued secur holders

Copy of agm with supies fees

If plan incl any proposal made inform by a cred
Part B Proposals

All proposed measure to assist Co in overcoming its financial crisis are
explained.

Details of any moratorium

Release from pmt of debts

Conversion of debts into equity that are planned

Which assets will be used to pay cred and in what order they will be pd

Compare benefits creds will receive if plan is adopted, to that of what they will
receive if Co is liquid



Effect plan will have on holders of each class of secure

Future plans of Co and how existing contract will be dealt with

Part C assumptions and conditions

State any conditions that must be fulfilled before plan can come into operation

What will effect of plan be on employees and conditions of employment

Under which circum will plan come to an end

Projected balance sheet and statem of income and expenses for the nxt 3 yrs
based on assumptions that plan will be adopted
Certificate
By supie, states the info provided in plan appears to be correct and the projections
have been made in good faith.
Publication of plan
Must be published within 25 bus days after the appt of the supie unless court or holders of
maj cred vote allow additional time for this to be done.
Meeting to consider the plan

Supie must convene meeting of co cred to consider the plan.

Must take place in 10 bus days after public of plan

Affected persons must be notified at least 5 bus days b4 its due to take place

Supie must explain plan to meeting and inform them if he believes that there is a
reason prospect for the Co to be rescued.

Reps of employees must be given opp to address the meeting (new Bill)

Meeting may discuss amendm and proposals to plan before voting on its approval.

75% in value of creds, 50% of indep creds and no rights of sh changed, plan is
approved.

If rights of sh altered, the approval is only prelim. must then also be approv by maj
of relev sh at meeting convened for this purpose.
Effect of approval
Plan is binding on co and all its cred and sec holder
As soon as the plan has been substantially implem, supie must file a notice to this effect
with Commission.
Effect of rejection
Supie may seek approval from the meeting to prep a revised plan or inform them the Co
will apply to court to have results of vote set aside on grounds that it was irrational and
inappropr.
If supie doesnt do above, any other affected person my do it
Prep of new plan must be done in 10 bus days afte the meeting
If nobody takes above action, supie must file for notice of termination of rescue proceed
with Comm

8. Termination of proceedings
Intended not to take more than 3 months to complete. If cant be completed in 3 months,
supie must apply to court for more time. Supie must then deliver monthly report on
progress to each affected person and to court.
3 ways to terminate:
ii. Order of court setting aside resolution/order that commenced proceedings or
converting rescue into liquid
iii. Notice of termin filed with Commission by supie;
iv. Rescue plan that has been adopted and substant implemented as confirmed by
supie in a filed notice or rejected without any further steps being taken

Unit 10: Compromises

1. Intro
Previous Act (s311): Co may enter into a compromise with its creditors and an arrangement
with its members. Often used to rescue a co.
This is a court-driven procedure to protect parties affected
New Act: no more court involvement
2. Compromise between Co and its creditors
S155(1) of the Co Bill comprom apply to a Co irresp if its financially distressed or not.
Does not apply to Co engaged in business rescue proceedings.
S155(2): Who may propose a Comprom:
The board of Co or
Liquidator of Co if its being wound up
May propose an arrangem/compr of its financial oblig to:
All its creditors or
To all of the members of any class of its creditors
By delivering a copy of the proposal and notice of a meeting to consider the proposal, to :
Ever creditor of the Co or
Every member of the relev class of credit whose name and address is known or can reasonable
be obtained by Co and
The Commission.
3. Prescribed contents of a proposal
Must contain all info reason required to assist creditors in deciding whether or not to accept or
rejct the prop.
S155(3): prop divid into 3parts:
Background, Proposals, Assumptions and conditions
Background:
Must contain at least the following info:
11. Complete list of all material assets of the Co, incl indic as to which are held as
security by creditors on date of prop;
12. Complete list of creditors of Co on date of prop, incl an indic of which are
secured, stat preferent and concurrent credit under laws of insolvency, indic
which have proved their claims;
13. Probable divid that would be paid to Cred if the Co was placed in liquid
14. Complete list of secur holder issued by Co and effect prop will have on them;
15. Does prop incl a prop made informally by a cred of the Co?

Proposals:
Must include:
a. Nature and duration of any prop debt moratorium;
b. Extent to which the Co will be released from the payment of its debts and the ext to which
any debt is prop to be converted to equity in the Co;
c. Treatment of contracts and ongoing role of the Co in the contracts;
d. Property of the Co that will be made available for payment of cred claims;
e. Order of prefer ito which the proceeds of property will be applied to pay cred once prop is
adopted; and
f. The benefits of adopting the prop as opposed to benefits that would be received by cred if
the Co was placed in liq.

Assumptions and conditions of prop:

Must incl at least the following:
a. Statem of conditions that must be satisfied;
a. For proposal to come into operation and
b. For prop to be fully implemented
b. The effect the plan will have on nr of employees and on their t & c of employment and
c. A projected
a. Balance sheet of the co and
b. Statem of inc and expense for the 3 ensuing years.

Other requirements:
Projected balance sheet and statement
Must incl a notice of any signif assumpt on which the projections are based and may include
alternative projections based o n varying assumpt and contingencies
Certificate by authorised director or prescribed officer of the Co
Must state that any factual info provided in prop appears to be accurate, complete and up to
date and;
Any proj provided are estimates made in good faith on the basis of factual info and
assumptions as detailed in the statem.
4. Adoption and sanctioning of the proposal
Adopted by credit of Co if its supported by a major in number, representing at least 75% in
value of the cred or class present and voting in person or by proxy at the meeting called for
this purpose.

Court must then sanction the approval. Court may do this if it considers it just and equitable
to do so. Court will have regard to:
a. Nr of cred of any affected class who were present or represented at the meet and
voted in favour of the prop; and
b. Co in Liquid, a report by the Master
5. Effects of approval
Copy of the sanctioning must be filed with the Commission by Co in 5 bus days, must be
attached to each copy of the Co MOI.
Order to sanction is binding on all cred from date on which copy is filed

Consider the differences in procedures proposed in common law, S311 of Co Act, S155 of new Act
relating to compromise. Critically evaluate whether the respective sections provide sufficient
protection for Co creditors
Common Law:
A compromise can only be reached with cred who have agreed to be bound by the comprom. Despite
the major of cred agreed on comprom, dissenting cred could instit proceedings against the Co
S311 and 312 of Co Act, 1973:
Schemes of compr can take many forms. Credit may be required to write off a portion of their claims.
The may be asked to waive interest on their claims or postpone the dd for payment of the claims.
Compro can be forced on dissenting cred by means of a scheme of compr ito s311:
Co may request cred to accept a comp ito their claims agains the Co. This would be based on
the consideration that the amounts the cred would receive under the scheme would exceed
the amount that they would receive should the Co be liquid.
Contents of proposal: refers in gen to the statement but when a scheme of comprom is drafted,
the req of case law must be taken into account and Incorp in the scheme of compromise. A
s312 statement usually req the scheme to compare the fees of liquidator with fees of receiver
appointed to administer the scheme.
A scheme under s311 is commenced by a Co applying to the High Court for leave to call
meetings of creditors for the purpose of explaining the scheme to the creditors and putting the
scheme to their vote. Court may refuse to order the meeting if there is any concern that the
terms of the scheme are onerous or against public policy. Schemes can also be brought if the
Co is already in liquidation.
Scheme usually provide that the 3rd party will acquire all the shares in the co once the
creditors are bound by the scheme. The court may then discharge liquid of the Co.
At vote, must have majority of vote, representing at least 75% in value. Negative aspect: a few
creditors who hold higher values in claims could bind smaller creditors, to their detriment.

But law in our courts: in schemes 75% of the creditors in each class in value and nr
must approve the scheme.
After vote, High Court has to sanction the scheme by means of a court order. But High
Court can refuse on basis that it is inequitable or oppressive of creditors rights.
S155:
New Act separates schemes of arrangement between Co and members and schemes of
compromise with creditors. Schemes of comprom now dealt under S155 of new Act.
Not req that applic be brought before the High Court before compromise is proposed
to creditors
S155(2): Board or liquid of Co may propose the arrangement. Copy of proposal
delivered, together with notice of meeting to consider proposal, to Co and all creditors
Itemised list of info must be included. One of these is a statement as to whether the
proposal incl any proposals made informally by a co creditor.
List:
1.
2.
3.
4.

Details of all the assets and creditors of the Co

Nature and extent of any proposed moratorium on claims
Treatment of ongoing contracts to which Co is a party
Order of pref in which the proceeds of the property of Co will be
applied to pay creditors
5. Any preced conditions that must be satisf for the propos to come into
operation
6. Nr of employees of the Co and their t&c of employment
7. Projected balance sheet and statem of income and expenses for the
ensuing 3 years
Conclude proposal with certif. by an authorised director stating that the factual info
appearing therein is accurate, complete and up to date
Majority vote is stil 75% in value of claims of creditors to approved proposal. High
court will have no discretion to scrutinise the fairness of the proposal.

Unit 11: Insider Trading

1. Intro
Securities Service Act: increase confidence is SA Financial markets, promotion of protection of
regulated persons and clients, reduction of systemic risk (danger of failure or disruption of
Republics financial system as a whole)
A regulated person: self-regul organ or any other person who provides or previously
provided securities service
Security service = buying and selling of sec, custody and admin, management, clearing of
transactions and settlement of transactions.

2. Relevant definitions
Inside information:
Info must be precise or specific
Info must not have been made public. Info is regarded as having been made
public when:
1. It is published in accord with rules of relevant regul market for the purpose
of informing investors and their pro advisers,
2. Its contained in records which are open to inspection by the public
3. It can be readily acquired by those likely to deal in any listed securities to
which the info relates
4. Readily acquired by those likely to deal in any securities of an issuer to
which info relates
5. Derived from info which has been made public
Info must be regarded as been made public even though:
1. It can be acquired only by persons exercising dilig or observation or having
expertise, or
2. Is communicated only on payment of a fee, or
3. Is only published outside the Republic
If info is made public it would be likely to have material effect on price/value
of any security listed on a regulated market. (courts decide on price/value)
Info must be obtained or learned as an insider. No connection needed between
person;s employment and issuer of securities.
The person includes legal entities, partnerships and trusts.

Deal = conveying or giving an instruction to deal.

Securities = shares, stocks and depository receipts in public companies, notes, bonds,
debentures. Excl money market instruments
Regulated market = market regulated ito laws of the country in which that market
conducts business
3. Offences and defences
Dealing: prohibits dealing for ones own account and for any other person
Offence: insider knows he has inside info deal direct/indir for his own account. Must prove
on balance of probab can escape liabile or became insider after giving the instruction to deal to
authorised user
Offence also if deals for someone else. Insider can escape liabil if proved on balance of probab
that he is an authoris user and acting on spec instructions from a client
Offence if insider knows he has inside info and disclose the info to another person. Its defence
if he can prove that the disclosure was done in the proper performance of the functions of his
employment.
4. Sanctions available
S77 (civil liab resulting from insider trading):
Fines not more than R50 million or 10 years prison or both.
Court takes into account any civil award which arises out of the same cause.
If DPP declines to prosecute for an alleged offence, the FSB may instit prosec iro the offence in
a competent court
Derivative civil action: can be instit by Financial Services Board (FS) against insiders involved
in contravention of the provisions.
S77(1): FSB can instit civ proceed against an insider who know he has inside info, deal
dirct/indir for his own account. Secur must be listed on regulated market. Profits or would
have made a profit if he sold the securities, or avoids a loss thru dealing.
This person can be sued for payment of equiv of profit or loss, a penalty, interests and costs.
Court may not exceed 3 times the profit or loss.
Court takes into account any crimin penalty previously imposed arising out of the same cause.
S77(2): FSB can instit civ proc against insider deal dir/indir for someone else.
Same as above. Can also sue for the insiders commission
S77(3): against insider who knows he has info and discloses it
This person will b liab to pay equiv of profit or loss
S77(4): agains insider with info and encourages or causes any person to deal
Penalties are same as above.
The insider must have dealt and the person receiving info must have made a profit or loss for
civ liab to incur.

In 2 4 above: if the receiving person is liab as an insider ito sub 1, the the person giving the
info (the insider) is jointly and severally liab to pay the penalties.
For the receiving person to be an insider: must have known he had inside info
5. The FSB and Directorate of Market Abuse
Powers of FSB:
i. Respons for supervision of compliance with the market abuse chapter of the SS
Act
ii. Power to investigate matters relating to insider trading
iii. Administer proof of claims and distrib of awards.
iv. May summons persons to furnish info, lodge docs or appear for interrog by
them.
v. May enter and search premises and examine, seize and make extracts of docs.
Must done with a warrant, but in some circum no warrant is needed.
vi. Can delegate investing to any person it deems fit
Insider Trading Directorate = committee of FSB. Now called Directorate of Market Abuse
1. Instit civ proceedings
2. Investig any matter relat to an offence of insider trading
3. Prohib trading practices and false, misleading or decept statements promises
and forecasts
4. Can withdraw, abandon or comprom any civ proceed under S77