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COMPANY LAW EXAM (LML 4806) UNIVERSITY
OF SOUTH AFRICA
QUESTION 1
1. Section 94(2) of the Companies Act of 2008[1] provides that a public company or a state-
owned company is required to appoint the first members of the audit committee.
2. An audit committee must consist of at least three members. A member of the audit
committee should be a non-executive independent director of the company who is not involved in the day-day management of the company’s business and have not been involved during the previous’ three financial years. Tom as an executive director cannot be a member of the audit committee as required by the Act. Jerry and Micky are non-executive directors, and therefore qualifies to be members of the audit committee. The board of a company may appoint an additional member of the audit committee who is not a director after taking into account his or her knowledge, experience and skills in financial matters. Minnie may therefore be appointed as an additional member of the audit committee.
3. Nominate the appointment of an external auditor as required by section 90.
Determine the fees to be paid to the auditor and the auditor’s terms of engagement.
Ensure that the appointment of an auditor complies with the provisions of the Act relating to the appointment of auditors.
QUESTION 2
Repurchase of its own shares by the company
In terms of section 48(3) of the Companies Act of 2008[2], a company may acquire its own shares, if the decision to do so satisfies the requirement of section 46. Distributions must be authorized by the board of directors. The only exception to this requirement is that a distribution is to be made in compliance with a court order or pursuant to an existing legal obligation of the company. Prior to effecting a distribution, the board of directors must acknowledge that the solvency and liquidity tests have been applied and that they have reasonably concluded that the company will satisfy the tests immediately after completing the proposed distribution. After the acquisition of company shares there must still remain shares in issue other than convertible or redeemable shares. Repurchase of shares by a company from a director must be approved by a special resolution. If the repurchase of shares involve the acquisition by the company of more than 5 percent of the issued shares, the requirements of section 114 and 115 must be complied with.
Repurchase using a subsidiary.
In terms of section 48(2) of the Companies Act of 2008, a subsidiary of a company may acquire shares of that company provided that not more than 10 percent, in aggregate of the number of issued of any class of shares of the company may be held by, or for the benefit of, all the subsidiaries of that company together. A company may not acquire its own shares, and a subsidiary of a company may not acquire shares of that company if, as a result of such acquisition, there would no longer be any shares of the company in issue other than the shares held by one or more subsidiaries of the company, or convertible or redeemable shares. Where a subsidiary wishes to acquire its own shares, no special resolution is needed.
Consequences of non-compliance by the company
The directors of a company may be personally liable(jointly and severally liable with the company) if they are present at a meeting when the board approved a share repurchase or participated in the decision and failed to vote against such decision, despite knowing that the distribution made would be contrary to section 46.
QUESTION 3
The FMA provides that an insider is a person who has inside information:
-through being a director, employee or shareholder of an issuer of securities listed on a regulated market to which the inside information relates.
-through having access to such information by virtue of employment, office, or profession.
-where such person knows that the direct or indirect source of the information was a person contemplated above.
Inside information means the following:
-the information must be precise.
-the information must not have been made to the public.
-the information must be such that if it were made public it would have material effect on the value of securities listed on the regulated market.
In terms of section 73(2)(a)[3], it is an offence for someone who knows that he has inside information to deal for another in securities to which inside information relates. In terms of section 73(3)(a), it is an offence for an insider who knows that he has inside information to disclose that information to another. Therefore, only Tlou has committed a criminal offence and he shall be criminally liable.
Various types of shareholders meetings and the methods by which such meetings may be convened.
Before a meeting of shareholders can be held, it has to be properly called and convened. A meeting Is properly convened if the prescribed notice for convening the meeting was given by persons who have the relevant authority to convene the meeting. Notice convening a meeting must be given to all persons who are entitled to receive notice of the meeting. A meeting must be convened for a time, date and place that is accessible to the shareholders of the company. A meeting may commence if a quorum is present.
The board or any other person specified in the company’s memorandum, may call a shareholders’ meeting at any time. A meeting of shareholders must be convened if one or more written and signed demands for such a meeting are delivered to the company. A demand must specify the purpose of the meeting. A demand must be signed by the holders of at least 10% of the voting rights. The company’s MOI may specify a lower percentage than 10%. A company, or any shareholder of the company, may apply to a court for an order setting aside a demand for a meeting on the grounds that the demand is frivolous, or because it calls for a meeting for no other purpose than to re-consider a matter that has already been decided by the shareholders, or is vexatious. A shareholder who submitted a demand for a meeting may withdraw the demand before the start of the meeting [8].
Consequences and prescribed procedures if a company fails to convene a shareholders’ meeting.
Where the company cannot convene a meeting because it has no directors or because all of its directors are incapacitated, any other person authorized by the company’s MOI may convene the meeting. If no other person is authorized, any shareholder may request the Companies Tribunal to issue an administrative order for a shareholders’ meeting to be convened. If a company fails to convene a meeting for any reason, a shareholder may apply to a court for an order requiring the meeting. The company must compensate the shareholder who applies to the Companies Tribunal or to a court for the costs of those proceedings. Failure to hold a required meeting does not affect the existence of a company or the validity of any action by the company.
QUESTION 7
In terms of section 1 of the Companies Act of 2008[9], a group of companies is defined as two or more companies that are related or interrelated.
One company is related to another company if:
-one company directly or indirectly controls another company: or
-one company is a subsidiary of another company.
A company controls another if the other Is its subsidiary or if, together with a related or interrelated person, the company can control the exercise of a majority of the voting rights of the other company’s securities, or if the company has the right to appoint directors of the company who together control a majority of votes at a board meeting. A company also controls another company if it has the ability to materially influence the policy of the other company.
A company is a subsidiary of another company if the other company can exercise or control the majority of the general voting rights associated with the company’s issued securities, or if the other can appoint directors of the company who together control a majority of votes at a board meeting. Section 3(2)[10] provides that the number of shares held is not the test for control of a company. Control Is determined by an analysis of the voting rights. I would seem that Motheo Ltd is the subsidiary of Molemo Ltd. Molemo Ltd hold or control the majority of the voting rights in Motheo Ltd. Molemo Ltd is also able to influence the policies in Meropa Ltd and Thebe Ltd. Therefore Meropa Ltd and Thebe Ltd are the subsidiaries of Molemo Ltd. Therefore, a principal–subsidiary relationship exists between Motheo Ltd and the other three companies.
QUESTION 8
(A) The business rescue practitioner is compelled to consult with the creditors, other affected persons and the management of the company before drafting the business rescue plan.
(B) Part A-Background
-lists of the assets and liabilities of the company, indicating which assets are held for security by creditors and specifying whether a creditor is a secured, preferent or concurrent creditor.
Part B-Proposals
-release from payment of debts, or conversion of debts into equity that are planned.
Part C-Assumptions and conditions
-any conditions that must be fulfilled before the plan can come into operations.
Certificate
-the business rescue plan conclude with a certificate by the business rescue practitioner into which he or she states the information provided in the plan appears to be correct and the projections, based on this information, have been made in good faith.
