MRL 2601 ASSIGNMENT 2

Question 1 The Companies Act 71 of 2008 in Section 44 states that if financial assistance is not prohibited by the Memorandum of Incorporation and that certain requirements are met; a company may give financial assistance by granting a loan, guarantee, provision of security, or otherwise to a person for the purpose of, or in connection with, the acquisition of shares and other securities in the company. 1 Vusi, a shareholder and director of Securities (Pty) Ltd, lent Jonathan money to enable him to buy shares thus amounting to financial assistance as envisaged in the Companies Act 71 of 2008. As stipulated in Section 44 a company may grant financial assistance to a person for the purpose of buying shares. The board of directors need to make the decision to assist a person to acquire shares in the company, but only where the assistance is in terms of an employee share scheme or where a special resolution by the shareholders taken within the previous two years authorised such assistance to a specific person, or to persons that fall in a specific class or category 2 . In the latter case, the person to whom the assistance will be given must fall in that class. Section 44 further requires that the board must be satisfied that the solvency and liquidity requirements will be satisfied immediately after providing the financial assistance, and that the assistance is given on terms that are fair and reasonable to the company. The Memorandum of Incorporation may place further restrictions on the provision of financial assistance, and the board must ensure that these requirements are also met 3 . The Lipschitz v UDC Bank Ltd decision is an important case for the application of section 44, because it gives us guidelines to determine whether a transaction will be valid in terms of the Act. In Gradwell (Pty) Ltd v Rostra Printers Ltd, the “impoverishment test” was formulated to assist in det