LML4806_EXAM_ANSWERS_2020.

LML4806_EXAM_ANSWERS_2020. Application of Ubuntu to company law Company law is guided by strict rules that need to be followed strictly and it regulates an area of law mainly driven by a desire for profit at any cost. The element of Ubuntu brings an element of Humanness to company law and company conduct. Companies are required to be more responsible in their conduct and take ownership in communities in which they operate 1.2 The Turquand rule was derived from Royal British Bank v Turquand (1856) 6 El. & Bl. 327; 119 ER 88. According to common-law Turquand rule, if the person Acting on behalf of the company has the authority to do so, but the Act is subject to an internal formality, such as approval by the board, an outsider contracting with the company in good faith is entitled to assume that any internal requirement has been complied with. The company will be bound by the contract even if the internal formality has not been complied with. The exceptions are: i. if the outsider was aware of the fact that the internal formality had not been complied with; or ii. if the circumstances under which the contract was concluded were suspicious. The Turquand rule was formulated to keep an outsider’s duty to inquire into the affairs of the company within reasonable limits. To trigger the protection provided by the Turquand rule there must have been an internal requirement present, while the person acting on behalf of the company would have had authority to do so. In Wolpert v Uitzigt Properties (Pty) Ltd 1961 (2) SA 257 (W), the Articles of the company provided that the board of directors could authorise a person to sign promissory notes on its behalf. Clearly, the board could authorise anyone to sign promissory notes on its behalf. In the Wolpert case, one of the company’s ordinary directors signed promissory notes on behalf of the company without authorisation and the question arose whether the outsider was entitled to assume that the director was authorised to do so. For the Turquand rule to come into operation, the person who acted must have possessed Actual authority, which was subject to an internal formality. In Tuckers Land and Development Corporation (Pty) Ltd v Perpellief 1978 (2) SA 11 (T), the court found that third parties may not automatically assume that a branch manager or an ordinary director has authority to Act on behalf of the company. The company may still escape liability on the ground that the person had no authority. Section 20(7) of the Companies Act of 2008 appears to codify the Turquand rule by providing that a person dealing with a company in good faith is entitled to assume that the company has complied with all the procedural requirements in terms of the Companies Act, its Memorandum of Incorporation and any rules of the company, unless the person knew or should have reasonably ought to have known of any failure by the company to comply with its internal formal and procedural requirements. Section 20(7) also modifies the Turquand rule by preventing a third party from invoking the rule where he or she ought reasonably to have known of noncompliance by the company. It thus differs from the common law Turquand rule, which requires that the third party must not have had any suspicion of noncompliance by the company. Despite the superficial similarity between the Turquand rule and the provisions of section 20(7), the Turquand rule has not been abolished by the statutory provision, because section 20(8) clearly states that section 20(7) must be construed concurrently with, and not in substitution for, any relevant common law principle relating to the presumed validity of the Actions of a company 1.4 The law relating to eligibility and disqualification as a director In terms of section 69(2) ,a person who is ineligible or disqualified as a director must not be appointed or elected as a director .Section 69(3) further states that a company must not knowingly permit an ineligible or disqualified person to serve or Act as a director. Ineligible persons in terms of Section 60(7) of the Companies Act 71 of 2008 are (i) A juristic person , an example of a Juristic person is a Company (ii) is an unemancipated minor, or a person under a similar legal disability (iii) Any person excluded by the Memorandum of incorporation If a person is disqualified from being appointed as a director – it means that with the exception of a person who has been prohibited from being a director by a court of law, the person may still be appointed as a director with the permission of the court. Disqualification by an Act of dishonesty A person is disqualified from being a director if In terms of section 69(8)(b)(iii) if they have been removed from an office of trust, on the grounds of misconduct involving dishonesty. Disqualification by Conviction In terms of section 69(8)(b)(iv) If a person has been convicted, in South Africa or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence involving fraud, misrepresentation or dishonesty. Termination of Disqualification The disqualification for Acts of dishonesty and conviction ends after 5 years in terms of section 69(9)(a) or at the completion of the sentence for the offence , whichever is greater . This disqualification also ends after a court extended disqualification has expired. Commission requested extension of Disqualification by the court In terms of section 69(10) of the Companies Act the disqualification due to dishonesty or conviction can be extended by the court on request by the commission. This extension can only be for no more than 5 yrs at any given time, if the court is satisfied that the extension is necessary to protect the public. Application to the facts Cause for disqualification As Mrs Kilian forged some documents, disqualification by Section 69(8)(b)(iii) applies in terms of the issue of dishonesty . The conviction for fraud, forgery and bribery in Zimbabwe in 2010 disqualifies Mrs Kilian in terms of section 69(8)(b)(iv) of the Companies Act. Duration of disqualification The disqualification of Mrs Kilian is for 8 yrs as in terms of Section 69(9) the disqualification is for 5 years or the length of imprisonment without fine , which ever will be greater . It is important to note that this duration of disqualification can be extended by the court on application by the commission. Appointment Possibility Mrs Kilian disqualification expires after 8 yrs when her sentence expires and if this period of disqualification has not been extended by the Court. This would mean by 2018 her disqualification would no longer apply, if no extension by the court. Thus Mrs Kilian could be appointed as a Director, if there has been no extension of disqualification 1.3 Definition of a Subsidiary In terms of Section 3 of the Companies Act a company is a subsidiary of another juristic person if (i) that juristic person, one or more other subsidiaries of that juristic person, or one or more nominees of that juristic person or any of its subsidiaries, alone or in any combination are able to exercise control or are directly or indirectly in control of the majority of the voting rights associated with issued securities of that company, whether pursuant to a shareholder agreement or otherwise; or (ii) The Jurist person has or have the right to appoint or elect, or control the appointment or election of, directors of that company who control a majority of the votes at a meeting of the board Question 2 2.1 In terms of Section 86(1) of the Companies Act A public company or state owned company must appoint a company secretary. A company secretary can also be appointed in terms of the Memorandum of Incorporation as outlined in sections 34(2) and 84(1) (c) (ii) A person appointed as a company secretary must in terms of section 86(2) be endowed with the relevant skills and knowledge of the law and be resident in South Africa during their tenure as Company secretary. In terms of section 87 (1) (a) juristic person or partnership may be appointed secretary, provided that every employee of that juristic person or partner and employees of that partnership are not disqualified from being appointed company secretary. A person will be disqualified from appointment as company secretary if: i. a court has prohibited that person from being a director, or declared the person to be delinquent; ii. he or she is an unrehabilitated insolvent; iii. he or she is prohibited in terms of any public regulation from being a director of the company; iv. he or she has been removed from an office of trust on the grounds of misconduct involving dishonesty; or v. he or she has been convicted, in South Africa or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury, or an offence: involving fraud, misrepresentation or dishonesty. Further to this, in terms of section 87(1) (b) at least one employee or director must have the skills and knowledge as required of the company secretary and they should be resident in South Africa Application to fActs RLV Corporate Services (Pty)Ltd can be appointed as the company secretary of TN Engineering Group Ltd , which is a public company. As a Juristic person can be a company secretary as long as they meet the requirements as stated above of skill and knowledge and there is no disqualified persons in their directorate or employment. 2.2 In terms of section 88(1) a company’s secretary is accountable to the company’s board. In terms of Section 88(2) a company secretary’s duties relate to Guidance (a) The company secretary provides the directors of the company collectively and individually with guidance in relation to their duties, powers and responsibilities. Law (b) The secretary ensure that’s all the directors know the law that is relevant and applicable to the company at any point in time. Ensuring Compliance with the Memorandum of Incorporation and Companies Act (c) The company secretary reports any failure to adhere to the Companies Memorandum of incorporation and rules of the Companies Act by the company or any director. Record of Minutes (d) The company secretary ensures that minutes of all shareholders meetings, board meetings and the meetings of any committees of the directors, or of the company’s audit committee, are properly recorded in as per the requirements of the Act . Certification and Accuracy of statements, returns and notices (e) The company secretary certifies the company’s annual financial statements whether the company has filed required returns and notices in terms of this Act, and whether all such returns and notices appear to be true, correct and up to date; Distribution of Annual Financial statement (f) The company secretary ensures that a copy of the company’s annual financial statements is sent, in accordance with this Act, to all persons who is entitled to it; and Compliance with all things legal as per Companies Act As per section 33(3) of the Companies Act, the company secretary is the responsible person that ensures that all matters of compliance in terms of the Act are adhered to .