CML 3001W Corps Note Summaries 2.
CONTENT
CORPORATIO
N LAW
Lecture notes, case summaries and textbook
summaries
Nicola Harvey
University of Cape Town
,CML 3001W Corps Note Summaries 2.
1. CORPORATE FINANCE .............................................................................................................................................. 3
1.1 INTRODUCTION ...............................................................................................................................................................................................3
1.2 DISTRIBUTIONS ...............................................................................................................................................................................................3
1.3 REPURCHASES (BUY-BACKS) ................................................................................................................................... 7
1.4 ACQUISITION BY A COMPANY OF SHARES IN ITS HOLDING COMPANY (INDIRECT REPURCHASE) ........................................ 10
1.5 FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SECURITIES ............................................................................................................ 11
1.6 FINANCIAL ASSISTANCE FOR DIRECTORS ET AL ....................................................................................................................................... 14
1.7 SHAREHOLDERS’ S39 PRE-EMPTION RIGHTS .......................................................................................................................................... 15
2. THEORETICAL/CONTEXTUAL BACKGROUND TO THE REGULATION OF COMPANY DIRECTORS OFFICERS AND
MANAGERS ..................................................................................................................................................................... 16
2.1 GENERAL INTRODUCTION ........................................................................................................................................................................... 16
2.2 CORPORATE GOVERNANCE & CORPORATE THEORY ............................................................................................................................... 16
2.3 REFLECTIONS IN REGULATION .................................................................................................................................................................... 18
2.4 SOUTH AFRICAN LAW................................................................................................................................................................................. 19
3. NATURE & DIVISION OF CORPORATE POWERS & FUNCTIONS ............................................................................. 20
3.1 INTRODUCTION ............................................................................................................................................................................................ 20
3.2 THE COMPANY’S FUNCTIONARIES ............................................................................................................................................................. 21
3.3 SOME IMPORTANT CONCEPTS AND PRINCIPLES...................................................................................................................................... 22
3.4 THE POWERS OF THE BOARD OF DIRECTORS (S66(1)) ............................................................................................. 23
3.5 THE POWERS OF THE GENERAL MEETING (GM) OF SHAREHOLDERS................................................................................................. 25
3.6 EXCEPTIONS FOR CERTAIN COMPANIES (S57) .......................................................................................................... 26
3.7 THE SEPARATION OF OWNERSHIP & CONTROL ...................................................................................................................................... 26
3.8 THE POWER OF THE GM TO CONTROL THE BOARD'S EXERCISE OF THE BOARD'S POWERS ........................................................... 26
3.9 THE POWERS OF OTHER COMPANY FUNCTIONARIES ............................................................................................................................ 26
4. DIRECTORS & OFFICERS ......................................................................................................................................... 27
4.1 INTRODUCTION ............................................................................................................................................................................................ 27
4.2 FUNCTIONARIES REGULATED BY THE ACT ................................................................................................................................................ 27
4.3 DIRECTORS ................................................................................................................................................................................................... 27
4.4 PRESCRIBED OFFICERS ................................................................................................................................................................................. 33
4.5 MEMBERS OF BOARD AND AUDIT COMMITTEES .................................................................................................................................... 34
4.6 SUBSTANTIVE & PROCEDURAL MATTERS RELATING TO DIRECTORS ............................................................................................................. 36
4.7 BOARD COMMITTEES .................................................................................................................................................................................. 42
4.8 LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS ................................................................................................................... 43
5. BOARD MEETINGS (SELF-STUDY TOPIC) ................................................................................................................ 51
5.1 CALLING A MEETING .................................................................................................................................................................................. 51
5.2 NOTICE ......................................................................................................................................................................................................... 51
5.3 QUORUM ..................................................................................................................................................................................................... 51
5.4 VOTING ........................................................................................................................................................................................................ 51
5.5 MINUTES AND RESOLUTIONS .................................................................................................................................................................... 52
5.6 ELECTRONIC COMMUNICATIONS ................................................................................................................................................................ 52
5.7 DECISIONS TAKEN WITHOUT CONVENING A MEETING ........................................................................................................................ 52
2
,CML 3001W Corps Note Summaries 2.
6. THE REGULATION OF DIRECTORS & OFFICERS ...................................................................................................... 53
6.1 INTRODUCTION - THE REGULATORY FRAMEWORK.................................................................................................................................. 53
6.2 THE INTRODUCTION OF GENERAL STATUTORY DUTIES ..........................................................................................................................53
6.3 OVERVIEW OF THE REGULATORY FRAMEWORK .....................................................................................................................................53
6.4 THE GENERAL STATUTORY DUTIES INTRODUCED BY THE 2008 ACT ................................................................................................... 54
6.5 SPECIFIC STATUTORY DUTIES, PROHIBITIONS & RESTRICTIONS.............................................................................................................. 56
6.6 THE COMMON LAW DUTY TO EXERCISE REASONABLE CARE, SKILL (AND DILIGENCE) ....................................................... 58
6.7 THE STATUTORY DUTY TO EXERCISE REASONABLE CARE, SKILL & DILIGENCE (S76(3)(C)) ................................................ 61
6.8 THE FIDUCIARY DUTIES NB EXAM SECTION .................................................................................................... 65
6.9 THE DUTIES TO ACT BONA FIDE/ IN GOOD FAITH, IN THE INTERESTS OF THE COMPANY & FOR A PROPER PURPOSE .............66
6.10 THE NO-CONFLICT DUTIES ........................................................................................................................................................................ 73
6.11 DUTIES OF DISCLOSURE............................................................................................................................................................................... 79
7. MEMBERSHIP OF THE COMPANY .......................................................................................................................... 87
7.1 MEMBERS, MEMBERSHIP AND SHAREHOLDINGS .................................................................................................................................87
7.2 THE RIGHTS AND DUTIES OF SHAREHOLDERS/MEMBERS ...................................................................................................................88
7.3 REGISTERS OF MEMBERS............................................................................................................................................................................ 89
7 COMPANY CAPACITY AND AUTHORITY ................................................................................................................ 90
7.1 COMPANY CAPACITY ................................................................................................................................................................................... 90
8.2 AUTHORITY .................................................................................................................................................................................................. 94
8 LIABILITY OF DIRECTORS AND OFFICERS............................................................................................................... 96
9.1 PART 1 INTRODUCTION ........................................................................................................................................................................ 96
9.2 TYPES OF AND GROUNDS FOR PERSONAL LIABILITY ON THE PART OF DIRECTORS & OFFICERS ...................................................96
9.3 COMMON LAW LIABILITY FOR BREACH OF DUTY .................................................................................................................................96
9.4 STATUTORY LIABILITY FOR BREACH OF A STATUTORY DUTY & OTHER WRONGS ...........................................................................97
9.5 FRAUDULENT, RECKLESS & GROSSLY NEGLIGENT TRADING ................................................................................................................... 99
9.6 SECTION 424 OF THE COMPANIES ACT ................................................................................................. 100
9.7 THE FRAUDULENT & RECKLESS TRADING PROVISIONS OF THE 2008 ACT ........................................................................................ 103
9.8 POLICY ISSUES RELATING TO RELIEVING, ABSOLVING & RELEASING DIRECTORS & OFFICERS FROM LIABILITY FOR WRONGDOING
105
9.9 PRIOR CONSENT OR RATIFICATION BY THE COMPANY ..................................................................................................................... 106
9.10 SECTION 78 OF THE COMPANIES ACT 71/ 2008 ............................................................................................. 106
9.11 SECTION 77(9) RELIEF BY THE COURT .................................................................................................................................................. 107
9 SHAREHOLDER REMEDIES ................................................................................................................................... 108
10.1 INTRODUCTION: NEED FOR SHAREHOLDER REMEDIES & MINORITY PROTECTION............................................................................ 108
10.2 THE SHAREHOLDER REMEDIES ................................................................................................................................................................ 109
10.3 TYPES OF SHAREHOLDER REMEDIES .................................................................................................................................................... 110
10.4 THE COMMON LAW REMEDIES .............................................................................................................................................................. 110
10.5 THE STATUTORY REMEDIES ..................................................................................................................................................................... 114
10.6 SECTION 163 RELIEF FROM OPPRESSIVE OR PREJUDICIAL CONDUCT................................................................................................. 116
10.7 SECTION 164 DISSENTING SHAREHOLDER APPRAISAL RIGHTS............................................................................................................ 120
10.8 SECTION 165 STATUTORY DERIVATIVE ACTION .................................................................................................................................. 121
10.9 SECTION 166 ALTERNATE DISPUTE RESOLUTION ................................................................................................................................. 123
10.10 SECTION 81 WINDING-UP (SOLVENT COMPANIES) / ‘JUST & EQUITABLE’ WINDING-UP UNDER SECTION 344(H) OF THE
COMPANIES ACT 61 OF 1973 (INSOLVENT COMPANIES) ....................................................................................................... 124
10.11 SECTIONS 168 – 175 INVESTIGATIONS INTO COMPANY AFFAIRS ................................................................................................ 124
3
, CML 3001W Corps Note Summaries 2.
10.12 SECTION 218(2) CLAIMS FOR CONTRAVENTION OF THE ACT ....................................................................................................... 124
4
CONTENT
CORPORATIO
N LAW
Lecture notes, case summaries and textbook
summaries
Nicola Harvey
University of Cape Town
,CML 3001W Corps Note Summaries 2.
1. CORPORATE FINANCE .............................................................................................................................................. 3
1.1 INTRODUCTION ...............................................................................................................................................................................................3
1.2 DISTRIBUTIONS ...............................................................................................................................................................................................3
1.3 REPURCHASES (BUY-BACKS) ................................................................................................................................... 7
1.4 ACQUISITION BY A COMPANY OF SHARES IN ITS HOLDING COMPANY (INDIRECT REPURCHASE) ........................................ 10
1.5 FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SECURITIES ............................................................................................................ 11
1.6 FINANCIAL ASSISTANCE FOR DIRECTORS ET AL ....................................................................................................................................... 14
1.7 SHAREHOLDERS’ S39 PRE-EMPTION RIGHTS .......................................................................................................................................... 15
2. THEORETICAL/CONTEXTUAL BACKGROUND TO THE REGULATION OF COMPANY DIRECTORS OFFICERS AND
MANAGERS ..................................................................................................................................................................... 16
2.1 GENERAL INTRODUCTION ........................................................................................................................................................................... 16
2.2 CORPORATE GOVERNANCE & CORPORATE THEORY ............................................................................................................................... 16
2.3 REFLECTIONS IN REGULATION .................................................................................................................................................................... 18
2.4 SOUTH AFRICAN LAW................................................................................................................................................................................. 19
3. NATURE & DIVISION OF CORPORATE POWERS & FUNCTIONS ............................................................................. 20
3.1 INTRODUCTION ............................................................................................................................................................................................ 20
3.2 THE COMPANY’S FUNCTIONARIES ............................................................................................................................................................. 21
3.3 SOME IMPORTANT CONCEPTS AND PRINCIPLES...................................................................................................................................... 22
3.4 THE POWERS OF THE BOARD OF DIRECTORS (S66(1)) ............................................................................................. 23
3.5 THE POWERS OF THE GENERAL MEETING (GM) OF SHAREHOLDERS................................................................................................. 25
3.6 EXCEPTIONS FOR CERTAIN COMPANIES (S57) .......................................................................................................... 26
3.7 THE SEPARATION OF OWNERSHIP & CONTROL ...................................................................................................................................... 26
3.8 THE POWER OF THE GM TO CONTROL THE BOARD'S EXERCISE OF THE BOARD'S POWERS ........................................................... 26
3.9 THE POWERS OF OTHER COMPANY FUNCTIONARIES ............................................................................................................................ 26
4. DIRECTORS & OFFICERS ......................................................................................................................................... 27
4.1 INTRODUCTION ............................................................................................................................................................................................ 27
4.2 FUNCTIONARIES REGULATED BY THE ACT ................................................................................................................................................ 27
4.3 DIRECTORS ................................................................................................................................................................................................... 27
4.4 PRESCRIBED OFFICERS ................................................................................................................................................................................. 33
4.5 MEMBERS OF BOARD AND AUDIT COMMITTEES .................................................................................................................................... 34
4.6 SUBSTANTIVE & PROCEDURAL MATTERS RELATING TO DIRECTORS ............................................................................................................. 36
4.7 BOARD COMMITTEES .................................................................................................................................................................................. 42
4.8 LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS ................................................................................................................... 43
5. BOARD MEETINGS (SELF-STUDY TOPIC) ................................................................................................................ 51
5.1 CALLING A MEETING .................................................................................................................................................................................. 51
5.2 NOTICE ......................................................................................................................................................................................................... 51
5.3 QUORUM ..................................................................................................................................................................................................... 51
5.4 VOTING ........................................................................................................................................................................................................ 51
5.5 MINUTES AND RESOLUTIONS .................................................................................................................................................................... 52
5.6 ELECTRONIC COMMUNICATIONS ................................................................................................................................................................ 52
5.7 DECISIONS TAKEN WITHOUT CONVENING A MEETING ........................................................................................................................ 52
2
,CML 3001W Corps Note Summaries 2.
6. THE REGULATION OF DIRECTORS & OFFICERS ...................................................................................................... 53
6.1 INTRODUCTION - THE REGULATORY FRAMEWORK.................................................................................................................................. 53
6.2 THE INTRODUCTION OF GENERAL STATUTORY DUTIES ..........................................................................................................................53
6.3 OVERVIEW OF THE REGULATORY FRAMEWORK .....................................................................................................................................53
6.4 THE GENERAL STATUTORY DUTIES INTRODUCED BY THE 2008 ACT ................................................................................................... 54
6.5 SPECIFIC STATUTORY DUTIES, PROHIBITIONS & RESTRICTIONS.............................................................................................................. 56
6.6 THE COMMON LAW DUTY TO EXERCISE REASONABLE CARE, SKILL (AND DILIGENCE) ....................................................... 58
6.7 THE STATUTORY DUTY TO EXERCISE REASONABLE CARE, SKILL & DILIGENCE (S76(3)(C)) ................................................ 61
6.8 THE FIDUCIARY DUTIES NB EXAM SECTION .................................................................................................... 65
6.9 THE DUTIES TO ACT BONA FIDE/ IN GOOD FAITH, IN THE INTERESTS OF THE COMPANY & FOR A PROPER PURPOSE .............66
6.10 THE NO-CONFLICT DUTIES ........................................................................................................................................................................ 73
6.11 DUTIES OF DISCLOSURE............................................................................................................................................................................... 79
7. MEMBERSHIP OF THE COMPANY .......................................................................................................................... 87
7.1 MEMBERS, MEMBERSHIP AND SHAREHOLDINGS .................................................................................................................................87
7.2 THE RIGHTS AND DUTIES OF SHAREHOLDERS/MEMBERS ...................................................................................................................88
7.3 REGISTERS OF MEMBERS............................................................................................................................................................................ 89
7 COMPANY CAPACITY AND AUTHORITY ................................................................................................................ 90
7.1 COMPANY CAPACITY ................................................................................................................................................................................... 90
8.2 AUTHORITY .................................................................................................................................................................................................. 94
8 LIABILITY OF DIRECTORS AND OFFICERS............................................................................................................... 96
9.1 PART 1 INTRODUCTION ........................................................................................................................................................................ 96
9.2 TYPES OF AND GROUNDS FOR PERSONAL LIABILITY ON THE PART OF DIRECTORS & OFFICERS ...................................................96
9.3 COMMON LAW LIABILITY FOR BREACH OF DUTY .................................................................................................................................96
9.4 STATUTORY LIABILITY FOR BREACH OF A STATUTORY DUTY & OTHER WRONGS ...........................................................................97
9.5 FRAUDULENT, RECKLESS & GROSSLY NEGLIGENT TRADING ................................................................................................................... 99
9.6 SECTION 424 OF THE COMPANIES ACT ................................................................................................. 100
9.7 THE FRAUDULENT & RECKLESS TRADING PROVISIONS OF THE 2008 ACT ........................................................................................ 103
9.8 POLICY ISSUES RELATING TO RELIEVING, ABSOLVING & RELEASING DIRECTORS & OFFICERS FROM LIABILITY FOR WRONGDOING
105
9.9 PRIOR CONSENT OR RATIFICATION BY THE COMPANY ..................................................................................................................... 106
9.10 SECTION 78 OF THE COMPANIES ACT 71/ 2008 ............................................................................................. 106
9.11 SECTION 77(9) RELIEF BY THE COURT .................................................................................................................................................. 107
9 SHAREHOLDER REMEDIES ................................................................................................................................... 108
10.1 INTRODUCTION: NEED FOR SHAREHOLDER REMEDIES & MINORITY PROTECTION............................................................................ 108
10.2 THE SHAREHOLDER REMEDIES ................................................................................................................................................................ 109
10.3 TYPES OF SHAREHOLDER REMEDIES .................................................................................................................................................... 110
10.4 THE COMMON LAW REMEDIES .............................................................................................................................................................. 110
10.5 THE STATUTORY REMEDIES ..................................................................................................................................................................... 114
10.6 SECTION 163 RELIEF FROM OPPRESSIVE OR PREJUDICIAL CONDUCT................................................................................................. 116
10.7 SECTION 164 DISSENTING SHAREHOLDER APPRAISAL RIGHTS............................................................................................................ 120
10.8 SECTION 165 STATUTORY DERIVATIVE ACTION .................................................................................................................................. 121
10.9 SECTION 166 ALTERNATE DISPUTE RESOLUTION ................................................................................................................................. 123
10.10 SECTION 81 WINDING-UP (SOLVENT COMPANIES) / ‘JUST & EQUITABLE’ WINDING-UP UNDER SECTION 344(H) OF THE
COMPANIES ACT 61 OF 1973 (INSOLVENT COMPANIES) ....................................................................................................... 124
10.11 SECTIONS 168 – 175 INVESTIGATIONS INTO COMPANY AFFAIRS ................................................................................................ 124
3
, CML 3001W Corps Note Summaries 2.
10.12 SECTION 218(2) CLAIMS FOR CONTRAVENTION OF THE ACT ....................................................................................................... 124
4
