NAME :
STUDENT NUMBER :
SUBJECT : COMPANY LAW
MODULE CODE : LML4806
ASSESSMENT TYPE : MAY/JUNE EXAMINATION
DATE : 16 MAY 2023
QUESTION 1
1.1. The relevant section in this case is section 20(7) of the Companies Act 71 of 2008
which states that states that a person dealing with a company in good faith, other than a
director, prescribed officer or shareholder of the company, is entitled to presume that
the company, in making any decision in the exercise of its powers, has complied with all
the formal and procedural requirements in terms of the Act, its Memorandum of
Incorporation and any rules of the company unless, in the circumstances, the person
knew or ‘reasonably ought to have known’ of any failure by the company to comply with
any such requirement. This is a statutory formulation of what in essence is the common-
law Turquand rule, as discussed above but with some important modifications. The Act
also preserves the Turquand rule as developed at common law. It provides that s 20(7)
must be construed concurrently with, and not in substitution for, the common-law
principle relating to the presumed validity of the actions of the company in the exercise
of its powers. This is of course a reference to the common-law Turquand rule. There is
now in our law both a common-law and a statutory indoor management rule. From this,
it follows that the statutory rule (ie s 20(7)) would, like the common-law Turquand rule,
probably not apply to forgeries. A third party dealing with the company in good faith
, may assume that that the company has complied with all of the formal and procedural
requirements in terms of the Companies Act 71 of 2008 and the company’s
Memorandum of Incorporation and rules unless he or she knew or reasonably ought to
have been aware that they had not been complied with. There is no indication from the
facts that Matthew knew or reasonably ought to have known that Nthabiseng had failed
to comply with the procedural requirement in terms of the Memorandum of
Incorporation. There is also no indication that Matthew was aware of the fact that
Nthabiseng did not comply with procedural requirement, and that she had acted in bad
faith. The contract is valid, and the company will be bound to it.
1.2 Directors have a fiduciary duty not to use confidential information for personal
purposes and such use would amount in a breach of fiduciary duties. Some of these
include:
i i. Grossly abused position of director.
ii. Took personal advantage of information or an opportunity contrary to sec 76(2)(a).
iii. Intentionally or by gross negligence inflicted harm.
upon company or a subsidiary of the company.
iv. Acted in a manner that amounted to gross negligence, willful misconduct or breach
of trust.
v. Acted in various unauthorized, reckless or fraudulent activities.
In terms of section 76 of the Act, a director owes a fiduciary duty to the company and
must act with a certain degree of care, skill and diligence. The fiduciary duty of a
director entails that a director must perform his or her functions in good faith, for a
proper purpose, and in the best interests of the company. Acting in contravention of this
duty attracts liability to the director in terms of section 77 of the Act.
STUDENT NUMBER :
SUBJECT : COMPANY LAW
MODULE CODE : LML4806
ASSESSMENT TYPE : MAY/JUNE EXAMINATION
DATE : 16 MAY 2023
QUESTION 1
1.1. The relevant section in this case is section 20(7) of the Companies Act 71 of 2008
which states that states that a person dealing with a company in good faith, other than a
director, prescribed officer or shareholder of the company, is entitled to presume that
the company, in making any decision in the exercise of its powers, has complied with all
the formal and procedural requirements in terms of the Act, its Memorandum of
Incorporation and any rules of the company unless, in the circumstances, the person
knew or ‘reasonably ought to have known’ of any failure by the company to comply with
any such requirement. This is a statutory formulation of what in essence is the common-
law Turquand rule, as discussed above but with some important modifications. The Act
also preserves the Turquand rule as developed at common law. It provides that s 20(7)
must be construed concurrently with, and not in substitution for, the common-law
principle relating to the presumed validity of the actions of the company in the exercise
of its powers. This is of course a reference to the common-law Turquand rule. There is
now in our law both a common-law and a statutory indoor management rule. From this,
it follows that the statutory rule (ie s 20(7)) would, like the common-law Turquand rule,
probably not apply to forgeries. A third party dealing with the company in good faith
, may assume that that the company has complied with all of the formal and procedural
requirements in terms of the Companies Act 71 of 2008 and the company’s
Memorandum of Incorporation and rules unless he or she knew or reasonably ought to
have been aware that they had not been complied with. There is no indication from the
facts that Matthew knew or reasonably ought to have known that Nthabiseng had failed
to comply with the procedural requirement in terms of the Memorandum of
Incorporation. There is also no indication that Matthew was aware of the fact that
Nthabiseng did not comply with procedural requirement, and that she had acted in bad
faith. The contract is valid, and the company will be bound to it.
1.2 Directors have a fiduciary duty not to use confidential information for personal
purposes and such use would amount in a breach of fiduciary duties. Some of these
include:
i i. Grossly abused position of director.
ii. Took personal advantage of information or an opportunity contrary to sec 76(2)(a).
iii. Intentionally or by gross negligence inflicted harm.
upon company or a subsidiary of the company.
iv. Acted in a manner that amounted to gross negligence, willful misconduct or breach
of trust.
v. Acted in various unauthorized, reckless or fraudulent activities.
In terms of section 76 of the Act, a director owes a fiduciary duty to the company and
must act with a certain degree of care, skill and diligence. The fiduciary duty of a
director entails that a director must perform his or her functions in good faith, for a
proper purpose, and in the best interests of the company. Acting in contravention of this
duty attracts liability to the director in terms of section 77 of the Act.
