LML4806 - Company Law 2023 with complete solution questions and answers

What info must be contained in a compromise proposal? - any proposals made "informally" by a company creditor - details of all assets and creditors - treatment of ongoing contracts - order of preference, proceeds apply - conditions precedent - number of employees - t&c of employment - projected balance sheet - income and expenses for 3 years - certificate by authorized director stating info is factual, accurate, up to date When will compromise be adopted and binding - S155(6) adopted if supported by a majority in number representing at least 75% in value of creditors - A company may apply to court for an order approving the proposal - suggests it is not necessary for a company to obtain sanction of High Court before a compromise becomes binding on dissenting creditors Record date - determines certain rights of shareholders - S59(1) a company may set a record date for purpose of determining which shareholders are entitled to receive the notice, vote etc - latest date by which the company is required to give notice to SH of the meeting, or date of action or event - board fail to set date, date is last day on which notice should be given to SH of SH meeting (public = 15 bdays; private = 10 bdays) Compromise - agreement or arrangement or restructuring of claims between a company and its creditors in terms of which the creditors agree to accept less than their full claims against the company - binding on all companies creditors Compromise proposal is divided into three parts - background - the proposal itself - assumptions and conditions How is proposal of compromise effected? - by delivery of a copy of the proposal - and notice of a meeting to consider the proposal to the Companies Commission and to every creditor of the company or every member of the relevant class of creditors whose name and address is known or can reasonable be obtained by the company When is compromise proposal adopted - when supported by a majority in number - representing at least 75% in value of creditors present & voting (or proxy) If a compromise is approved by court? - company must file a copy of the order with Companies Commission within 5 business days - copy must be attache to each copy of Company MOI - order of court is final and binding on all creditors or class of creditors from the date on which a copy of the order is filed Company Secretary - public & state owned company are obliged to appoint one - company must maintain record of company secretaries - secretary is chief administration officer - should be someone with knowledge of and experience in relevant legislation - accountable to board of directors - duties - guide directors on duties; powers & responsibilities; make directors aware of law - board may adopt a resolution to remove company secretary How do you hold a SH meeting w/o everyone present PROXY - S58 - appointment must be in writing & signed - speak & vote on behalf of SH WRITTEN RESOLUTION - S60 - must be submitted to SH for consideration - adopted by same % of support as is required to pass the res at a meeting - SH must vote on res within 20 business days after res was submitted to them - company must deliver a statement to SH describing the results of vote within 10 business days after company adopted written resolution Delinquency - S162(1) - person grossly abused the position of director - took personal advantage of info or an opportunity contrary to S76(2)(a) - intentionally or by gross negligence inflicted harm upon the company or subsidiary of company - acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust in relation to the performance of the directors functions - Gihwala v Grancy property - 3 directors appropriated financial benefit or themselves. Court held that their conduct entailed gross abuse of position of director. Action was intentional. Therefore breach of trust RF company - when MOI contains special conditions - special conditions is a condition which restricts or prohibits the amendment of any particular provision in the MOI of a company - purpose of RF is to draw attention of 3rd parties to the presence of special conditions in MOI Group of companies - a holding company and all its subsidiaries Wholly owned subsidary - a company in which all of the voting rights are held by another person or persons Shareholder meeting - quorum & adjournment requirement? - S64 meeting may not begin until at least 25% of all voting rights are present (subject to company MOI) - for companies with more than 2 SH, at least 3 SH present & 25% requirement - S64(4) - if within one hour after scheduled time for meeting to commence, quorum is not met, meeting may be postponed w/o motion, vote or further notice for 1 week - S64(5) - may extend 1 hour for reasonable period if exceptional circumstances exist such as weather, transport, electronic communication have impeded ability of SH to be present - SH delayed must have communicated intention to attend meeting, and would satisfy quorum requirements Doctrine of constructive notice - 3rd parties are deemed to be fully acquainted with contents of company's public docs, whether they have read them or not - partially abolished by S19(4) CA - 3rd parties are no longer deemed to have had notice or knowledge of contents of public docs of company merely because they have been filed with CIPC or are available for inspection at company office Merger of companies? - S113(2) - merger if the amalgamation of a company, results in the formation of a new company which holds all assets & liabilities - old company ceases to exist - amalgamation is permissible, provided directors of each company reasonably believe new company will satisfy solvency and liquidity test - transaction must be approved by special resolution of SH of all companies - notice of SH meeting must be accompanied by a copy of merger & details of proposed special resolution and appraisal rights What must be set out in a merger agreement - new MOI - Name, ID number of directors - Manner in which securities are converted - Manner of payment of any consideration - estimate cost of merger - details of proposed allocation of assets and liabilities What happens when a company wants to issue new shares? - S39 - each SH has a right of pre-emption - SH subscribe for new shares in proportion to their voting right - designed to alleviate the effects on existing SH of a new issue of shares by a company - rights should not be diluted w/o consent - company MOI may limit, restrict or negate such pre-emptive rights Does business rescue proceedings allow company to cancel contracts? - S136(2) Business rescue practitioner does not have power to cancel contract - BRP may apply to court to cancel entirely, partially or conditionally any obligation of company on terms that are just & reasonable in circumstances - court may not cancel any provision of an employment contract or an agreement to which s35A or 35B of Insolvency Act would have applied, had company been liquidated - Other party to contract that has been partially or entirely cancelled may only claim damages from company & not for specific performance of contract Requirements for person to qualify as BRP? - person must not have any other relationship with company that would lead a reasonable and informed 3rd party to conclude that his integrity, impartiality or objectivity is compromised by that relationship - former directors of company = integrity compromised What kind of insiders are there? - ITO Financial Markets Act, an insider who knows he has inside info & who acts indirectly/directly through an agent for his own account in securities on a regulated market to which inside info relates, comments an offence (S78) - Insider who knows info & who deals for any other person, commits an offence - Person who deals for an insider directly or indirectly through an agent in securities listed on a regulated market to which the inside info possessed by the insider relates or which are likely to be affected by it, who knew that such a person is an insider, commits an offence - insider who knows he has info commits an offence if he discloses info to another person and to causes that person to deal in that security (disclose info & deal in info) What is insider trading - trading of securities - based on information - that is not yet made public - which if obtained as public knowledge - would have a material effect on the price or value of the security What happens if BRP have not ended after a period of time? - S132(3)(1) - practitioner must prepare a report on progress and update it at the end of each subsequent month until the end of proceedings - also deliver report to each affected person & to court if proceedings have been subject to a court order or companies commission What happens if BRP has been rejected? - S153 - BR practitioner will advise meeting that company will apply to court to set aside the result of the vote on grounds it was inappropriate - court will set aside if reasonable and just to do so - court will consider interests represented by the person who voted against the proposed BR plan - provision if any, made in proposed plan BR with respect to interests of that person - fair and reasonable estimate of the return to that person if the company were to be liquidated - FNB v KJ Foods - single inquiry & value judgement. If set aside, BRP adopted by law Corporate social responsibility - Seeks to make companies responsible members of the community - Businesses have a responsibility towards the societies in which they operate and that this responsibility needs to be managed - Voluntary commitment by companies to manage their role within society responsibly - marks a departure from the traditional perception that the only object of business is to make profits - eg purpose of CA is to promote development of SA economy by encouraging transparency, and high standards of corporate governance - CA seeks to reaffirm the concept of the company as a means of achieving economic and social benefits - CA seeks to promote development of companies within all sectors of the economy & to encourage active participation in economic organisation, management and productivity - CA seeks to encourage efficient and responsible management of companies - CA provides for non profits that are incorporated for social activities, public benefit, cultural activities or group interest - CA may offer a wide circle of stakeholders - CA requires certain categories of companies to appoint a social and ethics committee to monitor company activities Discuss SH meeting? S62(3) - a SH meeting should include date, time, place, record date, general purpose, specific purpose, copy of proposed resoultion, notice of percentage of voting rights S61(4) - failure to hold a SH meeting does not affect company existance or validity of any action taken by company - SH right to vote is a propriety right and a SH has a right to exercise his vote to his own interest - SH may not oppressively & fraudulently use their votes to defraud a minority - instances where compliance with formalities is not required - 1) unanimous assent at common law. 2) every SH is also a director Ex officio director leaves a vacancy on the board? - ex officio director is a person who holds office of a company solely as a consequence of that person holding some other office specified in company MOI - S70(1)(b) - instances when there will be a vacancy - fixed term of office expires - resignation / death - ceases to hold office - leaves SA - incapacitated - delinquent - ineligible - removed by resolution - Board has no obligation to fill position immediately as there is no provision in Act Directors liability ito duty to exercise care, skill and diligence - Fisheries development v Jorgensen 1980 - required degree of care and skill to a large degree depends on nature of business and specific duties assigned to director - non exec director not expected to give continuous attention to affairs of company - not expected of a director to have special expertise or experience - expected - exercise degree of care and skill once could reasonable expect from a person with his knowledge or experience - Remedies - based on contract or delict - Directors are not liable for mere errors of judgement - Directors may rely on officials and management unless there are reasons for questioning the judgement of such officials. A director must still give due regard and exercise his own judgement in doing so - S76 partially codified duty of care and skill. Directors must exercise duty of care and skill and diligence that may be reasonably expected of a person carrying out same functions in relation to company as those carried out by director - objective test - what would reasonable director have done. Contains subjective elements and therefore a dual test - S76(4) if director taken diligent steps to become informed about the matter, no personal financial interest, rational basis for believing decision in best interests of company - can be excused