MRL2601 EXAM 27 JUNE 2023 - ANSWERS/SOLUTIONS (MEMO) WITH REFERENCESN

QUESTION 1 1.1 With reference to relevant legislation and case law, explain the legal consequences of the recognition of a company’s separate legal personality. (10) 1.2 Name the different types of companies that are provided for in the Companies Act 71 of 2008. (5) 1.3 Vela is a shareholder of Impala Ltd. The next annual general meeting will be held on 13 November 2023. Unfortunately, at the time he will be overseas on a business trip. Vela would, however, still like to vote on some matters that will be discussed at the meeting. Advise him regarding the possibility of appointing a proxy to attend and vote on his behalf at the annual general meeting. Also indicate the validity requirements for appointment of a proxy. (5) TOTAL: [20 marks] QUESTION 2 2.1 The board of directors of Bayeza Ltd has resolved to issue shares to the following persons: (a) Mpho, the newly appointed chief executive officer of the company; (b) Beauty, a new director who will be joining the board of directors in three (3) months’ time; and (c) certain employees of the company in terms of an employee share scheme. With reference to the Companies Act 71 of 2008, advise the board of directors whether approval from the shareholders of the company is required to issue these shares in the event of issue to the persons enumerated from (a) to (c). (10) 2.2 The board of directors of Gangnam’s Tile (Pty) Ltd proposed that a shareholders’ meeting be convened to discuss various matters. Explain the different requirements for passing of the two types of resolutions that can be taken in a shareholders’ meeting in terms of the Companies Act 71 of 2008. (7) 2.3 The directors of Gangnam’s Tile (Pty) Ltd are uncertain as to whether the company must appoint a company secretary. With reference to the Companies Act 71 of 2008, advise them whether Gangnam’s Tile (Pty) Ltd is required to appoint a company secretary. (3) TOTAL: [20 marks] CONFIDENTIAL Page 10 of 11 MRL2601 May/June 2023 QUESTION 3 3.1 Lesedi and Simphiwe registered Furnmax (Pty) Ltd, a company that sells office equipment. The Memorandum of Incorporation of Furnmax (Pty) Ltd indicates that the board of directors, consisting of Lesedi, Simphiwe, Carol and Precious, can appoint a managing director who would be authorised to contract on the company’s behalf. However, the board has never formally appointed a managing director. Nevertheless, Lesedi, with the full knowledge of the other directors, has contracted with Office Supplies Ltd for the supply of office equipment to Furnmax (Pty) Ltd on two occasions. On the third occasion that Lesedi contracted with Office Supplies Ltd, Furnmax (Pty) Ltd denied liability for the payment for the equipment based on the fact that Lesedi was never appointed as the managing director. Upon being sued by Office Supplies Ltd, Furnmax (Pty) Ltd opposed the claim for payment in terms of the agreement based on the fact that Lesedi was not authorised to contract on the company’s behalf. 3.1.1 Explain with reference to relevant case law what Office Supplies Ltd would have to prove in order to rely upon the doctrine of estoppel. (5) 3.1.2 Assume that Lesedi was formally appointed as the managing director but that, instead of office equipment, Lesedi had bought a race car on behalf of Furnmax (Pty) Ltd. Explain whether Furnmax (Pty) Ltd would be successful in denying liability for payment of the purchase price based on the fact that the race car has nothing to do with the company’s business. (5) 3.2 Michael is a shareholder of African Solar (Pty) Ltd. He believes that the board of directors is using company funds for its personal gain. He wants to bring an action on behalf of the company against the directors. Advise Michael briefly of the steps that must be taken to bring a derivative action. (5) 3.3 Amos is an experienced quantity surveyor. He has extensive knowledge on the valuation of immovable property. Amos is approached to serve as a director of PropSite (Pty) Ltd, a small company that deals in property speculation. He agrees to serve as a director on the understanding that he will not be involved in the day-to-day running of the company. After two years, Amos has made a significant contribution to the company by providing property valuation advice, but only when he was specifically asked, and on an intermittent basis. Amos has never attended board meetings and he trusted the rest of the board to take all the other decisions. Amos is informed by the managing director that it was decided at the previous evening’s board meeting that PropSite (Pty) Ltd should invest in a new property development. The development site is in a rural area. Amos is aware that the risk of potential losses is always higher in rural areas. However, he agrees that PropSite (Pty) Ltd should take the risk and invest in the development. PropSite (Pty) Ltd proceeds with the development. After six months it becomes apparent that the development is a failure. PropSite (Pty) Ltd suffers a loss of R50 million. CONFIDENTIAL Page 11 of 11 MRL2601 May/June 2023 The shareholders want to institute legal action on behalf of PropSite (Pty) Ltd against the board of directors for breach of their duty of care, skill and diligence. Amos has heard of the business judgment rule, which apparently affects directors’ liability. Explain to Amos what the business judgment rule entails. Also indicate whether the rule would protect Amos in these specific circumstances. (5) TOTAL: [20 marks] QUESTION 4 4.1 Puseletso is a member of Pusego CC. Briefly explain to Puseletso who may represent a close corporation in terms of the Close Corporations Act 69 of 1984, and under what circumstances a close corporation would not be bound by a contact concluded by a member on its behalf. (5) 4.2 Puseletso has recently bought the member’s interest in Pusego CC. She is experiencing financial problems, and it appears that her estate will be sequestrated. The other members of Pusego CC, who are aware of the situation, are concerned about the effect that the sequestration of Puseletso’s estate will have on the continued existence of Pusego CC. With reference to the Close Corporations Act 69 of 1984, explain whether the continuation of the business of Pusego CC will be affected by the sequestration of Puseletso’s estate and what will happen to Puseletso’s member’s interest when she is sequestrated. (5) 4.3 Three friends, Sello, Khomiso and Bonang, run a catering business together, called Mnandi CC. Khomiso and Bonang have discovered that Sello is using the close corporation’s equipment to run his own business and that he has been running his own business without their knowledge. 4.3.1 Briefly explain what the fiduciary duties of members of a close corporation entail. (5) 4.3.2 Advise Khomiso and Bonang on the grounds that must be established against Sello before his membership may be terminated by a court. (5)