COMPANY LAW (LML4806) – EXAMINATION SEMESTER 1 (2024)

By

Submitted in partial fulfilment of the requirements for the degree

LLB

In the

MERCANTILE LAW DEPARTMENT

UNIVERSITY OF SOUTH AFRICA

SUPERVISOR:

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Answer 1.1:

Corporate social responsibility (CSR) aims to make companies become responsible

members of the community. This implies that businesses have a responsibility to the
society where they operate and that it would be done as a voluntary commitment to
play its role responsibly within society. Naturally, this concept is far from the normal
objective of a business only to make a profit.

I do not agree with Milton Friedman’s view as companies should not purely focus on
profit alone.

Through CSR, businesses can create and generate increased profits via relationships
created with various stakeholders, such as community groups, which are mutually
beneficial. Companies that are socially responsible may even benefit from preferential
procurement and better cooperation from government, such as the policies relating to
Broad-Based Black Economic Empowerment.

CSR may lead to an enhanced reputation for the company, which, in turn, may lead to
acquiring more business that may lead to more profits. Having a good social image
may also result in attracting motivated and loyal employees, and this may lead to a
workforce that is happy and satisfied, resulting in better employee performance.

Answer 1.2.1:

Actual authority:

This authority can be expressed or implied, which is given by the board of directors or
by such a person that is authorised to delegate such authority. Expressed authority is
granted in so many words, orally or in writing. Implied authority arises from the position
of the director or agent within the company.

Ostensible authority:

This is where there is no authority at all. It is merely the authority of the person as it
appears to others, even where this person has no actual authority.

Usual authority:

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This form of authority may form part of implied authority, referred to as implied usual
authority, or it may form part of ostensible authority, referred to as restricted usual
authority.

Ratification:

This refers to a retrospective authorisation by the principal or the company. The

company will accept the benefits and obligations of a contract concluded by its director
or agent as if authority was granted from the onset.

Answer 1.2.2:

In terms of the Turquand rule, derived from the Royal British Bank v Turquand case,1
if the person acting on behalf of the company has the authority to do so, but this is
subject to an internal formality, an outsider contracting with the company in good faith
is entitled to assume that this internal requirement has been met. The rule was
formulated to protect third parties from being prejudiced by a company’s failure to
comply with its own internal procedures.

In terms of section 20(7) of the Companies Act,2 a third party dealing with a company
in good faith is allowed to assume that the company has complied with its formal and
procedural requirements as set out in the Companies Act.

Cycle for Life (Pty) Ltd needs to prove that Nancy knew, or should have reasonably
known, that James was not authorised to enter into contracts on behalf of the company
and that James failed to comply with the procedural requirement in terms of the
Memorandum of Incorporation.

Answer 2.1:

In terms of common law, those who suffered any loss or damages may claim damages
for fraud or negligent misrepresentation and will need to prove all the elements of
delict.

1 Royal British Bank v Turquand (1856) 6 E & B 327.

2 Companies Act 71 of 2008.

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Liability for untrue statements in a prospectus is dealt with in section 104 of the
Companies Act. Every person who became a director from the time of the issuing of
the prospectus and the holding of the first general shareholders meeting where
directors were appointed, who has consented to be named as a director in the
prospectus, the promoter of the company, or any person who authorised the issue of
the prospectus or made that offer to the public,3 will be liable to compensate anyone
who acquired securities on the faith of the prospectus for any loss or damages
incurred.

Furthermore, any director of a company will also be personally liable for any loss or
damages as a direct or indirect consequence of signing, consenting to, authorising, or
the publication of a prospectus that contained an untrue statement. 4

The directors of Big Money Ltd may therefore be held personally liable.

Answer 2.2:

A shareholder has the right to be represented by a proxy who may participate in, speak
and vote at a shareholders’ meeting on behalf of the shareholder.5 Busi may therefore
appoint a proxy.
In Barry v Clearwater Estates NPC,6 the court held that a provision in the
Memorandum of Incorporation (MoI) setting a time limit for the delivery of a proxy
appointment before a shareholders’ meeting is inconsistent with the provisions of
section 58(1)(a) of the Companies Act. Furthermore, the court held that a shareholder
may appoint a proxy at any time as long as the proxy delivers a copy of the instrument
appointing the proxy before the shareholders’ meeting is held. The court declared that
imposing a minimum period for the lodgement of a proxy was void under section 15(1)
of the Companies Act.
Clause 10.3 of the company’s MoI is therefore not a valid clause.

3 See s 104(1) of the Companies Act 71 of 2008.

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See s 77(3)(d)(ii) of the Companies Act 71 of 2008.
5 See s 58(1)(a) of the Companies Act 71 of 2008.
6 Barry v Clearwater Estates NPC and Others 2017 (3) SA 364 (SCA).

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Answer 3.1:

A director of a company must not use the position of director, or any information he or
she may have acquired whilst being a director, to gain an advantage for himself or
herself or for any other person other than the company.7 Furthermore, the director
must act in good faith, in the best interests of the company, and with the degree of
care, skill and diligence.8 Thus, a director must not benefit from his or her position to
make profits. This was the case in Robinson v Randfontein Estates Gold Mining Co
Ltd,9 where a director purchased a farm for himself, which the company wished to
purchased, then sold it to the company making a large profit. The court held that he
was not permitted to make a secret profit at the expense of the company. Another
case that deals with the no-profit rule is that of Regal (Hastings) Ltd v Gulliver.10
In another court case, which deals with a director who should not compete with the
company, the court found that the director placed himself in a position whereby his
fiduciary duties conflicted with his personal interests.11
There is also the corporate opportunity rule, which prohibits a director from
appropriating, inter alia, contracts that properly belong to the company and that came
to them as a result of their position as a director. This rule was acknowledged by the
court in the matter of Da Silva v CH Chemicals (Pty) Ltd12.
It is evident that Lerato breached her fiduciary duties as she was well aware of the
contract, which was a very profitable contract and for a period of ten years, due to her
position as a director of Internet World (Pty) Ltd, even though she resigned as director.
She had thus breached the no-profit rule.
Internet World (Pty) Ltd appointed Lerato to enter into negotiations with Skylab (Pty)
Ltd, and when Lerato resigned, they were still adamant to secure the contract, which
was evident by their appointment of Themba to continue negotiations with Skylab (Pty)
Ltd. For this reason, Lerato is also guilty of breaching the corporate opportunity rule.

7 See s 76(2)(a)(i) of the Companies Act 71 of 2008.

8 See s 76(3) of the Companies Act 71 of 2008.
9 Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168.
10 Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 37.
11 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443.
12 Da Silva v CH Chemicals (Pty) Ltd 2008 (6) SA 620 (SCA).

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Answer 3.2:

In terms of section 86(1) of the Companies Act, a public company must appoint a
company secretary. The first company secretary may be appointed by the
incorporators of the company or within forty business days after the incorporation of
the company by either the directors of the company or by an ordinary resolution of the
holders of the company’s securities.13 Should a vacancy arise, the board must appoint
a new company secretary within sixty business days after the vacancy arises.14

Answer 4.1:

Boaz must prepare a progress report of the business rescue proceedings, which must
be updated at the end of each subsequent month until the end of those proceedings.
Furthermore, Boaz must deliver the report, as well as each updated report, to every
affected person as well as to the court, or the Companies and Intellectual Property
Commission in any other case.

Answer 4.2.1:

Lulu received information from Bongani, who is an insider, about the upcoming
earnings report. This news, which meant that share prices would increase, would thus
be regarded as inside information. Lulu informed Leila of the inside information and is
therefore guilty of the disclosure offence.

Lulu also encouraged Msimang to buy shares and even though she does not disclose
the inside information to him, she is nonetheless guilty of the offence of encouraging
insider trading.

Answer 4.2.2:

Leila will be guilty of the offence of dealing as she was well aware of the inside
information that Lulu told her, and that she bought shares based on this information

13 See s 86(3) of the Companies Act 71 of 2008.

14 See s 86(4) of the Companies Act 71 of 2008.

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provided by Lulu. Leila would be also be guilty of dealing with regard to the purchase
of shares for her stepdaughter, for the same reasons above.

Answer 4.2.3:

Lulu did not disclose the inside information to Chris. She merely informed him to
purchase shares for her and her stepdaughter as his broker, and thus, he acted
independently. Chris will not be guilty of any offence.

Answer 4.2.4:

Msimang will not be guilty of any offence as he did not purchase any shares.