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CPL511S - COMPANY LAW - 2ND OPP - JULY 2022 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENTOF SOCIALSCIENCES
QUALIFICATION: BACHELOROF ACCOUNTING
QUALIFICATION CODE: 07BOAC;
07BACC
LEVEL: 6
COURSECODE:CPL51155
COURSENAME: COMPANY LAW
SESSION: JULY 2022
PAPER:THEORYAND CASESTUDIES
DURATION: 3 HOURS
MARKS: 100
SUPPLEMENTARY EXAMINATION
EXAMINER(S) Mariette Hanekom
MODERATOR Ester Kuugongelwa
INSTRUCTIONS
1. The paper has 5 main questions.
2. ALL the questions are compulsory.
3. Read carefully before answering.
4. Number the answers clearly and according to the structure in the examination question
paper.
5. Use full sentences and proper paragraphs when answering questions. The inappropriate
use of bullet-points will be penalised, as will poor spelling and grammar and illegible
handwriting.
ANNEXURE
Selected Extracts: Companies Act 28 / 2004
(11 pages)
PERMISSIBLEMATERIAL
Calculator
THIS MEMORANDUM CONSISTSOF 9 PAGES
(Including this front page, excluding annexure)
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QUESTION 1
Choose the correct answer from the given options in each of the following questions. Only
write down the correct letter next to the corresponding question number. USE BLOCK
CAPITAL LETTERS.
1.1 A unanimous resolution is: (Choose the most correct statement)
A. A resolution signed by the majority of the members of a public company.
B. A resolution signed by all the members of a public company.
C. A resolution signed by all the members of a private company.
D. A resolution taken by all the members of a company, who are fully aware of
what is being done and agree thereto.
1.2 Sunny Day (Pty) Ltd has both ordinary and preference shareholders. All dividends due
to the preference shareholders are fully paid up to date. The directors of Sunny Day
(Pty) Ltd call a general meeting of shareholders to seek approval to sell the building of
the company at a value below market value. This will have the effect of considerably
reducing the market value ofthe shares. CHOOSETHE MOST CORRECTOPTION:
A. They cannot do this because the shareholders may not intervene in the business
of the company.
B. The preference shareholders must be invited to the meeting because this affects
their class rights.
C. The preference shareholders do not have to be invited to the meeting because
this does not affect their class rights.
D. The written consent of 75% of shareholders is required to sell fixed property.
1.3 In terms of the Companies Act 28/2004 shares may only be issued at a discount if:
A. The market value of existing issued shares is less than their nominal value.
B. All the members agree.
C. Such issue is bona fide and in the interest of the company.
D. None of these answers.
1.4 In the context of corporate governance, "apply and explain" means that:
A. Companies can choose which of the principles contained in King IV they want to
apply to the company.
B. Companies do not have to apply the principles contained in King IV if they
believe that it would be in the best interest of the company.
C. Companies should provide a narrative account in which they explain how the
corporate governance principles were applied.
D. Companies should apply the principles contained in King IV and give a narrative
account of how this was done.
QUESTION 1 CONTINUES ON THE NEXT PAGE
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1.5 A director's duty of reasonable care, skill and diligence entails that:
A. A director must comply with his/her fiduciary duty of care and skill.
B. All directors must be highly qualified.
C. It is misleading to classify company directors for purposes of ascertaining their
duties to the company.
D. A director must act according to the standard of a reasonably diligent person
having the general knowledge, skill and experience that may reasonably be
expected of a person carrying out the same functions as those carried out by
that director in relation to the company.
1.6 The Articles of Association of Yellow (Pty) Ltd vests the general management and the
control of the company in the directors, subject thereto that any transaction in excess
of N$1 million must be approved by resolution of the shareholders. At a general
meeting of Yellow (Pty) Ltd a resolution was passed by the shareholders that the
directors should be instructed to sell the company's fixed property for N$2 million.
The directors were given instructions to find a suitable purchaser. The directors feel
that the sale of the property will jeopardize the company's competitiveness. Advise
the directors as to whether they are obliged to follow the instructions of the general
meeting.
A. They have to follow the instructions because it is in excess of N$1 million.
B. They have to follow the instructions because the shareholders own the company
and appointed them.
C. They do not have to follow the instructions, because there is a separation
between ownership and management.
D. They do not have to follow the instructions, because the articles of association
of the company mandates the board of directors to manage the company.
1.7 Holders of cumulative preference shares ...
A. Have a right to receive an annual dividend payment and can institute action
against the company if their dividend is not paid.
B. Can redeem their shares.
C. All ofthe above
D. None of the above
1.8 The principles that underpin a director's duty to avoid a conflict of interest are:
A. The no-conflict rule, the no-profit rule, and the corporate opportunity rule.
B. The duty not to usurp any contract, information or other opportunities that
properly belongs to the company.
C. That a director may not exceed the limitations of his/her power, must maintain
an unfettered discretion, and should exercise their powers for the purpose for
which they were conferred.
D. Confidentiality, competence, and independence.
QUESTION 1 CONTINUES ON THE NEXT PAGE
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1.9 If a close corporation is converted to a company:
A. The former members of the close corporation become personally liable for all
the debts thereof
B. All debts of the close corporation become payable immediately
C. The juristic person continues to exist, only in a different format
D. The close corporation must be liquidated
1.10 The rationale behind certain persons being disqualified as auditors for a company is:
A. Auditors should be diligent and reliable
B. Auditors should provide checks and balances
C. Auditors should have the required skill and objectivity
D. None of the above
1.11 Although the Founding Statement of a Close Corporation states its main business and
object as "furniture removal" the members enter into an agreement for the purchase
of a racehorse. The seller can hold the Close Corporation to the agreement only if:
A. The horse wins its first race.
B. Never. The agreement is illegal.
C. None of these answers.
D. They can rely on ostensible authority.
1.12 Choose the MOST correct statement.
A. The association agreement of a Close Corporation is a binding contract between
the corporation and its members and between the members themselves.
B. The association agreement of a Close Corporation is a binding contract between
the corporation and its members and between the members in their capacity as
members.
C. The association agreement of a Close Corporation is not a public document and
third parties are not allowed to have access thereto.
D. The association agreement of a Close Corporation is a binding contract and will
determine who may represent the corporation and who may not.
1.13 Miss Muffet Close Corporation decides to lend the amount of N$10 000 to Dick to
enable him to purchase a member's interest in the corporation. Harry, who holds a
10% member's interest in Miss Muffet Close Corporation, realises that the payment
will render the close corporation insolvent. He warns the other members of the
corporation not to pay over the money and refuses to sign a consent. The other
members ignore him. The potential legal consequences of this are that:
A. The members of the Close Corporation can be held jointly and severally liable for
all the debts of the corporation.
B. Dick must pay back the money.
C. Harry will not be held liable, because he took all reasonable steps to prevent the
payment.
D. Both A and C.
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1.14 In terms of corporate governance, "accountability" refers to:
A. The obligation to answer for the execution of responsibilities
B. Having a self-regulating business model that helps a company be socially
accountable
C. The way in which companies are governed, controlled, and directed
D. The quality of being honest and having strong moral principles
1.15 A director's duty of reasonable care, skill and diligence entails that:
A. A director must comply with his/her fiduciary duty of care and skill.
B. All directors must be highly qualified.
C. A director must handle the property of the company with the utmost care.
D. A director must act according to the standard of a reasonably diligent person
having the general knowledge, skill and experience that may reasonably be
expected of a person carrying out the same functions as those carried out by
that director in relation to the company.
1.16 The articles of Tileinge (Pty) Ltd require each director to hold at least 15 ordinary
shares in the company. The members of the company decide to appoint Mr
Amungenga, who is not a shareholder, as Director: Legal Affairs. Six months later Mr
Amungenga informs his co-directors that he has not yet managed to raise the money
to buy the required shares. They decide to give him the necessary shares "as
appreciation for services rendered." What is the effect of Mr Amungenga not being
able to buy the shares? May the co-directors give Mr Amungenga appreciation shares?
A. Yes, because the Companies Act does not require a director to be a shareholder
and companies are not obliged to require that its directors must also be
shareholders in the company. The company can therefore simply waive this
requirement.
B. They can give the shares to Mr Amungenga. These shares will then be deferred
shares, which are issued to remunerate promoters for services rendered in the
formation of the company (founders' shares).
C. If a share qualification is required, every director must comply with it within two
months of his/her appointment. Mr Amungenga must therefore resign as
director for a while, after which he can be reappointed and the two-month
period will start to run afresh.
D. Mr Amungenga must resign and cannot be reappointed until he has managed to
buy these shares; he can be held legally liable for the market value of the shares
given to him.
1.17 Random Company (Pty) Ltd has 5 shareholders who are also directors of the company.
All the shareholders agree to change the constitution of the company to provide that
Random Company (Pty) Ltd never has to hold an Annual General Meeting (AGM).
CHOOSETHE MOST CORRECTOPTION:
A. Since they all agree, they can make this decision by way of unanimous assent.
B. This will require a special resolution.
C. This will be illegal.
D. A company does not have to hold an AGM if 75% of the shareholders agree
thereto in writing.
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1.18 A company that has been registered for more than 5 years must hold its Annual
General Meeting
A. Within 18 months from the date of its registration
B. Not later than nine months after the end of each financial year
C. Within 15 months of the date of the preceding annual general meeting, but not
later than 9 months after the end of each financial year
D. Not later than nine months after the end of each financial year, but at least 15
months after the date of the preceding annual general meeting.
1.19 We can describe shares as rights of action entitling their owners, amongst other
things, to:
A. Dividends every financial year
B. Profits acquired in a financial year
C. A certain portion of the company assets
D. None of the above
1.20 The following is NOT a characteristic of a public company:
A. Its shares are freely transferable
B. It must comply with comprehensive provisions regarding the compulsory
disclosure of information to the public
C. the quorum for a general meeting of a private company is at least two members
entitled to vote present in person or by proxy
D. None of the above
Two marks each [40]
QUESTION 2
Briefly answer the following questions.
2.1 List the rules that govern payments to members of a Close Corporation.
(3)
2.2 How does a change in the composition of the members of a firm of auditors affect
the firm's appointment as auditors of a company?
(3)
2.3 What are the main differences between the redemption of preference shares and a
company buying back its own shares in terms of section 89 of the Companies Act,
2004?
(4)
2.4 What is the difference between authorised and issued share capital?
(3)
2.5 Which two basic types of companies can be formed in terms of the Companies Act
28 of 2004?
(2)
[15]
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QUESTION 3
The shareholding of Sunday Morning (Pty) Ltd is a follows:
Armin:
50% ClassA Ordinary Shares with a par value of N$1 each
Bella:
30% ClassA Ordinary Shares with a par value of N$1 each
Charles:
9% ClassA Ordinary Shares with a par value of N$1 each
Dodo:
6% ClassA Ordinary Shares with a par value of N$1 each
Ella:
5% ClassA Ordinary Shares with a par value of N$1 each
Frits:
100% Class B Redeemable Preference Shares with a par value of N$1 each
The directors are Armin, Bella, and Charles. Armin is the Chairperson of the Board of
Directors. All dividends due to the preference shareholder have been fully paid to date.
In each of the following instances indicate whether the resolution described therein has
been properly adopted at a general meeting of members:
3.1 On 1 May Armin, without consulting with anybody else, telephones all the
shareholders and invites them to a Special General Meeting. The meeting takes place
on 23 May 2022. Armin, Bella and Charles are present. At the meeting they all vote in
favour of selling the building belonging to the company.
3.2 Dodo and Ella call a meeting in terms of Section 188 of the Companies Act, 2004.
Charles, Dodo and Ella are present at the meeting. Dodo and Ella vote in favour of a
special resolution instructing the Board of Directors to provide them with certain
information concerning an intended transaction by the Board. Voting takes place by
poll.
3.3 A meeting is convened to adopt a special resolution. Charles, Dodo and Ella are
present, and all vote in favour of adopting the resolution tabled.
3.4 A meeting is convened to adopt a special resolution approving the sale of the
company's immovable property. This will have the result of significantly reducing the
value of all the shares in the company. All the ClassA shareholders are present and
vote in favour of the resolution. Frits was not invited to the meeting.
3.5 A meeting is convened to adopt a resolution amending the company's constitution
to allow the company to buy back shares in terms of Section 89 of the Company's
Act, 2004. Bella, Charles, Dodo, Ella and Frits are present. Voting takes place by poll.
Charles, Dodo, Ella and Frits vote in favour of the resolution.
Two marks each [10]
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QUESTION 4
The issued share capital of Josua (Ltd) (a public company listed on the Namibian Stock
Exchange) consists of 50 000 ordinary shares with a par value of N$10 each and 15 000 class
B non-redeemable preference shares with a par value of N$15 each. Josua (Ltd) wants to
increase the dividend potential of its ordinary shares by repurchasing 50% of the preference
shares in terms of section 89 of the Companies Act 28 of 2004.
Advise the directors of Josua (Ltd) on the procedure to be followed.
[15]
QUESTION 5
Andiswe registers a private company, Andis (Pty) Ltd. He holds 40% of the shares and his
three sons hold 20% each. In the Articles of Association it is stipulated that he (Andiswe) will
be serve as a director of the company "for the rest of his natural life". The Articles of
Association further provide that directors can only be removed by way of a special
resolution adopted at an Annual General Meeting of the company. Andiswe also enters into
a contract of employment with the company in terms of which he is appointed as Managing
Director at a substantial salary per month.
After three years Andiswe purchased a farm in his own name after the company (Andis (Pty)
Ltd), which was anxious to acquire the farm, could not reach finality with the sellers. He
purchased the farm through an agent for N$3 million and thereafter sold it to the company
for N$8 million. (The farm transaction) In this regard he claimed that the sellers were not
prepared to do business with the company and structuring the transaction in this manner
was the only way in which the company could obtain ownership of the farm.
This causes a huge family dispute and Andiswe's three sons decide that they want to get rid
of him and take over the company. His sons convene a general meeting of the company.
Andiswe and his sons are all present at this meeting and after a discussion which lasted long
into the night, all three of his sons vote in favour of an ordinary resolution removing their
father as director.
Answer the following questions:
NOTE: Read all the questions carefully before you start answering!
5.1 Can Andiswe rely on the provisions of the Articles of Association stating that he will
serve as a director of the company "for the rest of his natural life" and/or his
contract of employment to prevent his removal?
(7)
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5.2 Is his removal by way of an ordinary resolution at a general meeting (which was not
the Annual General Meeting) valid?
(6)
5.3 Can the company institute legal action against Andiswe regarding the farm
transaction?
(5)
5.4 Andiswe alleges that his contract of employment contains a clause stating that "no
director shall be liable to the company for any loss caused by his/her negligence,
default, breach of duty or breach of trust". Can he rely on this clause to escape
liability?
(2)
[20]
TOTAL MARKS: 100
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