LML4806 Past Exam Questions With Answers 2022. Bongani has been a non-executive director of Apex (Pty) Ltd since 2012. He is also a
director and sole shareholder of a management consultancy business, Infinity (Pty)
Ltd. Apex (Pty) Ltd is undergoing a process of internal restructuring. Without kno...
Bongani has been a non-executive director of Apex (Pty) Ltd since 2012. He is also a
director and sole shareholder of a management consultancy business, Infinity (Pty)
Ltd. Apex (Pty) Ltd is undergoing a process of internal restructuring. Without knowing
of Bongani’s involvement with Infinity (Pty) Ltd, one of the other directors of Apex
(Pty) Ltd proposes to the board of directors of Apex (Pty) Ltd that Infinity (Pty) Ltd
should be approached for advice on the recruitment of key staff. The board of
directors of Apex (Pty) Ltd will be voting on this issue at the next board meeting
which is scheduled for next week.
(a) Bongani seeks your advice. He wants to know whether he must disclose his
interest in this matter to the board of directors of Apex (Pty) Ltd and if so, what
procedure he must adopt to do so. (8)
Unisa’s comment
These circumstances are regulated by section 75 of the Companies Act 71 of
2008 (‘the Act’). It provides that if a director has a personal financial interest in
respect of a matter to be considered at a meeting of the board, the director
must disclose the interest and its general nature before the matter is
considered at the meeting.
A personal financial interest is defined in section 1 of the Act as meaning a
direct material interest of that person of a financial, monetary or economic
nature, or to which a monetary value may be attributed.
Bongani has a personal financial interest in this matter because Infinity (Pty)
Ltd (of which Bongani is a director and sole shareholder) will benefit financially
if Apex (Pty) Ltd appoints Infinity (Pty) Ltd to provide advice to it on the
recruitment of staff.
Therefore, Bongani must disclose his interest in the matter.
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The procedure for Bongani to disclose his interest is as follows:
1. He must disclose his interest and its general nature to the board of
directors before the matter is considered at the meeting.
2. He must disclose any material information relating to the matter and
known by him.
3. He may disclose any observations or pertinent insights relating to the
matter if requested to do so by other directors.
4. If present at the meeting, Bongani must leave the meeting after making
any disclosure.
5. He must not take part in the consideration of the matter.
6. He must not execute any document on behalf of the company in
relation to the matter unless specifically requested or directed to do so
by the board.
(b) Assume that Bongani does not disclose his interest. Explain whether the
contract between Apex (Pty) Ltd and Infinity (Pty) Ltd will nonetheless be
valid. (7)
Unisa’s comment
Section 75(7) of the Act provides that a board decision or a transaction or
agreement approved by the board is valid despite any personal financial
interest of a director or a person related to a director, only if –
a) it was approved following disclosure of that interest in the manner
contemplated in section 75
b) despite having been approved without disclosure of that interest, it –
i) has subsequently been ratified by an ordinary resolution of the
shareholders after disclosure of the interest or
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ii) has been declared to be valid by a court in terms of section
75(8) of the Act. In terms of section 75(8) of the Act a court, on
application by any interested person, may declare valid an
agreement that had been approved by the board despite the
failure of the director to satisfy the disclosure requirements of
section 75.
In Omar v Inhouse Technical Management (Pty) Ltd 2015 (3) SA 146 (WCC)
the court affirmed that the effect of non-compliance with section 75(5) of the
Companies Act is that the transaction or agreement entered into would be
invalid unless it was ratified by the company’s shareholders or declared valid
by a court.
The contract will be valid only if it was approved following disclosure by
Bongani of its general nature before the matter is considered at the meeting.
However, even if there was no disclosure, the contract will still be valid if the
shareholders of Apex (Pty) Ltd ratify it after the disclosure was made by
Bongani to them. Furthermore, the contract will also be valid if a court
declares it valid on an application by any interested person.
2018 SEMESTER 1 A SSIGNMENT 2
Question
Deli Delight (Pty) Ltd (“Deli Delight”) recently released its financial statements which
reflected a huge profit. As a result, several investors are keen to purchase shares in
Deli Delight. Sifiso, who is currently not a shareholder, approaches Deli Delight. The
board of directors of Deli Delight resolves to issue some shares in Deli Delight to
Sifiso, but on condition that payment shall be made before or when the shares are
issued. Simphiwe, one of the prescribed officers and shareholders of Deli Delight, is
opposed to his brother, Sifiso, purchasing the shares. He believes that he
(Simphiwe), together with Deli Delight’s other shareholders, must first be afforded an
opportunity to subscribe for the shares. Advise Simphiwe whether he has the right to
be first afforded an opportunity to subscribe for the new shares in Deli Delight. [15]
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