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LML4806 Company Law 2022 Latest Exam Pack
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1LML4806 Company Law 2022 Latest Exam Pack
OCTOBER / NOVEMBER - 2021 SUPER SEMESTER EXAMINATION
Question One
1.1 Exclusive Properties (Pty) Ltd (the company) has four shareholders, each
holding 25% of the voting rights in the company. All of the shareholders are also
directors of the company. The Memorandum of Incorporation of the company has
not changed the default position in terms of the Companies Act 71 of 2008 regarding
the threshold required to pass ordinary resolutions. The company held a board
meeting at which three directors were present. Some of the decisions taken by the
board of directors related to matters that were required to be referred to the
shareholders for approval by an ordinary resolution. Without issuing a notice of a
shareholders9 meeting or convening a shareholders9 meeting, the board meeting
proceeded to consider the proposed ordinary resolutions. All the directors who were
present at the meeting voted on the proposed ordinary resolutions in their capacity
as shareholders. Oliver, a director and shareholder of the company who was not
present at the meeting, objects to the passing of the ordinary resolutions at the
meeting in this manner. He argues that (i) the voting on the ordinary resolutions was
invalid as no notice of a shareholders9 meeting was properly given, (ii) the quorum
requirements for a shareholders9 meeting were not satisfied, and (iii) the threshold
required for the approval of the ordinary resolutions was not satisfied.
With reference to the Companies Act 71 of 2008 and the facts provided, advise
Oliver whether his arguments hold merit, and whether the ordinary
resolutions were validly passed at the meeting. (12)
ANSWER
If every shareholder of a company (other than a state-owned company) is also a
director of the company, any matter that is required to be referred by the board to
the shareholders for decision may be dealt with in terms of section 57(4) of the
Companies Act 71 of 2008 (the Act).1 The effect of this section is that a matter may
, 2
1 Companies Act 71 of 2008.
be referred by the board to the shareholders without notice or compliance with any
internal formalities. However, this is subject to the Memorandum of Incorporation
which may provide otherwise.
Therefore, since all the shareholders of Exclusive Properties (Pty) Ltd are directors
of the company, section 57(4) of the Act would be applicable, unless the
Memorandum of Incorporation provides otherwise.
Section 57(4) requires the following:
• Every person must be present at the board meeting when the matter was
referred to them in their capacity as shareholders.
• A sufficient number of persons must be present in their capacity as
shareholders to satisfy the quorum requirements as set out in section 64 of the
Companies Act.
• A resolution adopted by the shareholders be supported by shareholders
holding at least the percentage of shares required for adopting an ordinary
resolution at a properly constituted shareholder9s meeting.
Application to the facts
In this case, Oliver was not present at the meeting. Therefore, the first proviso is not
satisfied because not every person was present at the board meeting when the
matter was referred to them in their capacity as shareholders. The default position
for a quorum to be satisfied is that at least 25% of all the voting rights that are
entitled to be exercised in in respect of at least one matter to be decided at the
meeting must be present before the meeting may start. Since three out of four
shareholders were present at the meeting the quorum requirements for the meeting
were satisfied. The default position for the support of an ordinary resolution is more
than 50% of the voting rights exercised on the resolution.
Oliver9s objection is therefore valid because every person was not present at the
board meeting when the matter was referred to them in their capacity as
shareholders. Therefore, the ordinary resolutions were not validly passed.
, 3
1.2 The Memorandum of Incorporation of Generators Unlimited (Pty) Ltd
provides that only the board of directors, or any director authorised by the board,
has the power to conclude contracts on behalf of the company. It also states that
any transaction that exceeds R10 million must first be authorised by the company9s
shareholders at a general meeting by way of an ordinary resolution. One of the
directors, Nthabiseng, is authorised by the board of directors to conclude contracts
on behalf of the company. Nthabiseng enters into a contact with Matthews for the
purchase of power distribution transformers to the value of R15 million, without first
obtaining the authorisation for the purchase by the company9s shareholders at a
general meeting. Matthews is aware of the provision in the Memorandum of
Incorporation requiring shareholder approval because he has dealt with the
company on previous occasions. However, he does not know that the purchase in
fact has not been authorised by an ordinary resolution of the company9s
shareholders.
With reference to appropriate authority and the facts provided, discuss
whether Generators Unlimited (Pty) Ltd is bound by the contract concluded
by Ntabiseng and Matthews
(10)
ANSWER
A third party dealing with the company in good faith may assume that the company
has complied with all of the formal and procedural requirements in terms of the Act
and the company9s Memorandum of Incorporation and rules unless he or she knew
or reasonably ought to have been aware that they had not been complied with.
In this scenario, the Turquand rule bears authority. This rule was derived from Royal
British Bank v Turquand (1856) 6 E & B 327.2 This case dealt with restrictions placed
by the constitution of a company on the authority of the directors of the company to
contract on its behalf. In terms of the common law Turquand rule, if the person
acting on behalf of the company has the authority to do so, but this is subject to an
internal formality, such as approval by the board, an outsider contracting with the
company in good faith is entitled to assume that this internal requirement has been
2 British Bank v Turquand (1856) 6 E & B 327
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