Companies and Other Business Structures in SA 3e 1 PDF
Companies and Other Business Structures in SA 3e 1 PDF
The one fascinating thing about the advent of our constitutional democracy is the
space it has created for fresh conversation on issues of society, law and
economic justice. Much of the conversation appears to be animated by the ideal
of creating a better society. It is our abiding challenge to convert this ideal into
reality.
It is fair to say that much of the present-day flourish and innovation in the
area of the law, society and justice is compelled by our collective choices to re-
enact the way we transact our lives. These shared choices are mirrored in our
supreme law – the Constitution. Seen against this wide backdrop, it is somewhat
inescapable that the way we transact business, and the norms and vessels
through which we do business would themselves become the object of critical
scrutiny and renovation. Put simply, the re-writing of the Companies Act is
somewhat inescapable. It is compelled by our very deep sense of historic change
even in an area as sometimes sheltered and austere as company law.
Well into the adolescence of our democratic dispensation, the question arises
as to which core values and objectives inform company law. Because company
law always invokes issues of social and economic policy and equity, it is
inevitable that corporate law reform in present-day South Africa would be
informed by debate on what are appropriate objectives of company law. In our
case, it does seem that organised business, organised labour and government at
national level have generated considerable consensus on the objectives of the
Companies Act, 2008.
Unlike in past Companies Acts, one of the objectives of the Companies Act,
2008 is to ensure the broader constitutional and economic well-being of South
Africa and its citizens. This is a noticeable departure from the notion that
corporate entities exist only to advance the peculiar and narrow interests of their
shareholders or beneficial owners.
Other objectives of the Companies Act, 2008 include the promotion of
compliance with the Bill of Rights in the Constitution in the application of
company law, as well as the development of the South African economy by
measures such as promoting entrepreneurship and enterprise development. The
2008 Act sees innovation and investment in South African markets as a valuable
objective. The concept of a company and the creation and use of companies are
seen as methods of enhancing the economic welfare of South Africa and its
citizens in the global economy.
The Act places a high premium on the aggregation of capital for productive
purposes and for investments. Another noble objective is to bring into being a
company law that is flexible enough in terms of the design and the organisation
of companies to satisfy the obvious need for appropriate diversity of corporate
entities.
It appears that the 2008 Act facilitates corporate efficiency by migrating from
a capital maintenance regime to one that relies on solvency and liquidity as
critical criteria. The efficiency requirement covers several aspects of the existing
companies legislation, such as board structure, directors’ responsibilities, the
position of minority shareholders (particularly in inefficient companies), the
reformation of mergers and takeover regimes, and the regime necessary to
ensure an effective rescue system for failing companies.
Additional targets of the Companies Act, 2008 appear to be an enhancement
of corporate governance, high levels of transparency and an insistence on
minimum accounting standards for annual reports. In this way, the new law
appears to be bent on advancing shareholder activism to enhance the protection
of minorities and to increase standards of corporate governance. Another
important consideration appears to be finding harmony between our company
law requirements and the best practice observed by other jurisdictions
internationally.
Companies and other Business Structures in South Africa represents a
remarkable aid in understanding the Companies Act, 2008 through the tinted
lenses of its manifest and tacit purposes. This book reflects the rational internal
cohesion of the Companies Act, 2008 and is written in accessible language that
allows novices and seasoned practitioners alike to come to terms with the new
legislation. In a very helpful manner, the text examines the new provisions
against the backdrop of case law developed over the last hundred and fifty years.
This legal precedent is contrasted with the new legislative provisions in a way
that enriches the reader’s understanding of the changes envisaged in the
Companies Act, 2008. The book properly recognises the underlying and
continuing role of the common law that complements company law and must, in
itself, be consistent with the dictates of our Constitution.
I have no doubt that this book constitutes a valuable addition to the body of
company-law writing, particularly because of the care taken by the authors to
ensure that the Companies Act, 2008 is seen within the prism of the new legal,
economic and social context of South Africa as a constitutional democracy, an
open economy, and as a people who are striving for genuine social equity.
Dikgang Moseneke
Deputy Chief Justice of South Africa
Constitutional Court of South Africa
The publisher and authors would like to express their sincere appreciation for the
valuable contributions made to this book by the following persons:
Ms Siobhan Cleary, Director: Strategy and Public Policy, Johannesburg Stock
Exchange: for the contribution of her expertise in relation to the Johannesburg
Stock Exchange (chapter 19: Financial Markets).
Mr Etienne Swanepoel, Partner, Webber Wentzel: for his contributions relating
to the Financial Markets Act (chapter 11: Insider Trading, and chapter 19:
Financial Markets).
Professor RC Williams, Faculty of Law, University of KwaZulu-Natal: for his
authorship of the glossary which is contained in this book.
Dr Maleka Femida Cassim, Attorney and Notary Public of the High Court of
South Africa, Senior Lecturer at the University of Pretoria, and Ms Rehana
Cassim, Attorney and Notary Public of the High Court of South Africa: for their
preparation of the original content in the PowerPoint slides that form part of the
ancillary materials.
Mr Craig Renaud, Faculty of Law, Rhodes University: for updating the original
Power-Point slide ancillary materials, and for expanding the original question
bank with updated and new problem question material.
The extract from Carl Stein (page 31). SOURCE: Quote from Carl Stein with
Geoff Everingham The New Companies Act Unlocked Cape Town: Siber Ink
2011 at 407, reprinted with the permission of Siber Ink.
Figure 3.1: Structure of the Grindrod group (page 63). SOURCE: Diagram
originally from the website
http://www.grindrod.co.za/Uploads/wheel_March_2010aW%20(2).jpg and used
with the permission of the Grindrod group.
Table 6.2: The difference between directors and managers (pages 113-14).
SOURCE: Table based on the online factsheet: Institute of Directors ‘The Key
Differences Between Directors and Managers’, with appropriate revisions to
reflect the differences between company law in the UK and in South Africa,
reproduced with the permission of the IoD http://www.iod.com.
The extract from Carl Stein (page 124). SOURCE: Quote from Carl Stein with
Geoff Everingham The New Companies Act Unlocked Cape Town: Siber Ink
2011 at 245, reprinted with the permission of Siber Ink.
The extract from Carl Stein (page 127). SOURCE: Quote from Carl Stein with
Geoff Everingham The New Companies Act Unlocked Cape Town: Siber Ink
2011 at 407, reprinted with the permission of Siber Ink.
The PRACTICAL ISSUE extract: Example of corporate governance statement
(page 172). SOURCE: Extract from the Grindrod website
http://grindrod.investoreports.com/grindrod_iar_2012/sustainability/corporate-
governance/, used with the permission of the Grindrod group.
The PRACTICAL ISSUE extract: Strate and dematerialisation (pages 180-1).
SOURCE: Extract from the website
www.strate.co.za/aboutstrate/overview/dematerialisation.aspx, reproduced with
the permission of Strate Ltd.
The extract from Davids, Norwitz and Yuill (page 206). SOURCE: Quotes from
E Davids, T Norwitz and D Yuill ‘A microscopic analysis of the new merger
and amalgamation provision in the Companies Act 71 of 2008’ in T Mongalo
(ed.) Modern Company Law for a Competitive South African Economy Cape
Town: Juta & Co. Ltd. (2010) 337 at 343, reprinted by permission of the
publisher.
The extract from Boardman (page 208). SOURCE: Quote from N Boardman ‘A
critical analysis of the new South African takeover laws as proposed under the
Companies Act 71 of 2008’ in T Mongalo (ed.) Modern Company Law for a
Competitive South African Economy Cape Town: Juta & Co. Ltd. (2010) 306 at
314, reprinted by permission of the publisher.
The extracts from Davids, Norwitz and Yuill (pages 210-11). SOURCE: Quotes
from E Davids, T Norwitz and D Yuill ‘A microscopic analysis of the new
merger and amalgamation provision in the Companies Act 71 of 2008’ in T
Mongalo (ed.) Modern Company Law for a Competitive South African Economy
Cape Town: Juta & Co. Ltd. (2010) 337 at 344 and 345, reprinted by permission
of the publisher.
The extract from Boardman (page 219, footnote 74). SOURCE: Quote from N
Boardman ‘A critical analysis of the new South African takeover laws as
proposed under the Companies Act 71 of 2008’ in T Mongalo (ed.) Modern
Company Law for a Competitive South African Economy Cape Town: Juta & Co.
Ltd. (2010) at 319, reprinted by permission of the publisher.
The PRACTICAL ISSUE extract: The market for corporate control (page 220).
SOURCE: Quote from Rob Rose ‘Liberty bonuses queried’ Sunday Times
(Business Times) report of 16 May 2010, p.4, reprinted with the permission of
the publisher.
The PRACTICAL ISSUE extract: A cautionary announcement (page 226).
SOURCE: Cautionary announcement from
http://www.fin24.com/Companies/Nedbank-issues-further-cautionary-20100930
on Sep 30 2010 15:52, but appeared originally on the I-Net Bridge website © I-
Net Bridge (Pty) Ltd, reprinted with the permission of I-Net Bridge (Pty) Ltd.
The extract from Odendaal and De Jager’s article (page 273). SOURCE:
Quotation from EM Odendaal and H De Jager ‘Regulation of the auditing
profession in South Africa’ (2008) 8 The Southern African Journal of
Accountability and Auditing Research (SAJAAR) 1 © Southern African Institute
of Government Auditors (SAIGA), used with the permission of SAIGA.
The PRACTICAL ISSUE extract: The IRBA (page 284). SOURCE: Extract
from the IRBA website www.irba.co.za, reprinted with the permission of the
IRBA.
The CASE STUDY: Universal partnership (page 369). SOURCE: Extract
from HR Hahlo The South African Law of Husband and Wife 5 ed, Cape Town:
Juta, 1985, reprinted with the permission of the publisher.
PART ONE
Companies
CRITICAL VIEWPOINT
Why change?
It could be argued that a new Companies Act was unnecessary
because the 1973 Act, through amendments, kept pace with
changing needs and circumstances. Many statutes are much
older than the 1973 Companies Act, and yet they have not
been replaced in their entirety. The Income Tax Act 58 of 1962
is an example.
However, one must not lose sight of the significant political
changes in South Africa since 1973, and that South Africa now
has the benefit of a new Constitution. It is perhaps only right
that all Acts in South Africa should be subject to a complete
overhaul, keeping in mind the spirit, principles and the purpose
of the Constitution.
Furthermore, there have been global changes in how
businesses function and operate. It is appropriate that the
corporate environment in South Africa should keep pace with
international developments and trends to ensure that new
business initiatives and company expansions can take place in
South Africa.
Another reason for the creation of a new Act is that in recent
years there has been a growing recognition of the need for
higher standards of corporate governance and ethics to apply
and for greater responsibility to be taken by an entity towards
the society in which it operates – for the benefit not only of
investors, but of all stakeholders.4 The 1973 Act, even in its
amended form, did little to recognise the interests of a broader
stakeholder community. The 2008 Act gives significant rights to
a variety of stakeholders, including employees, trade unions
and minority shareholders.
Furthermore, the rise in international trade and foreign
investment in South Africa since 1994 has also emphasised the
need to modernise company law, and to take cognisance of
international laws and practices, as well as to make specific
provision for foreign companies to operate in South Africa.
South Africa is not unique in its initiative to produce a new Companies Act. In
2006, the United Kingdom (UK) introduced a new Companies Act following a
review of company law commissioned by the UK Department of Trade and
Industry in March 1998. The mandate to those who conceptualised the UK Act
was similar to that of the South African initiative – that is, to develop a simple,
modern, efficient and cost-effective framework for carrying out business activity
in the twenty-first century.
Significantly, given that South African company jurisprudence has been so
heavily influenced by earlier UK legislation, the UK company law review found
that many of the existing features of UK company law were outdated. They
represented arrangements put in place in the middle of the nineteenth century
and had not kept up with changes in business practice. In addition, the law
review emphasised the demands flowing from globalisation of the UK economy
and the need for UK company law to accord with the growing global framework
for corporate regulation.
An examination of the recent changes to Australian and New Zealand
company law also supports the argument that an Act, the core of which is almost
a hundred years old, is no longer suitable for an economy that must meet the
challenges of global competition.
There has also been recent recognition from the courts that there is a need for
the adoption of a new approach in the interpretation and application of company
law in South Africa. As an example of this, the court in Nedbank Ltd v Bestvest
153 (Pty) Ltd5 stated that a fresh approach must be adopted when assessing the
affairs of ‘Corporate South Africa’.
The Legislature has pertinently charged the Courts with the
duty to interpret the Act in such a way that, firstly, the
founding values of the Constitution are respected and
advanced, and, secondly so that the spirit and purpose of the
Act are given effect to. Fundamental to the Act is the
promotion and stimulation of the country’s economy
through, inter alia, the use of the company as a vehicle to
achieve economic and social well-being. This must be done
efficiently and in accordance with acceptable levels of
corporate stewardship, all the while, balancing the rights
and obligations of shareholders and directors in the
company, its employees and any outside parties with which a
company ordinarily interacts in the course of its
business … . Our company law has for many decades closely
tracked the English system and has often taken its lead from
the relevant English Companies Acts and the judicial
pronouncements thereon. The Act now encourages our
Courts to look further afield and to have regard, in
appropriate circumstances, to other corporate law
jurisdictions, be they American, European, Asian or African,
in interpreting the Act.6
Section 7 of the Companies Act, 2008 sets out the purpose of the Act.7 This
purpose expresses a clear desire to encourage business activity and
entrepreneurship by providing a flexible regulatory environment that eases the
regulatory burdens on those who wish to take advantage of incorporation. At the
same time, it recognises a need for sufficient regulation to make a company and
its office bearers accountable to relevant stakeholders. In other words, there is an
emphasis on stimulating growth, business activity and entrepreneurship, while
achieving a balance between no regulation and over-regulation. These issues
received little or no attention under the Companies Act, 1973.
In terms of the 2008 Act, there is also clearly a desire to make the formation
of a company a right of all persons – not a privilege – and to do away with
unnecessary hurdles that impede growth and entrepreneurship. The 1973 Act did
little to simplify the formation and administration of the different types of
company.
The 2008 Act also clearly desires a new procedure to ensure, as far as
possible, the rescue of failing companies. The judicial management provisions of
the 1973 Act were widely regarded as outdated and ineffective. These have now
been replaced with business rescue provisions. The principles of liquidity and
solvency are also entrenched in the 2008 Act, which largely removes the capital
maintenance concept on which the 1973 Act was originally based.
A whole rethink on company law has accordingly taken place in South Africa.
Rather than simply amend and build on the old, it was thought that a totally new
approach was necessary. The rewriting of a Companies Act in its entirety has
also facilitated input and comment from business and society at large,8 and
allowed free expression of new ideas and concepts, as well as a critical
evaluation of existing provisions.
CASE STUDY
CASE STUDY
Objectives12 Explanation
CRITICAL VIEWPOINT
CONTEXTUAL ISSUE
COSATU’s input
On Monday, 18 October 2004, the Congress of South African
Trade Unions (COSATU) made representations on the
Corporate Law Reform Guidelines as contained in the policy
document, and presented them to the Corporate Law Reform
Task team at NEDLAC.
COSATU stated that labour has a very specific interest in
ensuring good corporate governance, since pension funds are
major shareholders of listed companies in South Africa.
COSATU stated in its representations that there is a ‘need for
stronger shareholder activism and tighter control of the board
of directors’ powers and functions’. It also made the point that
‘given the huge inequalities and the exclusive nature of growth
in South Africa, we should ascertain the role of other
stakeholders, such as communities, labour, consumers and the
public at large’.
Ultimately, the policy document preferred the enlightened shareholder value
approach as a guide to directors when they consider how to act in the best
interests of the company. The enlightened shareholder value approach suggests
that the term ‘company’ (particularly when used in the phrase ‘acting in the
interests of the company’) is to be associated primarily with the shareholders,
with the possibility of others being included if their interests promote the
interests of shareholders.
The adoption in the Companies Act, 2008 of the enlightened shareholder
value approach ensures that directors are obliged to promote the success of the
company in the collective best interests of shareholders. This would include, as
the circumstances require, the company’s need to foster relationships with its
employees, customers and suppliers. Significantly, the UK went further, in that
its policy document recommended the inclusion of stakeholders in the proposed
enlightened shareholder value codification of directors’ duties, as well as
additional information requirements for companies in respect of stakeholders.
On this basis, directors must take account of the long- as well as the short-term
consequences of their actions, which may include the need to take account of
employee relationships, the local community and the physical environment, in
deciding how the interests of the shareholders are most effectively advanced.
Significantly, the South African counterpart has stopped short of extending
directors’ duties in that direction, although there are significant parts of the new
Act that have taken express account of the possible need for protection of larger
groups of stakeholders, other than shareholders.15
PRACTICAL ISSUE
CASE STUDY
Schedule Content
number
3 Amendment of laws
4 Legislation to be enforced by commission
5 Transitional arrangements
Relevant provisions of the Act are discussed in more depth elsewhere in this
book. However, a brief overview of the contents of the Act is useful in the
introductory stages of this subject.
CASE STUDY
South African common law consists of all law that is not found in legislation. It
comprises a combination of rules drawn primarily from Roman-Dutch law and,
to a lesser extent, from English law. In the case of company law, English law has
been particularly influential. The English law rules have, over time, been
analysed and adapted by the courts to meet the needs of South Africa. Hence, in
the vast majority of cases, the common law is to be found in the decisions of the
courts (which then act as precedents) built over more than a century. When
courts need to adapt the common law to meet fresh situations caused by social or
economic contexts, they may examine Roman-Dutch or English texts in an effort
to preserve the spirit of the common law.
In the area of company law, the Companies Act, 2008 is extremely detailed,
and thus much of the regulation of companies takes place at present through the
Act.
CONTEXTUAL ISSUE
PRACTICAL ISSUE
Tax considerations
The normal tax rates for various types of company, as
recognised by the Income Tax Act, are as follows:
• for non-mining companies, 28% of taxable income;
• for personal service providers, 33% of taxable income;
• for qualifying small business corporations, tax rates are on a
sliding scale from 0% to 28% of taxable income; and
• micro businesses can pay tax based on taxable turnover, not
on taxable income.
CASE STUDY
CASE STUDY
Figure 2.1 Different types of company allowed in terms of the
Companies Act, 2008
2.6.1 The public company
A public company30 is any profit company that is not a state-owned enterprise,
a private company or a personal liability company. In a public company, shares
may be offered to the public and are freely transferable. A public company could
be listed (on a stock exchange) or unlisted. The recognition of public company
status is essentially sourced in the MOI of a company, which is the sole
governing document of a company. Its provisions will determine whether a
company enjoys public company status.
PRACTICAL ISSUE
State-owned companies
Examples of SOCs are the following: Albany Coast Water
Board, Amatola Water Board, Aventura, Bloem Water, Botshelo
Water, Bushbuckridge Water Board, Council for Mineral
Technology (Mintek), Council for Scientific and Industrial
Research (CSIR), Export Credit Insurance Corporation of
South Africa Limited, Ikangala Water, Inala Farms (Pty) Ltd,
Khula Enterprises, Lepelle Northern Water, Magalies Water,
Mhlathuze Water, Namakwa Water, Ncera Farms (Pty) Ltd,
Onderstepoort Biological Products, Overberg Water, Pelladrift
Water Board, Public Investment Corporation Limited, Rand
Water, SA Bureau of Standards (SABS), Sasria, Sedibeng
Water, Sentech, State Diamond Trader, Umgeni Water and the
Umsobomvu Youth Fund.
It may be of interest to note that the Public Investment
Corporation Ltd (PIC), an SOC, is the largest single investor in
shares on the Johannesburg Stock Exchange and invests
funds on behalf of public sector entities, including the
Government Employees Pension Fund (GEPF).
CASE STUDY
Pre-emptive right
In Sindler NO v Gees and Six Other Cases,37 one of the two
equal shareholders in a private company entered into an
agreement with a third party for the sale of its 50 per cent
shareholding to the third party. As was required by the
company’s articles of association, the sale was subject to the
suspensive condition that the remaining 50 per cent
shareholder must have failed to exercise its pre-emptive rights
over the shares that were the subject of the sale agreement.
Upon being offered the shares, the second shareholder
indicated that it would not purchase all the shares that had
been offered to it, but only three of the shares offered for sale,
and tendered payment for the three shares based on the price
at which the 50 per cent shareholding had been offered. The
offeror adopted the attitude that it was not open to the second
shareholder to purchase only three of the shares offered, and
that it was therefore entitled to sell the shares to the would-be
buyer. The court held that the notice addressed to the other
shareholder indicated clearly that the offer was for the offeror’s
entire interest in the company, consisting of its shares and loan
account – not just for three shares. The court therefore held
that where a member offered to sell some or all of his or her
shares in the company to an existing member or members of
the company, the proposed selling price was the price for the
total number of shares offered and could not be converted into
a price for each share offered.
The court held that provisions in the articles limiting the right
of transfer must be restrictively interpreted, which means that a
court will only prevent a shareholder from freely selling shares
held in a company where it is quite clear that such a sale would
be in contravention of a clause in the company’s MOI.
A common method of giving effect to the restriction on
transferability is a clause in a company’s MOI that gives the
directors of the company a discretionary right to refuse to
recognise a transfer of shares.
CONTEXTUAL ISSUE
CONTEXTUAL ISSUE
Incorporation is a right
The Explanatory Memorandum to the Companies Bill, 2008
clearly highlights the principle that incorporation of a company
is a right, rather than a privilege bestowed by the State. The
Memorandum states the following:
The new law provides for incorporation as of right, places minimal
requirements on the act of incorporation, allows for maximum flexibility
in the design and structure of the company, and significantly restricts
the ambit of regulatory oversight on matters relating to company
formation and design.
CASE STUDY
CONTEXTUAL ISSUE
A company’s MOI can deal with any number of different issues including the
following:
• the objects and powers of the company;
• the authorised shares and types of shares;
• any restrictions or limitations on the powers of the company;
• what happens to the assets if the company is dissolved;
• the composition of the board of directors;
• the election and removal of directors;
• alternate directors;
• the frequency of board meetings;
• the committees of the board;
• the personal liability of directors;
• the indemnification of directors;
• powers of directors and powers of shareholders;
• restrictions on powers of directors or shareholders;
• types of shareholders’ resolution;
• rights of shareholders, including voting rights;
• the disposal by shareholders of their shares;
• the ability to create rules of the company;49
• shareholders’ meetings and the procedures involved;
• specific audit requirements; and
• the amendment of the MOI.
PRACTICAL ISSUE
Registration certificate
A registration certificate is defined in s 1 of the Companies Act,
2008 as follows:
When used with respect to a —
Company names
In Peregrine Group (Pty) Ltd v Peregrine Holdings Ltd,67 the
applicants sought an order directing the respondents to change
their name by excluding the word ‘Peregrine’ from their name,
and also restraining them from passing off their business as
that of the applicants. The relief was claimed in terms of
s 45(2A) of the Companies Act, 1973 and also on the ground of
common-law passing off.
The court held that in terms of the common law, a court
could direct a company to change its name where the use of
the name was ‘calculated to cause damage to the objector’. To
succeed, the objector would have to establish (a) that
confusion or deception was likely to ensue and (b) that, if
confusion or deception ensued, it would probably cause
damage to the objector.
The 1973 Act broadened the common-law rule, giving the
courts a greater discretion to rule that a name was
‘undesirable’.
In this case, the court found that, on the evidence, none of
the litigants had established the existence of a secondary
meaning in the word ‘Peregrine’ that was associated with their
businesses. On that ground alone, given the generic nature of
the word and the extent of its use by corporate entities, the
court held that it would be inappropriate to allow either the
applicants or the respondents a monopoly in the name.
The court also found that the clients of the respective
businesses were unlikely to be confused by the use of similar
names in these circumstances. The court also found that most
of the applicants did not carry on business in the same field of
endeavour as any of the respondents. The application was
therefore dismissed.
However, in Azisa (Pty) Ltd v Azisa Media CC,68 the
applicant was Azisa (Pty) Ltd, which had been incorporated in
1993 and the name ‘Azisa’ had been used with regard to all
company activities. Problems arose when the applicant
attempted to register the name ‘azisa.com’ for use on the
Internet. Another entity had already registered that name for its
own website. As a result of its failure to secure the ‘Azisa’
name for its website, the applicant became aware for the first
time of the existence of a close corporation, Azisa Media CC,
the name of which was registered five years after the
incorporation of the applicant in 1998. The corporation had
started using the shortened version of its name, ‘Azisa’, in
2000.
The applicant argued that the registrar of companies had
erred in registering the name of the respondent because it
wholly incorporated the applicant’s company name. As a result,
so it was argued, there was a very real likelihood of confusion
arising because of the similarity of names.
The court held that there are no hard-and-fast rules that can
be applied in cases of this nature, and issues to be considered
included the degree of similarity of the names, the likelihood of
confusion, and the present and contemplated business
activities of the parties. Both the company (the applicant) and
the close corporation had built up successful businesses over
the years. The court held that the registered names of the two
entities shared the word ‘Azisa’, but were otherwise not
identical or very similar, but the abbreviation ‘Azisa’ used by the
close corporation was identical or at least very similar to the
name of the applicant and would not have been capable of
registration. The court concluded that the use of the
abbreviated name would, in all likelihood, lead to confusion and
inconvenience, and while the name as registered (Azisa Media
CC) was not undesirable, the abbreviation ‘Azisa’ was
undesirable. The court thus held that the corporation should not
be allowed to use the abbreviation or any undesirable
abbreviations of its registered name.
Ring-fenced ‘RF’
PRACTICAL ISSUE
CASE STUDY
Groups of companies
PRACTICAL ISSUE
4.1.1 Debt
Debt is money or assets obtained by a company when it does any of the
following:
• issues debt instruments, such as (but not limited to) debentures;
• obtains long-term and/or short-term loans;
• enters into lease agreements;
• obtains credit terms from its suppliers, effectively allowing the company to
pay in the future for goods or services already received; and
• obtains overdraft facilities from banks.
The Companies Act, 2008 specifically deals with ‘debt instruments’,1 but the
Act also indirectly deals with the incurrence of the other types of debt, for
example by prohibiting reckless trading, and by imposing certain duties (and
personal liability in certain circumstances) on directors.2 Thus, for example, if
the assets and operations of a company are largely financed by borrowings, and a
company is unable to service the interest or repay any capital relating to those
borrowings, the directors may very well fall foul of certain provisions of the
Companies Act, such as the prohibition against reckless trading.3
The extent to which assets will be financed by debt and/or equity is therefore
a very important part of corporate finance, company law and the provisions of
the Companies Act, 2008.
CASE STUDY
4.1.2 Equity
Equity consists of shares and retained income.
4.1.2.1 Shares
A company can therefore obtain funding for its business operations (that is, for
its assets and expenses) by issuing shares.6 The shares in issue can have the
same or different rights. In other words, a company can have shares all of the
same class, or it can have different classes of shares.7 The number, nature and
classes of shares are an important part of corporate finance (being a financing
decision). Shares and share issues are also an important part of company law.
The nature and types of shares, and share issues, are therefore dealt with in this
chapter with specific reference to the provisions of the Companies Act, 2008.8
Company law, which now includes the Companies Act, 2008, has always
made it very clear that the rights of shareholders are very different from the
rights of creditors.9 For example, creditors10 have significant rights in business
rescue proceedings, whereas shareholders do not; and the requirement to apply
the solvency and liquidity test before certain transactions can take place is
largely aimed at the protection of creditors.11 Section 22(2), inter alia, provides
that if the Commission has reasonable grounds to believe that a company is
unable to pay its debts as they become due and payable in the normal course of
business, the Commission may issue a notice to the company to show cause why
the company should be permitted to continue carrying on its business, or to
trade.
Authorised shares
Issued shares
Distributions
Debt instruments
It is clear from the definition of the liquidity and solvency test23 that a company
satisfies the test if it is both ‘solvent’ (by reference to its assets and liabilities)
and ‘liquid’ (by reference to its future cash flows).
Section 4 of the Companies Act, 2008 defines the requirements of the
solvency and liquidity test as follows:
[A] company satisfies the solvency and liquidity test at a
particular time if, considering all reasonably foreseeable
financial circumstances of the company at that time—
(a) the assets of the company, as fairly valued, equal or
exceed the liabilities of the company,as fairly valued; and
(b) it appears that the company will be able to pay its debts
as they become due in the ordinary course of business
for a period of—
(i) 12 months after the date on which the test is
considered; or
(ii) in the case of a distribution contemplated in
paragraph (a) of the definition of ‘distribution’ in
section 1, 12 months following that distribution.
4.4.1 Solvency
From a reading of the definition in s 4,24 it is clear that the word ‘valued’ is used
with reference to both assets and liabilities. The concept of ‘value’ is obviously
very different from ‘historic cost’, or ‘book value’. It may well be suggested that
directors should have a separate record of all assets and liabilities indicating the
respective values of those assets and liabilities. The value of an asset could of
course be either higher or lower than its value as determined for financial
reporting purposes, and the value of a liability could certainly be below its face
value. Taking the latter as an example, if the liabilities of a company are greater
than the fair value of its assets, it is submitted that the directors would be
perfectly entitled, in applying the solvency and liquidity test to reduce the face
value of liabilities to the recoverable amount.25 By reducing the face value of
liabilities (for example, a shareholders’ loan) to its recoverable amount, the
directors could in fact ensure that a company’s liabilities are no longer greater
than its assets, thereby satisfying the solvency and liquidity test, thus enabling
the company to do certain things, such as declaring a dividend, which it would
not otherwise be allowed to do in terms of the solvency and liquidity test.26
Under the 1973 company law regime, shareholders’ loans were often
subordinated or ‘back-ranked’. In terms of the 2008 Act, any such subordination
would not reduce the liabilities of a company, because a subordination merely
back-ranks, but does not extinguish a debt. A subordination of shareholders’
loans would therefore not restore a company’s solvency in the manner here
described. There is an additional reason not to subordinate shareholders’ loans.
In business rescue proceedings,27 the voting interests of a secured or unsecured
creditor are determined by giving a voting interest equal to the value of the
amount owed to that creditor by the company. However, a concurrent creditor
with a subordinated claim has a voting interest only equal to the amount, if any,
that the creditor could reasonably expect to receive in such a liquidation of the
company. In other words, any shareholder who subordinates a loan account
could dilute any voting interest that is exercisable in considering a business
rescue plan.
4.4.2 Liquidity
In applying the solvency and liquidity test, it is clear that the directors will have
to prepare a cash flow statement indicating future inflows and outflows. Such a
cash flow statement must contain an assessment of the future level of debt and
the company’s ability to settle its due debt commitments by cash as required by
the section.
CASE STUDY
Section 37(9) provides that a person acquires the rights associated with any
particular securities of a company:
• when that person’s name is entered in the company’s certificated securities
register; or
• as determined in accordance with the rules of the central securities depository,
in the case of uncertificated securities.
A person ceases to have the rights associated with any particular securities of a
company:
• when the transfer to another person, re-acquisition by the company, or
surrender to the company has been entered in the company’s certificated
securities register; or
• as determined in accordance with the rules of the central securities depository,
in the case of uncertificated securities.
4.9 Distributions
The word ‘distribution’ is very broadly defined and means the transfer of both
cash and other assets by a company to its own shareholders or to the
shareholders of any company within the same group. Such transfer can be in any
of the following ways:
• by way of a dividend;
• as a payment in lieu of a capitalisation share;
• as payment for any share buyback (such shares can be the company’s own
shares, or those of a company within that group of companies);
• by the company incurring a debt or other obligation for the benefit of one or
more of its shareholders, or shareholders of another company within the same
group of companies; or
• by the forgiveness or waiver by a company of a debt or other obligation owed
to the company by its own shareholders or shareholders of another company
within the same group of companies.
Specifically excluded from the definition is any action taken upon the final
liquidation of a company.
The definition of ‘distribution’ is also broadened by s 37(5)(b), in terms of
which a company’s MOI can provide for redeemable shares of any class.
However, any redeemable shares are also subject to the requirements of s 46 (on
distributions), even though a share redemption is not regarded as a share
buyback.74 In summary, a share redemption is regarded as a distribution that
must comply with the provisions of s 46. This means that, even though a
redemption is pursuant to an obligation of the company, before the redemption
can take place the solvency and liquidity test must be applied and passed in the
same way that must happen for any other distribution. The difference between a
redemption and a share buyback is that a company is not compelled to buy back
its own shares, whereas in the case of a redemption there is an obligation on the
company to buy back the shares in terms of the rights of shareholders attaching
to the shares at the time of issue.
CONTEXTUAL ISSUE
In terms of s 1 of the Act, share means one of the units into which the
proprietary interest in a profit company is divided. The phrase ‘shareholders
meeting’, in relation to a particular matter concerning the company, is defined as
a meeting of those holders of a company’s issued securities8 who are entitled to
exercise voting rights in relation to that matter.
Shareholders, as shareholders, do not generally have any duties towards the
company, but they may have duties or obligations towards each other in terms of
a shareholders’ agreement. Perhaps the one significant duty on a shareholder in
terms of the 2008 Act is the duty to abide by the terms and provisions of a
company’s MOI.
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PRACTICAL ISSUE
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5.8 Quorum24
Unless a company’s MOI says otherwise, a shareholders’ meeting may not begin
until sufficient persons are present at the meeting to exercise, in aggregate, at
least 25 per cent of all of the voting rights that are entitled to be exercised in
respect of at least one matter to be decided at the meeting. A company’s MOI
may specify a lower or higher percentage in place of the Act’s default quorum of
25 per cent.
If a company has more than two shareholders, a meeting may not begin, or a
matter may not be debated, unless at least three shareholders are present at the
meeting, and provided that the members present can exercise at least the
required percentage of voting rights that they are entitled to exercise.
PRACTICAL ISSUE
PRACTICAL ISSUE
Company records
Section 24(3)(d)(ii) specifically provides that a company is
required to keep any document that was made available by the
company to the holders of securities in relation to each
shareholders’ resolution.26
Section 24(3)(e) provides that a company must keep copies
of any written communications sent generally by the company
to all holders of any class of the company’s securities for a
period of seven years after the date on which each such
communication was issued.
CONTEXTUAL ISSUE
Majority prevails
In Sammel v President Brand Gold Mining Co Ltd,27 the court
held:
By becoming a shareholder in a company a person undertakes to be
bound by the decisions of the prescribed majority of shareholders, if
those decisions on the affairs of the company are arrived at in
accordance with the law, even where they adversely affect his own
rights as a shareholder … . That principle of supremacy of the majority
is essential in the proper functioning of the companies.
Issue of shares and the 30% rule: if there is an issue of Section 41(3)
shares, securities convertible into shares, or rights
exercisable for shares in a transaction, or a series of
integrated transactions, and the voting power of the class
of shares that are issued or issuable as a result of the
transaction, or series of integrated transactions, will be
equal to or exceed 30% of the voting power of all the
shares of that class held by shareholders immediately
before the transaction or series of transactions
Share buybacks and the 5% rule: if a share buyback, either Section 48(8)
alone or together with other transactions in an integrated
series of transactions, involves the acquisition by the
company of more than 5% of the issued shares of any
particular class of the company’s shares, the requirements
of ss 114 and 115 apply. These sections deal inter alia with
schemes of arrangement, and, generally speaking, require
a special resolution of shareholders as defined in those
sections.
PRACTICAL ISSUE
Company records
Section 24(3)(d) provides that a company must keep the notice
and minutes of all shareholders’ meetings.
Section 24(3)(d)(i) provides that a company must keep all
resolutions adopted by shareholders for a period of seven
years from the date on which each such resolution was
adopted.
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PRACTICAL ISSUE
Ex officio directors
To illustrate what is meant by an ex officio director, the
Mpumalanga Agricultural Development Corporation (MADC)
2006/7 Annual Report includes the following two persons as
directors of the company:
Mr. V.S. Mahlangu (Chief Executive Officer) ex officio
The Companies Act, 2008 as well as King 3 endorses a unitary board structure.
This means that a two-tier structure is not recommended, and that a company
should have a single board of directors consisting of both executive and non-
executive directors sitting and making decisions together at the same meeting. A
director who is also an employee is referred to as an executive director. Other
directors are non-executive directors and are not employees of the company.
CASE STUDY
Directors Managers
Duties and Directors, not managers, have the Managers have far
responsibilities ultimate responsibility for the long- fewer legal
term prosperity of the company. responsibilities, but
Directors are required by law to they cannot act
apply skill and care in exercising contrary to the
their duty to the company and are interests of their
subject to fiduciary duties. If they employer.18
are in breach of their duties or act
improperly, directors may be
made personally liable in both civil
and criminal law. On occasion,
directors can be held responsible
for acts of the company. Directors
also owe certain duties to the
stakeholders of the company.
Relationship with Directors are accountable to the Managers are usually
shareholders shareholders for the company’s appointed and
performance and can be removed dismissed by
from office by them. directors or
management and do
Directors act as fiduciaries of the not interact with
shareholders and should act in shareholders.
their best interests, but should
also take into account the best
interests of the company (as a
separate legal entity) and the
other stakeholders.
Ethics and values Directors have a key role in the Managers must enact
determination of the values and the company ethos,
ethical position of the company. taking their direction
from the board.
In terms of King 3, the functions of the board of directors include the following:
• to give strategic direction to the company;
• to ensure that management implements board plans and strategies;
• to be responsible for the performance and affairs of the company; and
• to retain full and effective control over the company.
It is therefore apparent that much is expected of the board.
Directors must also comply with the duties imposed in terms of statutes,
including the Companies Act, 2008.
CONTEXTUAL ISSUE
Previously, the law regulating a director’s fiduciary duties was found in the
common law. At common law, a director was subject to the fiduciary duties to
act in good faith to the benefit of the company as a whole and to avoid a
situation where the director’s personal interest conflicts with that of the
company.22 The Companies Act, 2008 re-emphasises this duty and also ensures
harmonisation with other legislation, for example, the Financial Markets Act23
and the Auditing Profession Act.24
PRACTICAL ISSUE
Related persons
An individual is related to another individual if they:
• are married or live together in a relationship similar to a
marriage; or
• are separated by no more than two degrees of natural or
adopted consanguinity or affinity.
An individual is related to a juristic person if the individual
directly or indirectly ‘controls’ (as defined in the Act) the juristic
person. A juristic person is related to another juristic person if:
• either of them directly or indirectly controls the other or the
business of the other; or
• either is a subsidiary of the other; or
• a person directly or indirectly controls each of them, or the
business of each of them.
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PRACTICAL ISSUE
Misuse of information
An example of misuse of information by a director would be
where the director commits insider trading in terms of the
Financial Markets Act.28 However, note that the duty of
directors not to misuse information as contained in the
Companies Act, 2008 is not limited to a prohibition of insider
trading. A director could be in breach of the statutory duty not
to misuse information even where the misuse of the information
does not constitute insider trading.
In terms of s 78(1) of the Financial Markets Act, an ‘insider’
(the definition of which includes a director) who knows that he
or she has inside information and who deals directly or
indirectly or through an agent for his or her own account in the
securities listed on a regulated market to which the inside
information relates or which are likely to be affected by it,
commits an offence.
In terms of s 82 of that Act, any person who contravenes
s 78(1) (or 78(2) or (3)) will be liable to pay an administrative
sanction not exceeding the following:
• the equivalent of the profit that the person, such other
person or such insider, as the case may be, made or would
have made if he or she had sold the securities at any stage;
or the loss avoided, through such dealing;
• an amount of up to R1 million, to be adjusted by the registrar
annually to reflect the Consumer Price Index, as published
by Statistics South Africa, plus three times the amount
referred to above;
• interest; and
• costs of any legal suit, including investigation costs, on such
scale as determined by the Enforcement Committee.
The amount received under this administrative sanction will
firstly be used to pay any expenses incurred by the Financial
Services Board in respect of the matter, and any balance must
be distributed to any claimants who are affected by the insider
dealings and who submit claims and prove to the reasonable
satisfaction of the claims officer that they were affected by the
dealings referred to in s 78(1) to (5).
6.3.2.2 Fiduciary duty and duty of care, skill and diligence
The Companies Act, 2008 confirms that a director is under a fiduciary duty and
that he or she must act with a certain degree of care, skill and diligence. Section
76(3) provides that a director must exercise the powers and perform the
functions of a director:
(a) in good faith and for a proper purpose;
(b) in the best interests of the company; and
(c) with the degree of care, skill and diligence that may
reasonably be expected of a person–
(i) carrying out the same functions in relation to the
company as those carried out by that director; and
(ii) having the general knowledge, skill and experience
of that director.
Only directors (as defined) are subject to the duties discussed above.
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Appointment of Section 66(4)(b) provides that the The MOI can provide
directors MOI of a profit company must that any person will
provide that the shareholders will have the power to
be entitled to elect at least 50% of appoint and remove
the directors and 50% of any one or more of the
alternate directors. directors, but there
must still be the
minimum number of
elected directors for a
profit company.
Alternate The 2008 Act does not insist on The 2008 Act states
directors the appointment of alternate that the MOI can
directors. provide60 for the
appointment or
election of one or
more persons as
alternate directors of
the company.
Term of office Each director of a company must The MOI can provide
be elected by the persons entitled for the term of office
to exercise voting rights in such of a director.
an election to serve either for an
indefinite term or for a fixed term
as set out in the MOI.
Ineligibility and See para. 6.6 below. The MOI can provide
disqualifications for additional grounds
of ineligibility or
disqualification of
directors, but an MOI
cannot override the
provisions of the Act.
PRACTICAL ISSUE
Minors
If a person is ineligible to be a director, the prohibition is
absolute, unlike other disqualifications discussed below. The
2008 Act expressly states that an unemancipated minor may
not be a director, but in the case of Ex parte Velkes,64 the
court doubted that even an emancipated minor was eligible to
be a company director.
Certain persons are disqualified from being appointed as a director. Except for
persons who have been prohibited from being a director by a court of law, the
other disqualifications provided for in the Act are not absolute, and a court has a
discretion as to whether to allow such disqualified persons to be appointed as a
director.65 The following persons are disqualified from being appointed as a
director:
Table 6.5 Persons disqualified from appointment as director
A person who has been See para. 6.7 below. Section 69(8)(a)
prohibited by a court of
law from becoming a
director
A person who has been See para. 6.7 below. Section 69(8)(a)
declared to be delinquent
by a court of law in terms
of s 162 of the
Companies Act, 2008 or
in terms of s 47 of the
Close Corporations Act
A person disqualified in
terms of a company’s
MOI
Notes:
1. The disqualifications discussed above apply to all directors, including
alternate directors, prescribed officers, or persons who are members
of a committee of a board of a company, or of the audit committee of a
company.
2. When a person is ineligible or disqualified, that person must not be
appointed or elected as a director of a company or consent to be
appointed or elected as a director or act as a director of a company.
3. A company must not knowingly permit an ineligible or disqualified
person to serve or act as a director.
4. A person who becomes ineligible or disqualified while serving as a
director of a company ceases to be a director and should immediately
vacate office.
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CONTEXTUAL ISSUE
The court therefore found that the applicant in this case was
entitled to restrain certain other shareholders from voting for his
removal from office as a director of a company in breach of the
shareholders’ agreement.
The Companies Act, 2008, however, changes this position,
because it specifically states that a director can be removed by
an ordinary resolution adopted at a shareholders’ meeting
despite:
• anything to the contrary in a company’s MOI or rules;
• any agreement between a company and a director; and
• any agreement between any shareholders and a director.
CASE STUDY
Committee Responsibilities
PRACTICAL ISSUE
Type of company record that must Company Act reference and the
be maintained length of time the records must be
kept
The Companies Act, 2008 prescribes further requirements regarding the records
to be kept regarding directors. Section 24(5) provides that a company’s record of
directors must include, in respect of each director, that person’s:
• full name, and any former names;
• identity number or, if the person does not have an identity number, the
person’s date of birth;
• nationality and passport number if the person is not a South African;
• occupation;
• date of their most recent election or appointment as director of the company;
• name and registration number of every other company or foreign company of
which the person is a director, and
• in the case of a foreign company, the nationality of that company; and
• any other prescribed information.15
In addition to the information required by s 24(5), the regulations provide that a
company’s record of directors must include, with respect to each director of the
company:
• the address for service on that director; and
• in the case of a company that is required to have an audit committee, any
professional qualifications and experience of the director, to the extent
necessary to enable the company to comply with s 94(5) and regulation 42.
CASE STUDY
What is meant by registered office?
In Sibakhulu Construction (Pty) Ltd v Wedgewood Village Golf
and Country Estate (Pty) Ltd,22 the court had to determine
what was meant by ‘registered office’ (as used in s 23 of the
Companies Act, 2008). Section 23(3) provides that every
company must maintain at least one office in South Africa and
it must register the address of its office with the Commission.
The court acknowledged that, in practice, a company’s
registered office under the 1973 Act was often an address
chosen for convenience rather than an office of the company
itself in the ordinary sense; frequently the registered office of a
company was, for example, that of the company’s auditors. The
court held that it would give effect to the purposes of the Act as
set out in s 7(k) and (l) to interpret s 23 of the Act to the effect
that a company can reside only at the place of its registered
office (which must also be the place of its only or principal
office). The court therefore found that a company can only
reside in one place and a:
material distinction between a ‘registered office’ under the 2008 Act and
its predecessors … is that under the current Act the registered office
must be the company’s only office, alternatively, if it has more than one
office, its ‘principal office’.
CASE STUDY
CONTEXTUAL ISSUE
Financial statements
The term ‘financial statements’ must not be confused with the
term ‘annual financial statements’. A financial statement is a
much broader concept than what is referred to as ‘annual
financial statements’. It includes annual financial statements,
but also reports, circulars, provisional announcements and the
like. The policy paper that preceded the drafting of the
Companies Bill specifically stated that public announcements,
information and prospectuses should be subject to similar
standards for truth and accuracy. That is why there is such a
broad definition of financial statement.
Financial statements must be produced in a manner and form that satisfies any
prescribed financial reporting standards. However, the prescribed standards
may vary for different categories of company.26 The important point is that the
2008 Act makes it a statutory requirement for companies to comply with
prescribed standards, and this is done to try to eliminate a multitude of choices
when it comes to how assets, liabilities, revenues and expenses are reported. One
of the characteristics of useful information is that it can be compared to other
similar information. Thus, a company should be consistent not only in adopting
accounting practices from year to year, but these practices should also make it
possible for the financial position and performance of different companies to be
compared. If companies are obliged to apply a common accounting standard, it
is likely that accounting information will be more comparable, and hence more
useful.
CONTEXTUAL ISSUE
CASE STUDY
PRACTICAL ISSUE
The FRSC takes over the function of the Accounting Practices Board (APB) that
has been setting Statements of Generally Accepted Accounting Practice
(Statements of GAAP) since 1975. The FRSC must advise the Minister on
matters relating to financial reporting standards, and consult with the Minister on
the making of regulations establishing financial reporting standards. The purpose
of ensuring compliance with certain prescribed standards is to ensure conformity
in the preparation of financial statements and to ensure, as far as possible, the
preparation of information that is accurate and reliable.
CONTEXTUAL ISSUE
Both public and private companies must therefore ensure that financial
statements present their financial position and results of operations fairly, and
must comply with the prescribed standards. Financial reporting standards are, in
the first place, Statements of GAAP that have been developed by the APB, and
secondly, any standards that are issued by the FRSC.
PRACTICAL ISSUE
Public companies not listed on an One of (a) IFRS; or (b) IFRS for
exchange SMEs, provided that the company
meets the scoping requirements
outlined in the IFRS for SMEs
Private companies, whose public One of (a) IFRS; or (b) IFRS for
interest score for the particular SMEs, provided that the company
financial year is at least 350. (The meets the scoping requirements
Minister has the power to change this outlined in the IFRS for SMEs
public interest score at any time by
regulation.)
Private companies (a) whose public One of (a) IFRS; or (b) IFRS for
interest score for the particular SMEs, provided that the company
financial year is at least 100, but less meets the scoping requirements
than 350; or (b) whose public interest outlined in the IFRS for SMEs; or (c)
score for the particular financial year SA GAAP
is less than 100, and whose
statements are independently
compiled
Non-profit companies that are IFRS, but in the case of any conflict
required in terms of Regulation 28(1) with any requirements in terms of the
(b) to have their annual financial Public Finance Management Act, the
statements audited latter prevails
Non-profit companies, other than One of (a) IFRS; or (b) IFRS for
those contemplated in the first row SMEs, provided that the company
above, whose public interest score for meets the scoping requirements
the particular financial year is at least outlined in the IFRS for SMEs
350
Non-profit companies, other than One of (a) IFRS; or (b) IFRS for
those contemplated in the first row SMEs, provided that the company
above (a) whose public interest score meets the scoping requirements
for the particular financial year is at outlined in the IFRS for SMEs; or (c)
least 100, but less than 350; or (b) SA GAAP
whose public interest score for the
particular financial year is at less than
100, and whose financial statements
are independently compiled
The meaning of the phrase ‘independently compiled and reported’ is that the
annual financial statements are prepared as follows:
• by an independent accounting professional;
• on the basis of financial records provided by the company; and
• in accordance with any relevant financial reporting standards.
PRACTICAL ISSUE
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PRACTICAL ISSUE
The report goes on to confirm that the group has complied with
King 3 except for certain items that are specifically explained.
The company also adopts a triple-bottom-line reporting
approach, as it reports on social performance issues, its
corporate social investments and its environmental impact.
User/stakeholder Needs
CONTEXTUAL ISSUE
PRACTICAL ISSUE
Special definitions 95
CASE STUDY
Because the term ‘offer to the public’ is so widely defined, the exceptions listed
in s 96 regarding actions that do not constitute offers to the public are very
important in practice.
Two of these exceptions relate to certain types of rights offer. A rights offer
is widely defined as an offer for subscription of a company’s securities, made to
any existing holders of the company’s securities. (A subscriber of shares
indicates a willingness to acquire shares in a company from the company itself.)
Offers with a right to renounce in favour of other persons (renounceable offers)
and offers without such a right (non-renounceable offers) are both covered by the
definition of rights offer.19 A renounceable offer is an offer that gives existing
shareholders the right either to acquire the shares themselves from the company,
or to give up (renounce) this right in favour of another person. This other person
will then have the right to subscribe for these shares if the existing shareholder
gives up this right. A rights offer is made by way of a document known as a
letter of allocation.20
9.5.3 Underwriting
Because of the considerable effort and expense involved for a company in
offering its securities for subscription to the public, it is customary for the board
of directors to arrange for the whole or at least a portion of the offer to be
underwritten. If an offer is underwritten, it indicates to potential investors that
the issue will be successful and will take place, thus eliminating any
uncertainties regarding the success of the offer.
The company will enter into an agreement with an underwriter who
guarantees the success of the company’s issuing the securities to the public, by
undertaking to subscribe to the securities that are not taken up by the public. In
practice, the underwriting agreement will cover at least the minimum
subscription, if not the whole issue.42
If the prospectus contains a statement to the effect that the whole or any
portion of the issue has been underwritten, the underwriting agreement and an
affidavit confirming the underwriter’s ability to fulfil the undertaking must be
filed before the prospectus can be registered.43
PRACTICAL ISSUE
PRACTICAL ISSUE
Figure 10.1 Corporate structure in example 1
2. A disposal between two or more wholly owned subsidiaries
of the same holding company: suppose that RMB owns all of
the securities with voting rights in FRB and in First National
Bank. Refer to Figure 10.2 below for a diagrammatic
representation of the corporate structure. A transaction for a
disposal of the greater part of the assets of First National
Bank to FRB is a transaction between two wholly owned
subsidiaries of the same holding company. Such a
transaction will also be exempted in terms of s 112(1)(c)(i).
Figure 10.2 Corporate structure in examples 2 and 3
3. A disposal between or among a wholly owned subsidiary, on
the one hand, and its holding company and one or more
wholly owned subsidiaries of that holding company, on the
other hand: suppose that the facts in the second example
stand (see Figure 10.2 above). If the disposal transaction
involves a transaction between FRB (one of the wholly
owned subsidiaries of RMB), on the one hand, and RMB (a
holding company) and First National Bank (another wholly
owned subsidiary of Rand Merchant Bank), on the other
hand, then such a transaction would be exempted in terms
of s 112(1)(c)(ii).
Subject to the exceptions discussed above, s 112 of the Companies Act, 2008
provides that no company may dispose of all (or the greater part) of its assets or
undertaking, unless the following two requirements are met:
1. the disposal must be approved by a special resolution of shareholders; and,
2. the company must satisfy a number of other (largely procedural) requirements
to the extent that they are applicable to the particular disposal.9
PRACTICAL ISSUE
The terms ‘amalgamation’ and ‘merger’ are not individually defined in the Act.
Instead, the Act provides a composite definition of an amalgamation or merger,
which essentially covers the following two broad categories of transaction that
qualify as an amalgamation or merger:
1. The first category of transaction involves a situation where each of the
merging companies is dissolved and the assets or liabilities of the merging
companies are transferred to a newly formed company or companies.
2. In the second category of transaction, at least one of the merging companies
survives, and the assets or liabilities of the non-surviving merging companies
(which are subsequently dissolved by operation of law) are transferred to the
surviving company or companies and, if applicable, a newly formed company
or companies.
Davids, Norwitz and Yuill have aptly observed, ‘[t]he merger procedure
provided for in the [2008] Act is both relatively straightforward and flexible,
which is in keeping with the Act’s intention of facilitating business
combinations.’11 These authors maintain that:
[o]f particular importance in this regard is the fact that there
is only recourse to the courts in limited circumstances, thus
ensuring that the procedure is considerably quicker and
possibly less expensive than would ordinarily be the case
with a court-driven process. By comparison, the current
scheme of arrangement procedure (which is generally the
preferred method of implementing a recommended public
M&A transaction), requires judicial sanction, and is both a
costly and lengthy procedure. Although the limited
involvement of the courts in the merger procedure increases
the potential for prejudice to shareholders and other
stakeholders, this is addressed (at least in theory) by the
appraisal rights remedy which is available to dissenting
shareholders in terms of s 164 of the Act (as well as the
limited recourse which shareholders and creditors have to
the courts) and the remedy provided for in s 163 of the Act
(relief from unfair or prejudicial conduct).12
The regulation of amalgamations and mergers by the Companies Act, 2008 is
discussed below.13
PRACTICAL ISSUE
Example of a scheme of arrangement
The issued shares of India Co. Ltd comprise 100 ordinary
shares, 300 preference shares, 100 redeemable preference
shares and 100 convertible preference shares.16 India enters
into an arrangement with its securities holders in terms of
which its 100 convertible preference shares are to be
immediately converted into 100 ordinary shares. The company
and its securities holders further arrange and agree to divide
existing preference shares into 100 ordinary shares and 100
redeemable preference shares and to expropriate the
remaining 100 preference shares. As a result of this
arrangement, India’s share capital now comprises 300 ordinary
shares and 200 redeemable preference shares.
Figure 10.3 Share structure before scheme of arrangement
Figure 10.4 Scheme of arrangement
Figure 10.5 Share structure after scheme of arrangement
In summary, through this arrangement, the company and its
security holders:
• converted 100 convertible preference shares and 100
preference shares into 200 ordinary shares, which, added to
the existing 100 ordinary shares, makes a total of 300
ordinary shares; and
• divided 300 preference shares into 100 ordinary shares and
100 redeemable preference shares, and expropriated the
100 remaining preference shares.
As a result of this scheme of arrangement, the company no
longer has preference shares or convertible preference shares.
The arrangement just described is a classic example of a
scheme of arrangement. There may be a variety of commercial
reasons for a company to devise such a scheme, including:
• to simplify administration of share capital;
• to incentivise other shareholders by granting them general
voting rights associated with ordinary shares; and
• to take advantage of an apparent loophole in the transaction
approval requirements, as schemes of arrangement do not
seem to include the need to comply with the solvency and
liquidity test – even in the case of an expropriation of the
securities from the holders and a re-acquisition by the
company of its securities.
PRACTICAL ISSUE
CONTEXTUAL ISSUE
The Takeover Regulation Panel must regulate any affected transaction or offer
without regard to the commercial advantages or disadvantages of any transaction
or proposed transaction. The purposes of the Panel’s regulation are as follows:
• to ensure the integrity of the marketplace and fairness to the holders of the
securities of regulated companies;
• to ensure the provision of necessary information to holders of securities of
regulated companies, to the extent required to facilitate the making of fair and
informed decisions;
• to ensure the provision of adequate time for regulated companies and holders
of their securities to obtain and provide advice with respect to offers; and
• to prevent actions by a regulated company that are designed to impede,
frustrate, or defeat an offer, or the making of fair and informed decisions by
the holders of that company’s securities.65
In carrying out its mandate, the Takeover Regulation Panel may:
• require the filing, for approval or otherwise, of any document with respect to
an affected transaction or offer, if the document is required to be prepared in
terms of Chapter 5 of the 2008 Act and the Takeover Regulations;
• issue clearance notices, if the Panel is satisfied that the offer or transaction
satisfies the requirements of Chapter 5 and the Takeover Regulations; and
• initiate or receive complaints, conduct investigations, and issue compliance
notices, with respect to any affected transaction or offer, in accordance with
Chapter 7, and the Takeover Regulations.66
A compliance order or notice issued by the Panel may, among other things:
• prohibit or require any action by a person; or
• order a person to
– divest of an acquired asset; or
– account for profits.67
The most common types of affected transaction (other than fundamental
transactions involving regulated companies) are mandatory offers and
compulsory acquisitions or squeeze-out transactions. These are discussed below.
PRACTICAL ISSUE
Figure 10.8 Summary of the regulation of fundamental and affected
transactions
1. Fundamental transactions fundamentally alter a company and must
comply with certain targeted provisions of the Companies Act, 2008.
Fundamental transactions fall into three categories:
• disposals of the majority of a company’s assets or undertaking;
• mergers or amalgamations; and
• schemes of arrangement.
2. If a fundamental transaction is also an affected transaction, the
Takeover Regulation Panel will have jurisdiction over the transaction
as well. A fundamental transaction will fit the description of an
affected transaction only if the company is a regulated company. A
company is a regulated company if it is:
• a public company;
• a state-owned enterprise (unless exempted); or
• a private company, but only if more than the prescribed percentage
of its issued securities has been transferred in the previous 24
months, or the company’s MOI expressly provides for it to be
treated as a regulated company.
3. An affected transaction is either:
• a fundamental transaction involving a regulated company;
• an acquisition of multiples of five percentages in voting securities;
• a mandatory offer; or
• a compulsory acquisition (so-called squeeze-out transaction).
4. A disposal of the majority of a company’s assets or undertaking
is a fundamental transaction and must be approved by special
resolution of the shareholders. It may also need to satisfy certain
other procedural requirements, depending on the particular disposal.
Disposals that form part of a business rescue plan, or that are
transfers between companies in the same group of companies, do
not need to comply with the requirements of the Companies Act,
2008 for significant disposals.
5. Amalgamations (or mergers) are fundamental transactions
involving the merging, in terms of an agreement, of two or more
companies into one or more. They either result in the survival of one
or more of the merging or amalgamating companies, or the formation
of one or more new companies, or a combination of the two. The
surviving or new company or companies then together hold all of the
assets and liabilities previously held by the several merging or
amalgamating companies.
The Companies Act, 2008 prescribes the minimum particulars to
be included in a merger agreement, which must be in writing. The
boards of directors of the respective companies must satisfy
themselves that the proposed merged entity will pass the solvency
and liquidity test and must then submit the proposed transaction to
the shareholders for approval. A special resolution is required to
approve the transaction. Every known creditor of each of the merging
companies must be notified of the proposed merger and may review
the transaction in court if it believes it will suffer material prejudice. A
prescribed notice of merger must be filed with the Companies
Commission.
6. Schemes of arrangement are also fundamental transactions and are
a flexible tool often used for compulsory takeovers, and also to
simplify administration of share capital or to incentivise shareholders
in various ways. A scheme of arrangement is any arrangement or
agreement proposed by the board of directors and entered into
between the company and holders of any class of its securities,
including a reorganisation of the share capital of the company,
including:
• a consolidation of securities of different classes;
• a division of securities into different classes;
• an expropriation of securities from the holders;
• an exchange of any of its securities for other securities;
• a re-acquisition by the company of its securities; or
• a combination of the above methods.
The Companies Act, 2008 requires that a company’s board may
propose and implement a scheme of arrangement, provided that the
company is neither in liquidation nor in the course of business rescue
proceedings. The company (or in a takeover, the offeror) must
commission a qualified, impartial, independent expert to prepare a
report about the proposed arrangement for the board and this report
must be distributed to all shareholders. As with other fundamental
transactions, a scheme of arrangement must be approved by special
resolution.
7. The Companies Act, 2008 empowers dissenting shareholders to
approach the courts to set aside a shareholders’ resolution in favour
of a fundamental transaction. If at least 15 per cent of the exercised
voting rights were opposed to the resolution, any person who voted
against the resolution may require the company to seek court
approval for the transaction. Even if less than 15 per cent of
shareholders voted against the resolution, any person may approach
the court for leave to apply to court for a review of the transaction.
Leave to apply may only be granted if the court is satisfied that the
applicant is acting in good faith, appears prepared and able to sustain
the proceedings and has a prima facie case. A company may not
implement a transaction that is subject to a pending legal application.
A court may set aside the resolution if the resolution is manifestly
unfair to any class of shareholder or if the vote was materially tainted
by some significant and material procedural irregularity.
8. In addition to the dissenting shareholders’ remedy, the Companies
Act, 2008 provides for an appraisal remedy, which is the right of
dissatisfied shareholders to tender their shares to the company in the
event of certain transactions being undertaken by the company. If the
shareholders voted against these transactions and indicated their
intention to seek the appraisal remedy, they are entitled to require the
company to acquire their shares at fair value. The appraisal remedy
applies in the context of a merger transaction, a scheme of
arrangement, a disposal of the greater part of the company’s assets
or undertaking and any change to the MOI that may materially affect
the rights of the relevant shareholders.
9. The Takeover Regulation Panel’s main purpose is to regulate all
affected transactions according to the Companies Act, 2008 and the
Takeover Regulations. The aim is to ensure the integrity of the
marketplace and generally to protect shareholders of regulated
companies from unfair conduct.
10. A mandatory offer is an affected transaction and is a transaction
where a regulated company buys back its own securities or where
one or more persons who are related or inter-related or are acting in
concert attain a prescribed percentage of all voting securities in the
company (currently not less than 35 per cent). The company or such
person/s are then required to make an offer to acquire any remaining
securities on prescribed terms.
11. A compulsory acquisition (squeeze-out) is an affected transaction
and occurs where a person or offeror attains 90 per cent of any class
of securities in a company. The offeror may then notify the holders of
the remaining securities of the class that it desires to acquire all
remaining securities of that class and the offeror is then entitled and
bound to acquire the securities concerned on the same terms that
applied to securities whose holders accepted the original offer. A
holder of remaining securities may apply to a court for relief.
1 Section 118(1) and (2) of the Companies Act, 2008.
2 Mandatory offers and compulsory acquisitions are discussed in more detail in paras. 10.5.1 and 10.5.2
below.
3 See Figure 10.8 at the end of this chapter for a diagrammatic summary of fundamental and affected
transactions and how they are regulated.
4 The two preceding statutes were the Companies Act, 1926, and the Companies Act, 1973.
5 Section 112 of the Companies Act, 2008.
6 Section 113 of the Companies Act, 2008.
7 Section 114 of the Companies Act, 2008.
8 For more on the regulation by the Companies Act, 2008 of significant disposals, see para. 10.3.1
below.
9 These procedural requirements are contained largely in s 112(2)(b), read with s 115(1) and (2)(a) of the
Companies Act, 2008. Essentially, these requirements prescribe that relevant asset disposals must be
approved by shareholders of the disposing company who together hold at least 75 per cent of the
voting rights exercised on the resolution at a meeting at which sufficient persons are present to
exercise, in aggregate, at least 25 per cent of the voting rights that are entitled to be exercised on the
matter. See also para. 10.3.1 below.
10 See s 1 of the Companies Act, 2008.
11 See E Davids, T Norwitz and D Yuill ‘A microscopic analysis of the new merger and amalgamation
provision in the Companies Act 71 of 2008’ in T Mongalo (ed.) Modern Company Law for a
Competitive South African Economy (2010) 337 at 343. See also MF Cassim ‘The introduction of the
statutory merger in South African corporate law: majority rule offset by the appraisal right (Part I)’
(2008) 20 SA Merc LJ 1 at 4 and 22.
12 See Davids, Norwitz and Yuill supra and Cassim supra at 1, 20 and 23. See also MF Cassim ‘The
introduction of the statutory merger in South African corporate law: majority rule offset by the
appraisal right (Part II)’ (2008) 20 SA Merc LJ 147 at 157 and 175.
13 See para. 10.3.2 below.
14 See s 114(1) of the Companies Act, 2008.
15 An expropriation takes place when shareholders are obliged to sell their shares to a third party.
Obviously, an expropriation of shares involves an unwilling party who is forced to sell shares, and
therefore certain proactive mechanisms need to be in place to ensure fairness.
16 See para. 4.6 above for the different types of shares.
17 See N Boardman ‘A critical analysis of the new South African takeover laws as proposed under the
Companies Act 71 of 2008’ in T Mongalo (ed.) Modern Company Law for a Competitive South
African Economy (2010) 306 at 314.
18 Sections 112(2) and 115 of the Companies Act, 2008.
19 See chapter 7 of this book for a discussion of financial reporting standards.
20 See para. 10.1 above for the definition of a regulated company.
21 Section 118(3) of the Companies Act, 2008.
22 This transaction would not be exempted from having to comply with the provisions of s 112, read with
s 115, as it is not undertaken within the context of a group of companies. In other words, the person to
whom the disposal is effected is neither the subsidiary nor the holding company of the disposing entity.
23 A detailed analysis of these three key stages is provided by Davids, Norwitz and Yuill supra at 343–55.
See also MF Cassim (Part I) supra at 6–18.
24 Section 113(2)(e) of the Companies Act, 2008 states that the merger agreement should specify the
manner of payment of any consideration instead of the issue of fractional securities of an amalgamated
or merged company or of any other juristic person the securities of which are to be received in the
amalgamation or merger; Although not particularly clearly worded, this would appear to contemplate
that consideration could include shares in an entity other than the merged entity. See also MF Cassim
(Part I) supra at 26–8 and (Part II) supra at 148.
25 Davids, Norwitz and Yuill supra at 344. See also MF Cassim (Part II) supra at 147–8.
26 Ibid at 345.
27 See Davids, Norwitz and Yuill supra at 345 in footnote 11.
28 Section 115 of the Companies Act, 2008.
29 Section 113(5) of the Companies Act, 2008.
30 See para. 10.4 below for more on appraisal rights.
31 Section 115(2)(a) of the Companies Act, 2008.
32 Section 65(10) of the Companies Act, 2008. The company’s MOI must make provision for this,
however, and it seems doubtful that reduced thresholds will be common in practice, particularly in the
case of listed companies. For listed companies, shareholders are unlikely to be particularly in favour of
reduced thresholds (given the possibility of exploitation of the minority by controlling and/or large
shareholders) and may therefore be less willing to invest in companies where such thresholds have
been provided for in the MOI or to vote in favour of any such amendments to the MOI. Even if
possible, given that retail shareholders are generally uninterested in technical matters such as the
amendment of a company’s constitutional documents, it may not be worth it for a significant
shareholder to push such amendments through, as it could create an unintended embedded discount in
the shares of the relevant company. Significant institutional investors may also put pressure on
companies in this regard. In the context of a private company, a controlling shareholder would, to the
extent that it is not already provided for in the MOI, need a 75 per cent majority to amend the MOI, in
which case there would be little incentive for them to reduce the threshold.
33 Section 116(1) of the Companies Act, 2008.
34 Section 116(1)(c) of the Companies Act, 2008.
35 Section 116(4) of the Companies Act, 2008.
36 Section 116(5) of the Companies Act, 2008.
37 Section 116(6)(a) of the Companies Act, 2008.
38 Section 113(3) of the Companies Act, 2008.
39 Davids, Norwitz and Yuill supra at 349. See also MF Cassim (Part I) supra at 25.
40 For example, immovable property registered in the deeds registry or motor vehicles listed in a public
registry.
41 See s 114(1) of the Companies Act, 2008.
42 Section 114(2)(a) of the Companies Act, 2008.
43 For the details of the minimum particulars of the report, see s 114(3) of the Companies Act, 2008.
44 See Parts A and B of Chapter 5 of the Companies Act, 2008.
45 See s 115(1) and (2)(a) of the Companies Act, 2008.
46 Section 115(3) of the Companies Act, 2008.
47 Section 115(7) of the Companies Act, 2008.
48 See also para. 14.3.2 below.
49 The American remedy has not been adopted wholesale, but has been tailored to the South African
context. For example, the Act does not adopt the Delaware ‘market out’, which provides that appraisal
rights are not available if target company shareholders are receiving only publicly traded stock in
consideration for their shares.
50 A put option gives the holder of a share the right (but not the obligation) to sell that share.
51 See s 164(2) of the Companies Act, 2008.
52 Section 164(3) of the Companies Act, 2008.
53 Section 164(5)(c) of the Companies Act, 2008.
54 Section 164(7) of the Companies Act, 2008.
55 Section 164(9) of the Companies Act, 2008.
56 Section 164(11) of the Companies Act, 2008.
57 Section 164(13) of the Companies Act, 2008.
58 Section 164(14) of the Companies Act, 2008.
59 Section 164(16) of the Companies Act, 2008.
60 Section 164(15)(c)(ii) of the Companies Act, 2008. It is notable that in most US states, including
Delaware, the appraised value is specified as the fair value of the shares on a going-concern basis
without giving effect to the contemplated transaction (so that the shareholder asserting appraisal rights
is not entitled to the control premium inherent in a takeover price, but may receive more or less than
the deal price). Section 164 does not specify this, but the courts are likely at some point to have to
respond to this question in determining what is meant by fair value.
61 See the explanation of an affected transaction in para. 10.1 above.
62 See s 120 of the Companies Act, 2008.
63 Annual Financial Statements of the Securities Regulation Panel dated 28 February 2009, at 7.
64 See para. 10.1 above.
65 Section 119(1) of the Companies Act, 2008.
66 Section 119(4) of the Companies Act, 2008.
67 Section 119(5) of the Companies Act, 2008.
68 Section 123(2) of the Companies Act, 2008.
69 Section 123(3) of the Companies Act, 2008.
70 Section 123(4) of the Companies Act, 2008.
71 Section 124(1)(a) of the Companies Act, 2008.
72 Section 124(1)(b) of the Companies Act, 2008.
73 Section 124(2) of the Companies Act, 2008.
74 According to N Boardman, ‘…the practical effect of the new Act will be not altogether dissimilar to
the laws in the UK, the USA and Australia …’. Quoted in T Mongalo (ed.) supra at 319.
75 Read with ss 115 and 116 of the Companies Act, 2008.
76 See Rob Rose ‘Liberty bonuses queried’ Sunday Times Business Times, 16 May 2010, at 4.
Insider trading
PRACTICAL ISSUE
South African legislation has for the past few decades provided a legal
framework to prohibit insider trading. The Companies Act, 1973 originally dealt
with the interests of and dealings by directors and others in the shares of the
company.4 These provisions proved to be ineffective and were repealed when
the Securities Regulation Panel was established.5 Section 440 of the 1973 Act
also imposed criminal and civil actions for insider trading. The Insider Trading
Act6 was introduced in 1998 to deal with the regulation of insider trading.
However, this Act was replaced six years later by the insider trading provisions
in the SSA.
After 2004, the regulation of market abuses through insider trading was
governed by the SSA, which came into operation on 1 February 2005. The SSA
replaced the Stock Exchanges Control Act,7 the Financial Markets Control Act,8
the Custody and Administration of Securities Act,9 and the Insider Trading
Act.10
The Financial Markets Act11 (FMA), which came into operation on
3 June 2012, repealed and replaced the SSA in its entirety. The FMA has
amended, among other things, the offences of insider trading and the available
defences.
PRACTICAL ISSUE
Who is an insider?
The potential for persons to become insiders is great. For
example, a legal adviser is asked for an opinion. In the brief
provided to her, she gains access to significant confidential
information. The legal adviser is therefore now an insider.
Similarly, while working on the preparation of a company’s
financial statements, an accountant could become aware of
confidential information that could affect the share price of a
listed company’s shares. The accountant is accordingly an
insider in these circumstances.
In both of these examples, the legal adviser and the
accountant have inside information.
A cautionary announcement
On 30 September 2010 reference19 was made in the financial
press to Nedbank’s cautionary announcement as follows:
Johannesburg – Nedbank [JSE:NED] issued a further cautionary on
Thursday until a further announcement is made regarding a proposed
offer by HSBC to acquire a controlling interest in the South African
bank.
Nedbank said it had indicated in August when the proposal was
made that the making of a binding offer by HSBC is subject to a number
of pre-conditions.
‘The process leading up to a potential offer is ongoing and
accordingly, shareholders are advised to continue to exercise caution
when dealing in Nedbank Group’s securities until a further
announcement is made,’ it stated.
PRACTICAL ISSUE
Section 69 of the Companies Act, 2008 sets out the circumstances in which a
person will be disqualified from acting as a director. A person will be
disqualified from acting as a director of a company if, inter alia, he or she has
been convicted, in South Africa or elsewhere, and imprisoned without the option
of a fine, or fined more than the prescribed amount, for theft, fraud, forgery,
perjury or an offence in connection with the promotion, formation or
management of a company, or under the Companies Act, 2008 or the FMA.26
A director will therefore be disqualified from acting as a director if he or she
is convicted of insider trading under the FMA.
PRACTICAL ISSUE
A director of the company who voted in favour of the resolution to start business
rescue proceedings may not bring an application in his or her capacity as an
affected person for either the resolution or the appointment of the business
rescue practitioner to be set aside, unless the director can satisfy the court that he
or she supported the resolution in good faith based on information that he or she
later found to be false or misleading.39
CASE STUDY
The application for a business rescue order may also be made if ‘liquidation
proceedings have already been commenced by or against the company’.55 The
courts have therefore in a number of cases refused to postpone the issuing of
(mostly provisional) liquidation orders to give affected persons an opportunity to
apply for a business rescue order since these applications could still be brought
later.56
The application for a business rescue order in respect of a company where
liquidation proceedings have already been commenced will have the effect of
suspending the liquidation proceedings until the court has refused the application
for business rescue or, if the application is granted, until the business rescue
proceedings have ended.57 Although the Act is far from clear on this aspect, it
must be assumed that the suspension will take effect as soon as the application is
filed with the court.
Unfortunately, this provision in the Act is badly worded and incomplete and it
is not clear whether ‘liquidation proceedings’ refer only to the legal proceedings
until a final liquidation order is issued, or to the whole process of winding-up
until a final liquidation and distribution account has been approved. In Van
Staden v Angel Ozone Products CC (in liquidation),58 the court rejected the
argument that only legal proceedings were meant and held that ‘proceedings’
here refer to the whole winding-up process until it ends with the approval of a
final liquidation and distribution account. This means that even after a final
liquidation order has been issued and the winding-up has progressed quite far, as
in this case, an affected person can still apply for a business rescue order. This is
an extremely unsatisfactory situation, since an almost completed winding-up
may now be summarily halted by simply filing a spurious and baseless
application for commencement of business rescue proceedings. A far more
sensible approach would have been for the legislature to limit an application for
business rescue to the period before a final liquidation order is issued or at least
to provide that the liquidation proceedings will only be suspended from the
moment when (and if) the court grants an order for commencement of business
rescue proceedings.
In terms of s 132(1)(b), the business rescue proceedings formally begin when
‘an affected person applies to the court for an order’ placing the company in
business rescue. Again the Act does not explain at what moment this will be but
it probably also refers to the time of filing the application. In Investec Bank Ltd v
Bruyns,59 the court acknowledged that the time of commencement was
uncertain and a problem that the courts would have to decide in due course, but
decided that in this particular case it was unnecessary to do so.
The court may also, at any time ‘during the course of any liquidation
proceedings or proceedings to enforce any security against the company’ make
an order for the company to be placed under supervision and for business rescue
proceedings to commence.60 This means that the court may issue such an order
of its own accord (mero motu) and without an application for a business rescue
order having been made by an affected person. In this instance, the words
‘liquidation proceedings’ must be taken to refer only to the court proceedings
since the company would not otherwise be before court and the business rescue
proceedings formally commence when the court makes the actual order for
business rescue.61
PRACTICAL ISSUE
Liquidation proceedings
If liquidation proceedings later replace the business rescue
proceedings, then the creditors that have obtained preferential
rights under the business rescue provisions will retain these
under the liquidation proceedings that follow. This effectively
means that a new order of preference for the payment of
creditors can be created by using the business rescue
proceedings, overriding even the statutory order of preference
set out in the Insolvency Act.90 This may mean that stronger
rights may be created under the business rescue procedure for
certain categories of creditor that may not have had such
strong rights under traditional liquidation procedures.
CRITICAL ISSUE
New business rescue procedure compared to
insolvency laws
The new business rescue procedure introduced by the
Companies Act, 2008 is not aligned with the insolvency laws
that apply to a company that is being wound up.
Consider the example of the ABC Company Limited, a
company with 200 employees and which is experiencing
financial difficulties. An application is brought in the High Court
for the winding-up of the company based on its inability to pay
its debts. If the company is placed in liquidation, all contracts of
employment will be suspended, subject to the provisions of
s 38 of the Insolvency Act93 (which applies to companies in
liquidation). During such suspension, the employees are not
required to work, but will also not be paid. After a statutory
period (currently 45 days from the appointment of a final
liquidator), the contracts of employment may be terminated.
The only time that the contracts of employment will not be
terminated is if the contracts pass to the purchaser of the
business in the context of a sale, out of the insolvent estate, of
the business as a going concern.
However, if the company is on the verge of being wound up
by an order of the High Court, it is possible for the employees
to intervene (as an affected party) in the liquidation
proceedings by applying for a business rescue order. If such an
order is granted, the business rescue provisions in the
Companies Act, 2008 provide for the maintenance of all
employment contracts on the same terms and conditions as
existed prior to the granting of the business rescue order.
It should be clear that it is far more beneficial for employees
if the company is placed under business rescue than if the
company is liquidated. It will be interesting to see to what
extent this difference in approach will be used or abused in
practice.
12.5.6 Shareholders
Shareholders are not too affected by a business rescue, but certain restrictions
apply.
12.5.6.2 Participation
Since shareholders of the company are also affected persons, they have the right
to be notified of important events and to participate in court proceedings and
business rescue proceedings to the extent allowed by the Companies Act, 2008.
However, shareholders do not have the right to attend the meeting held to
consider the business rescue plan or to vote on the business rescue plan, except
for any shareholder whose rights will be altered by the plan. If a business rescue
plan is rejected, a shareholder who was present at the meeting (because his or
her rights would be altered by the plan) may propose that a new plan be
developed, and any shareholder – even one without the right to attend the
meeting and vote – may make an offer to take over the voting interests of some
or all creditors or shareholders who opposed adoption of the business rescue
plan.105
12.5.7 Directors
The directors of a company must cooperate with the business rescue practitioner
and they will be excused from certain of their duties and liabilities while
operating under the instructions of the business rescue practitioner. Failure to
cooperate could lead to the removal of a director during business rescue.106
12.5.8 Creditors
As affected persons, the creditors (including those employees who have become
creditors because of their unpaid remuneration due before the business rescue
proceedings commenced) have the right to be notified of, and formally and
informally participate in, all stages of the proceedings. They play a particularly
important role in voting on the amendment, approval or rejection of the business
rescue plan.116
12.7.1.4 Certificate
The business rescue plan must conclude with a certificate by the business rescue
practitioner in which he or she states that the information provided in the plan
appears to be correct and up to date, and that the projections were made in good
faith on the basis of factual information and assumptions set out in the
statement.158
PART B – COMPROMISES
PRACTICAL ISSUE
Compromise
If the liquidator of a company in liquidation intends to propose a
compromise, it makes sense and is good business practice for
a notice to be given to the shareholders who are the major
stakeholders in the company. A meeting of shareholders should
ideally be held in order to consider the compromise.
CRITICAL ISSUE
CRITICAL ISSUE
Compromise
If a company is no longer trading, it will be difficult to comply
with the strict requirements of providing a balance sheet and a
statement of income and expenses. Since these are set as an
absolute requirement by the 2008 Act, this may mean that a
compromise may not be entered into in such cases. In addition,
the question arises whether this information is important if the
compromise provides for creditors to be paid in full, or to
receive an immediate cash payment.
PRACTICAL ISSUE
Section 1 of the Companies Act, 2008 provides that the words ‘auditor’ and
‘audit’ have the meaning as set out in the Auditing Profession Act (AP Act).2
The latter defines a registered auditor as an individual or firm registered as an
auditor with the Independent Regulatory Board for Auditors (IRBA). This Board
is established in terms of the AP Act.3 In the context of financial statements, an
audit is defined as the examination of financial statements, in accordance with
prescribed or applicable auditing standards, with the objective of expressing an
opinion as to their fairness or compliance with an identified financial reporting
framework and applicable statutory requirements. An auditor is obliged to give
an opinion on the annual financial statements.
An independent review is a less onerous process than an audit, and is
discussed in paragraph 13.3 below.
CONTEXTUAL ISSUE
The Auditing Profession Act9 makes provisions for who may practise as an
auditor and restricts unregistered persons from certain auditing activities.
PRACTICAL ISSUE
CASE STUDY
Appointment of an auditor
An auditor is appointed by a company in terms of a contract
that obliges the auditor to perform certain services for the
client. Failure to perform the obligations properly in terms of
this contract can lead to the auditor being personally liable to
its client for any loss suffered by that client as a result of
inadequate performance.
This principle was clearly illustrated in the case of
Thoroughbred Breeders’ Association v Price Waterhouse.10 In
this case, during the course of investigations into the affairs of
a business, it became apparent that an employee had stolen
considerable sums of money from the business. It was
common cause in this case that the auditors were contractually
bound to exercise reasonable care in the execution of the audit
and not to do the work negligently. The allegation in this case
was that the auditors had failed in that respect, and that had
the audit work been done properly, the employee’s theft would
have been uncovered fairly early on, and that all the direct
losses suffered by the business due to the employee’s
subsequent thefts and his inability to repay were accordingly
for the auditor’s account.
The auditors, however, denied that they were negligent and
argued that they had not committed a breach of contract vis-à-
vis their client. In the alternative, the auditors argued that the
true cause of the loss was the business’s own negligence: first,
in employing the thief; second, in retaining him as its financial
officer after discovering that he had a criminal record; third, in
failing to inform the auditors of such a record; and, fourth, in
failing, through inadequate and lax internal controls, to
supervise and control the employee’s activities properly.
The court held that had the auditors probed further in the
course of their audit, as they should have done when certain
accounting records were found to be missing, the employee’s
past thefts would have been uncovered and his future ones
avoided. The court concluded that a competent auditor would
have known that the failure to recognise, identify and engage a
problem of this kind could lead to a prospective loss of the kind
suffered. The auditors were therefore found to be negligent and
liable for the losses suffered by their client.
CONTEXTUAL ISSUE
PRACTICAL ISSUE
The IRBA
The following is taken from the IRBA’s website:41
Corporate Mission
To protect the financial interest of the South African public and
international investors in South Africa through the effective
regulation of audits conducted by registered auditors, in
accordance with internationally recognised standards and
processes.
Vision
To be an internationally recognised and respected regulator of
the auditing profession in South Africa.
Objectives
• Develop and maintain auditing standards which are
internationally comparable;
• Develop and maintain ethical standards which are
internationally comparable;
• Provide an appropriate framework for the education and
training of properly qualified auditors as well as their ongoing
competence;
• Inspect and review the work of registered auditors and their
practices to monitor their compliance with the professional
standards;
• Investigate and take appropriate action against registered
auditors in respect of non-compliance with standards and
improper conduct;
• Conduct our business in an economically efficient and
effective manner, in accordance with the relevant regulatory
frameworks.
In doing so, we support and protect registered auditors who
carry out their duties competently, fearlessly and in good faith.
Values
Our core values are:
• Independence
• Integrity
• Objectivity
• Commitment
• Accountability
• Transparency
In terms of s 20 of the AP Act, the IRBA must appoint the following permanent
committees:
• a committee for auditor ethics in accordance with s 21;
• a committee for auditing standards in accordance with s 22;
• an education, training and professional development committee;
• an investigating committee; and
• a disciplinary committee.
Other remedies are found elsewhere in the Act. For example, in terms of s 171,
compliance notices can be issued by the Commission to ensure compliance with
the provisions of the Act. It is suggested that non-criminal (civil) remedies fall,
generally speaking, under three broad categories:
1. remedies where there has been an abuse of the position of director or
prescribed officer;
2. remedies given to shareholders to protect their own rights; and
3. remedies where there has been an abuse of the separate juristic personality of
a company.
14.2.1.1 Delinquency
The court is obliged to make an order declaring a person to be a delinquent
director if one of the statutory grounds14 is established. These grounds include,
among others:
• consenting to act as director while ineligible or disqualified;15
• while under probation, acting as a director in a manner that contravenes the
relevant order; or
• while a director, acting in a manner that amounts to gross negligence, wilful
misconduct or breach of trust.
14.2.1.2 Probation18
A court may place a director under probation on the grounds set out in s 162(7).
These include the following:
• acting in a manner materially inconsistent with the duties of a director; or
• being present at a meeting and failing to vote against a resolution despite the
inability of the company to satisfy the solvency and liquidity test in
circumstances where this is required by the Companies Act, 2008.19
A declaration placing a person under probation may be made subject to any
conditions the court considers appropriate and subsists for a period determined
by the court not exceeding five years.20 The court may also order that the
director under probation must be supervised by a mentor during the period of
probation, or be limited to serving as a director of a private company or of a
company of which that person is the sole shareholder.21
CASE STUDY
CASE STUDY
CASE STUDY
CASE STUDY
Interpretation of s 81(1)(d)
In Budge NNO v Midnight Storm Investments 256 (Pty) Ltd,6
the applicants sought the winding-up of two companies in
terms of s 81(1)(d)(iii) of the 2008 Act. Section 81(1)(d) reads
as follows:
(1) A court may order a solvent company to be wound up if
(d) the company [or others] have applied to the court for an order to
wind up the company on the grounds that
The respondents argued that the just and equitable ground for
winding-up referred to in s 81(1)(d)(iii) should be restrictively
interpreted and limited to the circumstances referred to in the
preceding ss 81(1)(c) and 81(1)(d) thereof, which
circumstances did not include the circumstances upon which
the applicants relied in seeking the winding-up of the
companies. The court therefore had to deal with an
interpretation of s 81(1)(d) of the 2008 Act.
The court held that the ‘just and equitable’ basis for the
winding-up of a solvent company in terms of s 81(1)(d)(iii)
should not be interpreted so as to include only matters ejusdem
generis the other grounds enumerated in s 81.7 The ejusdem
generis rule, in the court’s view, was inapplicable to s 81(1)(d)
(iii).
The court stated that in enacting s 81(1)(d)(i), which applies
to a situation where the directors are deadlocked in the
management of a company, and s 81(1)(d)(ii), which applies to
a situation where the shareholders are deadlocked in voting
power, the legislature modified the judicially developed
deadlock category that forms part of the just and equitable
ground for winding-up of a company and made its application
subject to certain new requirements.
The court held that the application of s 81(1)(d)(iii) to
deadlock categories and to the circumstances referred to in
s 81(1)(c) would render the provisions of s 81(1)(d)(i) and of
s 81(1)(d)(ii) of no effect, since an applicant who is unable to
meet the requirements of those sections would nevertheless be
able to invoke the judicially developed deadlock category that
forms part of the just and equitable ground for winding-up in
terms of s 81(1)(d)(iii). The court was also of the view that the
ejusdem generis rule is excluded, because the specific words
of s 81(1)(d)(i) and of s 81(1)(d)(ii) exhaust the ‘deadlock’
genus – that is, there can be no other types of deadlock in the
specific circumstances and therefore the application of the rule
would be unfruitful.8
The court therefore held that instances of deadlock are dealt
with in sub-paragraphs (i) and (ii) of paragraph (d) and this had
the effect of excluding consideration of deadlock in applications
brought in terms of s 81(1)(d)(iii).
CASE STUDY
General 337–343
Winding-up 344–348
by the court
344 Circumstances in which company may be wound
up by court
Voluntary 349–353
winding-up
349 Circumstances under which company may be
wound up voluntarily
General 354–366
provisions
affecting all 354 Court may stay or set aside winding-up
windings-up
355 Notice to creditors or members in review by court in
winding-up, and no re-opening of confirmed
account
Liquidators 367–385
Powers of 386–390
liquidators
Duties of 391–411
liquidators
Provisions 412–416
as to
meetings in
winding-up
Examination 417–418
of persons
in winding-
up
Dissolution 419–422
of
companies
and other
bodies
corporate
Personal 423–426
liability of
delinquent
directors
and others
and
offences
CASE STUDY
CASE STUDY
CASE STUDY
Close corporations
Close corporations
CASE STUDY
CASE STUDY
Fiduciary duties
In Geaney v Portion 117 Kalkheuwel Properties CC,58 the
court found that a close corporation, in this case, was for
practical purposes a partnership between two people in a small
domestic close corporation, and held that the affairs of the
close corporation ‘require a personal relationship of confidence
and trust normally existing between partners’.
The court referred to the case of Moosa NO v Mavjee
Bhawan (Pty) Ltd,59 in which the court stated:60
Usually that relationship is such that it requires the members to act
reasonably and honestly towards one another and with friendly co-
operation in running the company’s affairs. If by conduct which is either
wrongful or not as contemplated by the arrangement, one or more of the
members destroys that relationship, the other member or members are
entitled to claim that it is just and equitable that the company should be
wound up, in the same way as, if they were partners, they could claim
dissolution of the partnership.
CASE STUDY
PRACTICAL ISSUE
Certain rules apply automatically,97 unless they are varied by the terms of an
association agreement. Some of the variable rules are as follows:
• every member of a corporation is entitled to participate in the carrying on of
the business and management of the corporation (unless, of course,
disqualified from doing so in terms of the Act);
• decisions of members will be by majority vote; and
• payments to members by reason of membership will be in proportion to their
interest in the corporation.
CASE STUDY
CASE STUDY
Section 52 of the Close Corporations Act
In Hanekom v Builders Market Klerksdorp (Pty) Ltd,107 a
member of a close corporation signed surety on behalf of that
close corporation for a debt of another company of which he
was the sole director and shareholder. In these circumstances,
it was clear that s 52 applied, which requires that the member
must have the ‘express previously obtained consent in writing
of all the members’ of the close corporation for such a
transaction. In this case, however, the close corporation that
had provided the surety had only one member. On the strength
of the suretyship, a third party afforded further credit to the
company, but the company subsequently failed to discharge its
debt and was placed in liquidation.
Relying on the suretyship executed on behalf of the close
corporation, the third party applied for the corporation’s
liquidation. At a creditors’ meeting, objection was taken to the
third party’s claim on the ground that the suretyship executed
on behalf of the close corporation was invalid for want of
compliance with s 52 of the Act. The member’s contention was
that the suretyship executed on behalf of the corporation
purported to secure a debt of a company that he controlled and
was invalid for the reason that, when he executed it, he did not
have ‘the previously obtained consent in writing of all the
members of the corporation’ as contemplated in s 52(2). In
other words, he, as the sole member of the close corporation,
had not previously consented in writing to the suretyship that
he himself executed. The court made certain general
observations regarding s 52 as follows:
1. Although s 52(1) provides for a general prohibition, and
s 52(2) an exemption from that prohibition, the court held
that the object of s 52, read as a whole, is undoubtedly to
protect non-consenting members – that is, to prevent a
member from using the resources of a close corporation for
his or her own benefit to the detriment of other members.
The section seeks to achieve this by requiring not only that
the other members consent to the loan or security, but also
that they do so in writing so as to provide written proof of
that consent.
2. The consent that is contemplated is not consent on behalf of
the close corporation in question, but consent of the
members in their personal capacities as members of that
corporation. The court held that it is noteworthy that s 54
provides that ‘any member’ is an agent of the corporation
and, subject to certain exceptions, is able to bind the
corporation.
3. Although not expressly stated in s 52, the court held that it is
clear from s 52(3) that any loan or security falling within
s 52(1) and not exempted in terms of s 52(2) is void and not
capable of ratification (as per Neugarten v Standard Bank of
South Africa Ltd108 in relation to s 226 of the Companies
Act, 1973). Section 52(3) not only renders the member who
authorises an invalid loan or security liable to an innocent
third party for loss, but also makes such member guilty of an
offence.
The court therefore concluded that, based on the above, it was
apparent that where a close corporation has only one member,
the section really serves no purpose. The court held that where
there is only one member, not only are there no other members
who require protection, but the member signing the suretyship
on behalf of the close corporation is notionally incapable of
doing so, unless he had previously in his personal capacity
given himself permission to do so.
Counsel for the appellant had, however, referred to the
unambiguous language of s 52(2) and argued that there was
nothing in the section to indicate that it did not apply to the
case of a sole member of a corporation and that from an
ordinary reading of its provisions, it was clear that in the
absence of ‘the express previously obtained consent in writing’
of that sole member, a suretyship securing the debt of a
company controlled by him would not be exempted from the
prohibition contained in s 52(1). The question that therefore
arose in this case was whether a court would be justified in
departing from the clear and unambiguous meaning of the
section to avoid ‘a manifest absurdity’. The court held as
follows:
1. To give effect to the unambiguous language of s 52 where
the close corporation has only one member leads to an
absurdity.
2. Nothing could possibly be achieved by requiring the sole
member of a close corporation, before signing a suretyship
on behalf of the corporation and in his personal capacity, to
give himself permission in writing to do so.
3. The member’s signature on the suretyship demonstrated
unequivocally his consent.
4. The object of the section is to protect non-consenting
members.
5. In circumstances such as those in the case before it, a literal
interpretation does not achieve the object of the section, and
a literal interpretation does no more than provide a sole
member of a corporation with a defence that could never
have been intended by the legislature.
6. When construing s 52(2) in the context of a sole member of
a close corporation who has signed a loan agreement or a
suretyship on behalf of a corporation, the words ‘previously
obtained’ must be disregarded.
7. The suretyship was therefore held to be valid.
CASE STUDY
The Close Corporations Act contains a number of sections that refer to ‘fair
value’ of assets and to ‘assets exceeding liabilities’, all of which suggest that
assets should be disclosed on a revalued or current market basis, rather than on
the basis of historic costs. The following sections are worth noting:
1. Section 39: payment by corporation for members’ interests acquired –
payment by a corporation in respect of its acquisition of a member’s interest
shall be made only if, after such payment, the corporation’s assets, fairly
valued, exceed all its liabilities.
2. Section 40: financial assistance by the corporation in respect of the
acquisition of a member’s interest –a corporation may give financial
assistance in respect of the acquisition of a member’s interest provided that
after such assistance has been given, the corporation’s assets, fairly valued,
exceed all its liabilities.
3. Section 51: payments by a close corporation to members by reason of
membership – any payment by a corporation to a member shall be made only
if, after such payment, the corporation’s assets, fairly valued, exceed all its
liabilities.
4. Section 62: duties of accounting officers – if the accounting officer finds that
the annual financial statements incorrectly indicate that, as at the end of the
financial year, the assets of the corporation exceed its liabilities, or has reason
to believe that such an incorrect indication is given, he or she must issue a
report to the Commission.
Failure to comply with the requirement of determining the fair value of assets in
the circumstances referred to can have adverse consequences for members and
others. For example, in terms of s 51, a member will be liable to a close
corporation for any payment contrary to the provisions of s 51(1). This
effectively means that any distributions made to members in any year can be
reclaimed by or on behalf of a close corporation, if the fair value of assets, after
such payment, does not exceed the liabilities of the close corporation.
In terms of s 58(2)(e), the annual financial statements of a close corporation
must contain the report of the accounting officer referred to in s 62(1)(c). The
accounting officer must determine whether or not the financial statements are in
agreement with a corporation’s accounting records. The accounting officer must
also review the appropriateness of the accounting policies that have been applied
in the preparation of the annual financial statements, and must issue a statement
in his or her report that he or she has done so. The accounting officer must report
in respect of these matters to the close corporation.115 The accounting officer
must report to the Commission if:
• he or she finds that the annual financial statements indicate that the
corporation’s liabilities exceed its assets;
• he or she finds that the financial statements incorrectly indicate that the assets
exceed its liabilities; or
• he or she has reason to believe that such an incorrect indication is given.
An example of an accounting officer’s report appears below.
PRACTICAL ISSUE
It is apparent that in terms of the Close Corporations Act there are certain duties
imposed on the corporation, as well as its members and its accounting officer, in
respect of accounting records, financial statements and similar matters. These
duties are summarised in the tables below.
Table 16.1 Duties of the corporation in relation to accounting records
and financial statements
CASE STUDY
Application of section 65
In Airport Cold Storage (Pty) Ltd v Ebrahim,118 the court held
that if the requirements of the Close Corporations Act are
ignored, this can amount to the abuse of the separate juristic
personality of the corporation as envisaged by s 65. In this
case, the court found that the business conducted through the
corporation was ‘conducted in a very loose and informal
manner with little or no regard for the requirements of the Act’.
It kept no conventional books of account and the business was
conducted largely on a cash basis. The court also found that
the corporation had not kept the accounting records as
required by s 56. The court found that the defendants had
operated the business of the corporation as if it were their own,
and without due regard for, or compliance with, the statutory
and bookkeeping requirements associated with the conduct of
the corporation’s business. The court noted that when it suited
them, the defendants chose to ignore the separate juristic
identity of the corporation and held: ‘In these circumstances,
the defendants cannot now choose to take refuge behind the
corporate veil’ of the corporation in order to evade liability for its
debts. The court concluded that the plaintiff was entitled to a
declaratory order in terms of s 65 to the effect that the
corporation was deemed not to be a juristic person, but a
venture of the defendants personally. The defendants were
therefore held to be jointly and severally liable to the plaintiff for
the amounts owed to the plaintiffs at the time of liquidation.
CASE STUDY
Personal liability of members
In Haygro Catering BK v Van der Merwe,120 the applicant
applied for an order declaring that members of a close
corporation were, together with the corporation, jointly and
severally liable for a debt owed to the applicant for meat it had
supplied. The applicant had supplied meat to a business that
had been conducted under the name of ‘Mr Meat Man’.
The applicant was under the impression that he had been
dealing with partners in a business called ‘Mr Meat Man’, and
had issued summons in that name. No appearance to defend
had been entered and judgment had therefore been granted
against ‘Mr Meat Man’. Because no such business existed, the
writ could not be executed. The applicant subsequently
became aware of the fact that the ‘partners’ were actually
members of a close corporation, Toitbert Vleismark CC. This
name had not appeared anywhere on the business premises of
the business, nor on any of its documents or correspondence.
Neither was the fact that it was a close corporation mentioned
anywhere.
The court held that s 65 (gross abuse) could apply. Section
65 makes provision for a more all-embracing manner of
conduct. The court came to the conclusion that the failure to
display the name of the corporation constituted a gross abuse,
and that the court was justified in making an order in terms of
the wide discretion conferred on it by s 65. The application for
an order that the members be held jointly and severally liable
for payment of the amount owing was accordingly granted.
CASE STUDY
Table 16.4 below summarises some of the other more important sections of the
Close Corporations Act that provide for personal liability.
Table 16.4 Personal liability under the Close Corporations Act
CASE STUDY
Partnerships
CHAPTER 17 Partnerships
Partnerships
CASE STUDY
Universal partnership
In the case of Schrepfer v Ponelat,5 the court was called on to
determine whether a universal partnership existed between the
parties. In this case, the plaintiff (who had never married the
defendant but who had lived with him over many years) relied
on a tacit and/or implied agreement of universal partnership
brought about by the conduct of the parties. Accordingly, when
the parties ceased to live together, she successfully relied on
the existence of such a partnership to claim a share of the
assets owned by the defendant.
The court accepted that a universal partnership, also known
as domestic partnership, can come into existence between
spouses and co-habitees where they agree to pool their
resources. The court stated that the ‘… partnership
universorum bonorum is that by which the contracting parties
agree to put in common all their property, both present and
future.’ The court accepted that a universal or domestic
partnership is similar to a marriage in community of property
even though the parties may not even be married at all. The
court referred to HR Hahlo: The South African Law of Husband
and Wife,6 where marriage in community of property is
described as follows:
Community of property is a universal economic partnership of the
spouses. All their assets and liabilities are merged in a joint estate, in
which both spouses, irrespective of the value of their financial
contributions, hold equal shares.
The second form of universal partnership occurs within the context of
commercial undertakings. In such partnerships, the parties agree that all that they
may acquire during the relationship from whatever form of commercial activity
shall be treated as part of the property of the partnership.7
CASE STUDY
CASE STUDY
CASE STUDY
Conflict of interest
A leading illustration of the duty of a partner to prevent a
conflict of interest between himself and the partnership is to be
found in De Jager v Olifants Tin ‘B’ Syndicate.38 In this case, a
syndicate, which in law was recognised as a partnership,
prospected on a farm for tin. The syndicate had been granted
the right to prospect on the farming property for a period of two
months. One of the partners discovered tin just outside the
boundary of the land within which the syndicate had been
negotiating for an option, but which had not been concluded at
the time of the individual partner’s discovery. That partner,
without notice to fellow partners of his discovery, succeeded in
obtaining for himself an option in respect of the farm, the
possession of which was essential for the mining operation on
the adjoining property, as well as further rights on the property
where discovery had been made. Innes ACJ (as he then was)
set out the principles of law that have been recognised ever
since:
The relationship between the members of a partnership is one of mutual
trust and confidence and the principles of law bearing upon the present
controversy are not seriously in dispute. No partner may acquire and
retain for himself any benefit or advantage which was in the scope of
the partnership business, and which it was his duty to acquire for the
partnership. All such benefits must be shared with and accounted for to
his fellow members.39
CASE STUDY
Agency
Jessel MR said the following more than a century ago in
Pooley v Driver:40
You cannot grasp the notion of agency properly speaking unless you
grasp the notion of the existence of the firm as a separate entity from
the existence of the partners … If you cannot grasp the notion of a
separate entity for the firm (partnership), then you are reduced to this,
that in as much as he (partner) acts partly for himself and partly for the
others, to the extent that he acts for the others he must be an agent and
in that way you get him to be an agent for the other partners but only in
that way because you insist upon ignoring the existence of the firm as a
separate entity.
CASE STUDY
Business trusts
Business trusts
PRACTICAL ISSUE
A bewind trust
A bewind trust may, for example, involve someone bequeathing
assets to his or her minor child, but these assets are placed
under the control of trustees until the child reaches majority. In
such a trust, the child has ownership of trust assets, but the
assets are controlled by the trustees.
Another example of a bewind trust is as follows: Paul dies
and leaves his farm to his sister but the last will and testament
provides that the trustees will manage the farm in whatever
way they choose, by farming or leasing the farm. It is clear that
the sister has ownership of the farm, but it is controlled by
trustees.
CASE STUDY
Section 50(2) of the 2008 Act provides inter alia that as soon as practicable after
issuing any securities a company must enter or cause to be entered in its
securities register, in respect of every class of securities that it has issued: the
names and addresses of the persons to whom the securities were issued; and the
number of securities issued to each of them. It is therefore submitted that since a
trust is regarded as a person in terms of the 2008 Act, the company must reflect
the name (and possibly the Master’s reference number) of the trust in its
securities register as the person to whom the securities have been issued in
respect of any certificated shares.
CASE STUDY
CASE STUDY
CASE STUDY
CASE STUDY
CASE STUDY
Financial markets
Financial markets
19.1 Introduction
19.2 The Johannesburg Stock Exchange (JSE)
19.2.1 History of the JSE
19.2.2 Some facts and figures about the JSE
19.2.3 Becoming a public listed company
19.3 The Financial Markets Act 19 of 2012 (FMA)
19.3.1 Overview of the FMA
19.3.2 Purpose and functions of the FMA
19.3.3 Application of the FMA
19.3.4 Regulation of trading securities
19.3.4.1 Authorised users
19.3.4.2 Custody and administration of securities
19.3.4.3 Nominees
19.3.4 4 Clearing and settling transactions
19.3.4.5 Trade repositories
19.3.4.6 Segregation of securities
19.3.5 Definitions in the FMA
19.3.6 Prohibitions in the FMA
19.3.7 Regulators appointed under the FMA
19.3.8 Self-regulatory organisations
19.3.9 Regulation of a market infrastructure
19.3.10 Regulation of market abuse
19.1 Introduction
A stock exchange is an organised and regulated financial market where
securities (bonds, notes, shares, derivatives) are bought and sold. Stock
exchanges typically provide a primary market where corporations, governments
and municipalities can raise capital from investors, and a secondary market
where investors can sell their securities to other investors.
As of July 2009, there is a single licensed exchange in South Africa – namely,
the Johannesburg Stock Exchange (JSE). Exchanges in South Africa are
licensed in terms of the Financial Markets Act (FMA),1 which is the
legislation that creates the framework for their operation and regulation. The
exchange operates under the auspices of the registrar and deputy registrar of
securities services, who have the responsibility for ensuring compliance of
regulated persons in terms of the FMA.
Date Event
2000 The JSE successfully lists Satrix 40, the JSE’s first exchange-
traded fund aimed at individual and first time investors and which
tracks the top 40 companies listed on the JSE’s Main Board.
2001 The JSE acquires SAFEX, the South African Futures Exchange,
and becomes the leader in both equities and equity and
agricultural derivatives trading in the South African market.
2006 In June, the JSE Ltd lists on the Main Board of the exchange.
Unlike other listed companies, the JSE’s listing is regulated not by
the JSE’s Issuer Regulation department, but by the Financial
Services Board.
2007 In April, the JSE migrates its equities trading to the new LSE
trading platform. The JSE also receives exchange control
dispensation to launch a market for the trading of currency
derivatives.
2009 The JSE launches its Africa Board aimed at attracting African
companies.
In June, the JSE acquires the Bond Exchange of Africa (BESA)
and begins the process of merging BESA and the JSE’s interest
rate markets. The JSE also wins the Future and Options World
award for ‘Top Contract of the Year’ (Can Do Options).
2012 The JSE again replaces its equities trading platform, this time with
a solution provided by the London Stock Exchange’s Millennium
IT. The new trading platform is now hosted in Johannesburg.
The JSE relooks its Africa strategy and effectively incorporates the
Africa Board into the JSE’s Main Board.
The JSE – as part of its alliance with the BRICS exchanges (the
Bombay Stock Exchange, BM&F Bovespa in Brazil, the Hong
Kong Exchanges, and Micex-RTS in Russia) – lists derivatives on
the benchmark equity indices of the partner exchanges. The JSE’s
benchmark Top 40 futures contract is likewise listed on the other
exchanges.
The JSE responds to regulatory changes after the global financial
crisis by ensuring that its clearing house for derivatives (SAFCOM)
is CPSS-IOSCO compliant. Under new banking regulations, banks
that are exposed to non-CPSS-IOSCO compliant clearing houses
would face much higher capital charges. In this way, the JSE limits
the capital exposure of its banking participants.
For the third year running, South Africa is ranked first in the world
for securities market regulation.
The JSE receives regulatory permission to list a dollar-
denominated Zambian grain contract on its commodity derivatives
market. This is done in collaboration with the Zambian Grain
Traders Association who will use the derivative contract for
purposes of managing price risk.
The Namibian government lists its first rand-denominated
sovereign bond on the JSE.
19.3.4.3 Nominees
Related to the custody and administration of securities are those provisions
dealing with the use of nominees. The owner of a security may not necessarily
want securities registered in its name. It may, for a host of reasons, be more
convenient for securities to be registered in the name of a person other than the
owner of the securities in question. Such persons are called nominees and are
also regulated under the FMA. Because nominees are so often used, reference is
made in this chapter not to an owner of securities disposing of its securities, but
simply to the disposer. The latter could include a nominee, the executor of a
deceased estate disposing of securities owned by the deceased, or a trustee
disposing of the securities owned by an insolvent.
The FMA provides for the approval of nominees to act as the registered
holders of securities or an interest in securities on behalf of others. A nominee of
an authorised user that is a member of an exchange must be approved by the
exchange in terms of the rules of the exchange. The nominee of a participant
must be approved by the central securities depository in terms of its rules.
Nominees that are not approved by an exchange or the central securities
depository must be approved by the registrar.
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Arbitration Act 42 of 1965 312
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Section 20 273, 284
Section 21 284
Section 22 273, 284
Section 33 279
Section 41 282
Section 44 283
Section 44(1) 282
Section 44(6) 282
Section 45 283
B
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Close Corporations Act 69 of 1984 7, 25, 38, 49, 132, 287,
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Section 1 347, 350, 355
Section 2(1) 335
Section 2(2) 334
Section 2(4) 334
Section 12(d) 337
Section 12(e) 337
Section 15(1) 336, 337, 350
Section 15(2) 337
Section 17 348
Section 23 357, 358, 359
Section 23(2) 359
Section 24 360
Section 24(1) 336
Section 24(2) 336
Section 24(2)(a) 338
Section 24(4) 336
Section 29(1) 334, 338, 391
Section 29(1A) 335
Section 30 337
Section 30(1) 337
Section 30(2) 337
Section 33(1) 338
Section 33(1)(b) 338
Section 33(2) 338
Section 34 338, 339, 348
Section 34A 338
Section 34(1) 338
Section 34(2) 339, 340
Section 34(2)(b) 340
Section 35 339
Section 35(a) 339
Section 35 (b) 339
Section 35(b)(iii) 339, 340
Section 36 333, 337, 338, 342, 343, 345
Section 36(1) 343, 344
Section 36(1)(a), (b), (c) or (d) 345
Section 36(2) 343, 345
Section 37 338, 346
Section 38 337
Section 38(b) 338
Section 38(c) 346
Section 39 343, 353
Section 39(1) 344, 346
Section 40 346, 354
Section 41 337
Section 42(1) 340
Section 42(2)(a)(i) 340
Section 42(2)(b)(ii) 340
Section 42(3) 341, 360
Section 42(3)(b) 340
Section 42(4) 340, 341, 342
Section 43 340, 341, 360
Section 43(2) 342
Section 44 347
Section 44(1) 348
Section 44(2) 348
Section 44(3) 348
Section 44(4) 348
Section 44(5) 348
Section 44(6) 348
Section 45 348
Section 46 348
Section 46(d) and (f) 337
Section 47 131, 134, 348
Section 49 333, 342, 343, 344
Section 49(2) 345
Section 49(3) 342, 347
Section 49(4) 342
Section 49(5) 342
Section 50 360
Section 50(1) 342
Section 50(2) 342
Section 50(3) 342
Section 51 346, 349, 350, 354
Section 51(1) 347, 354
Section 51(2) 350
Section 51(3)(a)(ii) 346, 350
Section 52 346, 350, 351, 357, 359
Section 52(1) 350, 351
Section 52(2) 350, 351
Section 52(3) 350, 351
Section 52(4) 350
Section 54 7, 334, 349, 351
Section 55 334
Section 56 355, 357
Section 57 355
Section 58 355
Section 58(2)(a) 352
Section 58(2)(c) 352
Section 58(2)(e) 354
Section 58(3) 353, 354
Section 59 355, 360
Section 59(5) 356
Section 59(5)(b) 356
Section 60 356
Section 60(1), (2) and (4) 279
Section 62 354, 356
Section 62(1)(c) 354
Section 63 360
Section 63(b) 336, 338
Section 63(d) 334
Section 63(e) 346
Section 63(f) 346
Section 64 357, 360, 361
Section 65 307, 333, 357, 358, 359
Section 68(d) 344
Section 70(2) 350
Companies Act 46 of 1926 4, 203, 235, 236
Section 86bis(2) 346
Section 111bis 299
Companies Act 61 of 1973 4, 6, 7, 10, 12, 15, 16, 21, 24, 34,
36, 38, 49, 50, 58, 62, 73, 75, 79, 80, 88, 89, 133, 158, 179,
182, 184, 190, 192, 198, 203, 216, 224, 235, 236, 237, 237,
263, 267, 268, 291, 292, 300, 302, 303, 304, 308, 315, 316,
317, 318, 321, 327, 328, 334
Chapter XIV 238, 316, 317
Section 1 194
Section 7 308
Section 13 22, 23
Section 20(a) 184
Section 21 37
Sections 29A–29D 4
Section 36 55
Section 38 346
Section 41 51
Section 45(2A) 50
Section 53 36
Section 73 325
Section 85 4
Section 91A 179
Section 93 180
Section 102 303
Section 104 182
Section 113 84
Sections 116–133 88
Sections 134–138 185
Section 140A(2) 184
Section 141 198
Section 142 193, 198
Section 144 194, 198
Section 144(b) and (d) 194
Section 148(1)(a) 195
Section 157(1) 196
Section 172 30
Section 173 328
Section 220 141, 390
Section 221 79
Section 224 224
Section 226 351
Section 228 42
Sections 229–233 224
Section 252 299, 301, 302, 304, 343
Section 252(1) 302
Section 252(3) 300, 302
Section 266 342, 351
Sections 311–313 263
Section 311 270
Sections 337–343 321
Sections 337–426 315, 321
Section 343 315, 317
Sections 344–348 321
Section 344 315, 316, 317, 321
Section 344(h) 301
Section 345 316, 321
Section 346 315, 317, 321
Section 346A 321
Section 347 321
Sections 348–53 315
Section 348 238, 317, 321
Sections 349–353 322
Section 349 317, 322
Section 350 317, 322
Section 351 317, 322
Section 352 238, 317, 322
Section 353 317, 322
Sections 354–366 315, 322
Section 354 322
Section 355 322
Section 356 322
Section 357 322
Section 358 322
Section 359 322
Section 360 322
Section 361 322
Section 362 322
Section 363 322
Section 363A 322
Section 364 322
Section 365 322
Section 366 322
Sections 367–385 322
Sections 367–411 315
Section 367 322
Section 368 242, 322
Section 369 322
Section 370 322
Section 371 322
Section 372 322
Section 373 323
Section 374 323
Section 375 242, 323
Section 376 323
Section 377 323
Section 378 323
Section 379 323
Section 380 323
Section 381 323
Section 382 323
Section 383 323
Section 384 323
Section 385 323
Sections 386–390 323
Sections 391–411 323
Sections 412–416 323
Sections 417–418 323
Sections 419–422 323
Section 419 325
Sections 423–426 323
Section 424 162
Section 429 242
Section 431(4) 242
Section 440 224
Schedule 4
Item 5 166
Companies Act 71 of 2008 3–25, 27–59, 61–6, 67–90, 91–108,
109–47, 149–70, 174–5, 177–87, 189–200, 201–22, 223, 224,
229, 233–70, 271–82, 285–90, 291–314, 315–29, 333–8, 340,
350, 352, 353, 362, 368, 382, 388, 390–1, 397, 400, 409, 413,
419
Chapter 1 (ss 1–10) 16, 17
Chapter 2 (ss 11–83) 16, 18
Part F 92, 93, 182
Part G 316
Chapter 3 (ss 84–94) 16, 18, 149, 170, 175, 275, 336
Chapter 4 (ss 95–111) 16, 18, 196
Chapter 5 (ss 112–127) 16, 18, 202, 203, 216, 217, 219, 220,
263
Part A 208, 214
Part B 202, 214
Part C 202
Chapter 6 (ss 128–155) 16, 18, 75, 235, 261
Chapter 7 (ss 156–184) 16, 19, 197, 217
Part B 292
Parts D and E 310
Chapter 8 (ss 185–212) 16, 19
Part A 308
Chapter 9 (ss 213–225) 16, 19
Sections 1–10 17
Sections 2–4 17
Section 2 62
Section 2(1) 300
Section 2(1)(a)–(c) 243
Section 2(2)(a) 61, 62, 66
Section 3 17
Section 3(1)(a) 62, 66, 183
Section 3(2) 64, 66
Section 4 17, 72, 75, 87, 306
Section 4(2) 168
Section 4(2)(b) 168
Section 5 13, 14–15, 17
Section 6 14, 17
Section 6(1) 14, 17, 43
Section 6(8) 48
Section 6(9) 239
Section 6(11) 239
Section 6(11)(b)(ii) 244
Section 7 6, 13–14, 15, 17
Section 7(b)(iii) 190
Section 7(d)–(f) 190
Section 7(k) and (l) 15, 158
Section 7(k) 237
Section 8(2)(b)(ii)(aa) 199
Section 8(2)(b)(ii)(bb) 184
Section 8(2)(c) 30
Section 9 202
Sections 11–21 18
Sections 11–83 18
Section 11 7, 30, 33, 34, 36, 41, 49, 56, 61, 76, 81, 83, 84,
87, 92, 93, 111, 152, 153, 159, 177, 182, 194, 196, 205,
256, 272, 299, 350
Section 11(1)(b) 52
Section 11(2) 52
Section 11(2)(a) 52
Section 11(2)(d) 50
Section 11(3)(a) 52
Section 11(3)(b) 44
Section 12 52
Section 13 40, 41, 48
Section 13(1) 30, 41, 324
Section 13(2)(b) 46
Section 13(3) 44, 45, 46, 56, 57
Section 13(4)(a) 46
Section 13(4)(b)(i) 48
Section 13(5)–(9) 40, 58
Section 13(7) 40
Section 14 46, 48, 49, 324
Section 14(1)(b)(iii) 30
Section 14(2) and (3) 46
Section 14(2)(b) 52, 53
Section 14(4) 29
Section 15 41, 46
Section 15(2)(a)(iii) 42, 92
Section 15(2)(b) 44, 45, 46, 47, 56
Section 15(2)(c) 44, 47, 56
Section 15(3)–(5) 155
Section 15(3) 43, 155
Section 15(4)(a) 44
Section 15(4)(b) 44
Section 15(4)(c) 44
Section 15(5) 44
Section 15(6) 44
Section 16 77, 80, 104
Section 16(4) 45, 300
Section 16(7) 46
Section 17(2) 311
Section 17(5) 104
Section 18(1)(a) 47
Section 18(1)(b) 47, 104
Section 18(2) 47
Section 19 324
Section 19(1) 30
Section 19(1)(a) 30
Section 19(5) 45, 56
Section 20 18, 292, 294, 357
Section 20(1) 55, 56
Section 20(2) 56, 104
Section 20(4) 12, 56
Section 20(5) 56
Section 20(7) 56
Section 20(8) 318
Section 20(9) 31, 57, 307
Section 21 49, 397
Section 22 18, 31, 69, 150, 162
Section 22(1) 125, 162, 253
Section 22(2) 70, 73
Section 23 15, 158
Section 23(2) 39
Section 23(3) 15, 158
Sections 24–31 18
Section 24 72, 84, 149, 150, 152, 153, 154, 158
Section 24(1) 100, 159
Section 24(1)(a) 158
Section 24(3)(a) 155
Section 24(3)(b) 155
Section 24(3)(c)(i) 155
Section 24(3)(c)(ii) 155
Section 24(3)(c)(iii) 155
Section 24(3)(d) 105
Section 24(3)(d)(i) 105, 155
Section 24(3)(d)(ii) 100, 155
Section 24(3)(e) 100, 156
Section 24(3)(f) 156
Section 24(4) 84, 156
Section 24(4)(a) 177
Section 24(5) 156
Section 25 153
Section 26 72, 84, 85, 153, 159, 292
Section 26(2) 159
Section 26(6) 84
Section 26(9) 85, 159
Section 27 163
Section 27(7) 163
Section 28 152, 157, 168
Section 28(2) 158
Section 29 150, 153, 168
Section 29(1) 153, 160, 163
Section 29(1)(e) 271
Section 29(2) 160
Section 29(3) 162
Section 29(4) 165
Section 29(5) 165
Section 29(5)(b) 165
Section 29(5)(c) 160, 165
Section 30 153, 163
Section 30(2) 183
Section 30(2)(b) 275
Section 30(2)(b)(i) 276
Section 30(2A) 277
Section 30(3) 163
Section 30(3)(b) 164
Section 30(4) 163
Section 30(4)(a) 164
Section 30(4)(b)(i) 164
Section 30(4)(b)(ii) 164
Section 30(4)(c) 164
Section 30(4)(d) 165
Section 30(4)(e) 165
Section 30(6)(a)–(g) 164
Section 30(7) 275
Section 31 85, 153, 159
Section 31(3) 245
Section 32 53
Section 33 169, 324
Section 33(3) 287
Sections 35–56 18
Section 35 71
Section 35(1) 184
Sections 36–37 71
Section 36 71, 77, 80
Section 36(1)(d) 79
Section 36(2) 304
Section 36(3) and (4) 27, 45, 58, 104
Section 36(3) 45, 79
Section 36(3)(a) 77
Section 36(3)(c) 78
Section 36(4) 45
Section 37 71, 78
Section 37(1) 76
Section 37(3)(a) 78
Section 37(3)(b) 79
Section 37(5) 78
Section 37(5)(a) 345
Section 37(5)(b) 86
Section 37(6) 78
Section 37(8) 79, 305
Section 37(9) 85
Section 38 71
Section 38(1) 77
Section 38(5)(b) 87
Section 39 72, 82
Section 40 71, 390
Section 40(1) 80
Section 40(2) 80, 81
Section 40(4) 80
Section 40(5) 71, 76, 77, 80, 81, 390
Section 40(5)(b) 185
Section 40(6)(d)(i) 185
Section 41 72, 92
Section 41(1) 82, 104
Section 41(2) 82
Section 41(3) 82, 104
Section 42 69, 194
Section 43 69, 72, 76, 88
Section 43(1)(a) 198
Section 43(2) 88
Sections 44–48 10
Section 44 5, 69, 72, 73, 74, 83, 89, 104, 126, 164, 168
Section 44(2) 83
Section 45 65, 74, 89, 126, 164, 169
Section 46 72, 73, 74, 81, 86, 87, 89, 126, 169, 258
Section 47 71, 72, 74, 80, 81, 87, 88, 169
Section 48 71, 72, 73, 74, 87, 126, 169, 198, 258, 306
Section 48(1)(b) 86
Section 48(2) 64
Section 48(8) 87, 105
Section 49 69, 72
Section 49(2) 83, 178, 343
Section 49(3)(a) 83, 179
Section 49(4)(a) 186
Section 49(4)(b) 186
Section 49(5) and (6) 179
Section 50 69, 84, 92, 156
Section 50(1) 88, 180
Section 50(2) 92, 391
Section 50(2)(a) 84, 180
Section 50(2)(b) 180
Section 50(3) 83
Section 50(3)(a) 180
Section 50(4) 180
Section 50(5)(d) 185
Section 51 69
Section 51(1)(a) 179
Section 51(1)(b) 179
Section 51(1)(c) 179
Section 51(2) 179
Section 51(4) 179
Section 51(5) 185
Section 51(6) 185
Sections 52–55 186
Section 52 69
Section 52(1) 181
Section 52(2) 181
Section 52(4) 181
Section 53 69
Section 53(1) 186
Section 53(2) 186
Section 53(4) 182, 186
Section 53(5) 186
Section 53(6) 186
Section 54 69, 179
Section 55 69
Section 55(1) 186
Section 55(2) 186
Section 55(3) 186
Section 56 69
Section 56(1) 183
Section 56(2)–(10) 183
Section 56(2) 184
Section 56(2)(d) 184
Section 56(3) 183
Section 56(4) 183
Section 56(5) 183, 184
Section 56(9) 183
Sections 57–78 18, 92
Section 57(1) 182
Section 57(2)–(6) 101
Section 58 93, 98
Section 59 93, 94
Section 59(3) 95
Section 60 93, 102, 103
Sections 61–64 93
Section 61 95
Section 61(7)–(10) 102
Section 61(11)–(12) 102
Section 61(11) 311
Section 62 95
Section 62(1) 97
Section 62(3) 97
Section 62(4) 97
Section 63 100
Section 64 99
Section 64(4)–(13) 97
Section 65 93, 212
Section 65(2) 106, 174
Section 65(3) 106
Section 65(4) 106
Section 65(5) 106
Section 65(6) 106
Section 65(8) 103
Section 65(10) 103, 213
Section 65(12) 105
Section 66 110
Section 66(2) 129
Section 66(4)(a)(i) 112
Section 66(4)(a)(ii) 111, 129
Section 66(4)(a)(iii) 112, 129
Section 66(4)(b) 112, 129
Section 66(9) 92, 105, 130
Section 66(11) 128
Section 68 112
Section 68(3) 112
Section 69 229, 294
Section 69(2) 48, 287
Section 69(5) 287, 294
Section 69(7)(a) 131
Section 69(7)(b) 131
Section 69(7)(c) 131
Section 69(8) 255, 287
Section 69(8)(a) 131, 134, 294
Section 69(8)(b) 131
Section 69(8)(b)(i) 132
Section 69(8)(b)(ii) 132
Section 69(8)(b)(iii) 132
Section 69(8)(b)(iv) 132
Section 69(11) 131, 132, 133
Section 69(13) 294
Section 70 140
Section 71 253
Section 71(1) 92
Section 71(2) 140, 141
Section 71(3)–(6) 142
Section 71(3) 311
Section 71(6) 142
Section 71(8) 142, 311
Section 72 142
Section 72(2)(a) 143
Section 72(3) 143
Section 72(4) 143
Section 72(5) and (6) 143
Section 73 145
Section 73(8) 142
Sections 75–77 257
Section 75 110, 115, 116, 124, 253, 340
Section 76 12, 64, 69, 71, 110, 115, 118, 252, 292, 340
Section 76(2) 229
Section 76(2)(a) 135
Section 76(2)(b) 118, 138
Section 76(3) 24, 119
Section 76(3)(b) 124
Section 76(3)(c) 124, 241
Section 76(4) 124, 243
Section 76(4)(b) 124
Section 76(5) 243
Section 77 12, 31, 69, 109, 115, 125, 127, 162, 252, 292,
293, 306
Section 77(2)(a) 136
Section 77(2)(b) 241
Section 77(3)(a) 136
Section 77(3)(b) 136, 162
Section 77(3)(c) 136
Section 77(3)(d) 162
Section 77(3)(d)(ii) 197, 199
Section 77(3)(e)(viii) 197
Section 77(9) 127
Section 77(10) 127
Section 78 115, 127
Section 78(8) 128
Sections 79–83 18
Section 79(1) 315
Section 80 315
Section 80(1) 105
Section 80(5) 318
Section 81 256, 315, 316, 317, 318, 319
Section 81(1) 105
Section 81(1)(b) 256
Section 81(1)(c) 319, 320
Section 81(1)(d) 319
Section 81(1)(d)(i) 319, 320
Section 81(1)(d)(ii) 319, 320
Section 81(1)(d)(iii) 316, 319, 320, 321
Section 82 316, 324, 325
Section 82(1) 324
Section 82(2) 324
Section 82(2)(b) 327
Section 82(3) 324, 325, 327
Section 82(3)(a) 169
Section 82(4) 325, 326, 327, 328
Section 82(5) 105, 324
Section 82(6) 326
Section 83 325
Section 83(1) 324, 325
Section 83(2) 324
Section 83(3) 324
Section 83(4) 325, 326, 327
Section 83(4)(a) 326
Sections 84–94 18, 275
Section 84(5) 287
Section 85 156, 288
Sections 86–89 170, 286
Section 87(1)(a) 287
Section 88 287
Sections 90–93 170
Section 90 280, 285
Section 90(2) 273
Section 90(3) 170, 288
Section 92 80, 280, 281
Section 92(1) 80
Section 93 281
Section 93(1)(a) 281
Section 93(1)(b) 282
Section 93(1)(c) 282
Section 93(2) 282
Section 93(3) 282
Section 94 170, 285
Section 94(5) 156
Section 94(7) 285
Section 94(7)(d) 282
Section 94(8) 286
Sections 95–111 18
Section 95 64, 190, 193, 193
Section 95(1) 194, 198
Section 95(1)(c) 194
Section 95(1)(d) 198
Section 95(1)(e) 191
Section 95(1)(f) 193
Section 95(1)(g) 192
Section 95(1)(h) 82, 192
Section 95(1)(h)(ii) 192
Section 95(1)(h)(ii)(bb) 192, 198
Section 95(1)(i) 191
Section 95(1)(l) 193
Section 95(1)(m) 191
Section 95(1)(p) 198
Section 95(2) 192
Section 95(3) and (4) 198
Section 95(6) 197
Section 96 82, 190, 192, 193, 194, 200
Section 96(1)(b) 193
Section 96(1)(c) 192
Section 96(1)(d) 192, 193
Section 96(1)(g) 193
Section 96(2) 193
Section 97 82, 83, 104, 194
Section 98 190
Section 98(1) 196
Section 98(2) 196
Section 98(2)(a) 196
Section 98(2)(b) 196
Section 98(2)(c) 196
Section 98(3) 196
Section 98(3)(a) 196
Section 99 190
Section 99(1) 190
Section 99(1)(b) 190
Section 99(2) 190, 194
Section 99(3) 191
Section 99(3)(a) 191, 194, 196
Section 99(3)(b) 191, 194
Section 99(5) 191
Section 99(8)–(11) 194
Section 99(8) 196
Section 99(9) 196
Section 99(10) 196
Section 99(11) 196
Sections 100–106 18
Section 100 190, 409
Section 100(1) 195
Section 100(2)(a)(i) 195
Section 100(2)(a)(ii) 195
Section 100(4)(a) 195
Section 100(6)–(8) 195
Section 100(9) 195
Section 100(11) 195
Section 100(12) 195
Section 100(13) 195
Section 101 65, 190, 191, 196, 198, 199
Section 101(1) 198
Section 101(1)(a) 191
Section 101(2) 199
Section 101(3) 198
Section 101(5) 199
Section 101(6) 199
Section 102 196, 303
Section 103 196
Sections 104–106 190, 196
Section 104(1) 197
Section 104(3) 198, 199
Section 105(2) 198
Section 106(1) 197
Sections 107–111 18, 190, 196
Section 107 196
Section 108(1)(a) 197
Section 108(2) 197
Section 108(4) and (5) 197
Section 108(6) 197
Section 108(7) 197
Section 109(1)(a) 197
Section 109(1)(b) 197
Section 110(1) 197
Section 110(2) 197
Section 110(3) 197
Section 111(1) 197
Section 111(2) 197
Sections 112–116 105
Sections 112–127 18
Section 112 18, 65, 203, 204, 205, 209, 249, 304
Section 112(1) 203
Section 112(1)(a) 249
Section 112(1)(b) 204
Section 112(1)(c)(i) 204
Section 112(1)(c)(ii) 204
Section 112(2) 209
Section 112(2)(b) 205
Section 112(4) 209
Section 112(5) 209
Section 113 203, 219, 304
Section 113(2) 210
Section 113(2)(e) 210
Section 113(3) 85, 213
Section 113(5) 213
Section 114 87, 105, 203, 214, 304
Section 114(1) 206, 214
Section 114(2)(a) 214
Section 114(3) 214
Section 115 65, 87, 105, 203, 204, 209, 212, 213, 214, 215,
219, 249
Section 115(1) 205, 214
Section 115(2)(a) 205, 213, 214
Section 115(2)(b) 209
Section 115(3) 214
Section 115(4) 209
Section 115(6) 214
Section 115(7) 215
Section 116 219
Section 116(1) 213
Section 116(1)(c) 213
Section 116(4) 213
Section 116(5) 213
Section 116(6)(a) 213
Section 116(6)(b) 213
Section 116(7)(a) 213
Section 116(8) 213
Section 117(1)(c) 202
Section 117(2) 183
Section 118(1) and (2) 183, 202
Section 118(3) 209
Section 119(1) 217
Section 119(4) 217
Section 119(5) 218
Section 120 216
Section 123(2) 218
Section 123(3) 218
Section 123(4) 218
Section 124(1)(a) 219
Section 124(1)(b) 219
Section 124(2) 219
Sections 128–155 18, 75
Section 128(1) 263
Section 128(1)(a) 239
Section 128(1)(b) 236
Section 128(1)(f) 237, 240, 263
Section 128(1)(g) 243, 261
Section 128(1)(h) 236
Section 128(1)(j) 254
Section 129 241
Section 129(1) 238
Section 129(1)(a) and (b) 240
Section 129(2)(a) 238
Section 129(2)(b) 238
Section 129(3) 239, 241
Section 129(3)(a) 239
Section 129(3)(b) 240
Section 129(4) 239, 240, 241
Section 129(5) 239, 240, 241
Section 129(6) 238
Section 129(7) 240, 241
Section 130 255
Section 130(1)(a) 241
Section 130(1)(b) 243
Section 130(1)(c) 243
Section 130(2) 243
Section 130(3) 243
Section 130(4) 243
Section 130(5)(a) 243
Section 130(5)(b) 243
Section 130(5)(c) 243
Section 130(6)(a) 243
Section 130(6)(b) 243
Section 131 12
Section 131(1) 243
Section 131(2) 244
Section 131(2)(b) 244
Section 131(3) 244
Section 131(4)(a) 245
Section 131(4)(b) 247
Section 131(5) 247
Section 131(6) 244
Section 131(7) 245
Section 131(8)(a) 247
Section 131(8)(b) 247
Section 132(1)(a)(i) 238
Section 132(1)(a)(ii) 239
Section 132(1)(b) 245
Section 132(1)(c) 245
Section 132(2) 262
Section 132(2)(b) 318
Section 132(2)(c)(i) 263, 318
Section 132(3) 262
Section 133(1) 248
Section 133(3) 248
Section 134(1) 248
Section 134(1)(c) 249
Section 134(2) 249
Section 134(3) 249
Section 135(1)–(3) 249
Section 135(2) 249
Section 135(4) 249
Section 136 12, 249, 259
Section 136(1) 253
Section 136(1)(a) 250
Section 136(1)(b) 250
Section 136(2) 251
Section 136(2)(a) (proposed) 251
Section 136(2)(b) (proposed) 251
Section 136(2A)(a) (proposed) 251
Section 136(3) 252
Section 137(1) 252
Section 137(2)(a) and (b) 252
Section 137(2)(d) 253
Section 137(4) 253
Section 137(5) 253, 256
Section 137(6) 253
Section 138 240, 241, 243, 247, 254, 255
Section 138(1) 242
Section 138(2) 254
Section 138(3) 254
Section 139 255
Section 139(2) 255
Section 139(3) 255
Section 140(1) 256
Section 140(1)(c) 256
Section 140(1)(d) 258
Section 140(1A) 256
Section 140(2) 256
Section 140(3)(a) 258
Section 140(3)(c) 258
Section 140(4) 256
Section 141(2)(a) 256, 318
Section 141(2)(a)(ii) 262
Section 141(2)(b) 258
Section 141(2)(b)(ii) 262
Section 141(2)(c)(ii) 257, 258
Section 142 252
Section 143 258
Section 143(1)–(2) 258
Section 143(3) 258
Section 143(4) 258
Section 144(2) 251
Section 144(3) 251
Section 144(4) 251
Section 145(1)–(2) 253
Section 145(1)(d) 259
Section 145(3) 254
Section 145(4)–(6) 254
Section 145(4)(a) 254
Section 145(4)(b) 254
Section 146 252
Section 146(e)(ii) 262
Section 147 253
Section 147(3) 254
Section 148 251
Section 149 251, 254
Section 150(1) 258
Section 150(2) 258
Section 150(2)(a) 258
Section 150(2)(b) 259
Section 150(2)(c) 259
Section 150(4) 260
Section 150(5) 260
Section 151(1) 260
Section 151(2) 260
Section 152 304
Section 152(1)(c) 260
Section 152(3) 261
Section 152(3)(c) 259
Section 152(4) 261
Section 152(8) 261
Section 153(1) 263
Section 153(1)(a) 261
Section 153(1)(b)(i) 262
Section 153(1)(b)(ii) 262
Section 153(3) 262
Section 153(5) 262, 263
Section 153(7) 261
Section 154 261
Section 155 268
Section 155(1) 263
Section 155(2) 263
Section 155(2)(a) 264
Section 155(2)(b) 264
Section 155(3) 264
Section 155(3)(a) 265
Section 155(3)(a)(i) 265
Section 155(3)(a)(ii) 265
Section 155(3)(a)(iii) 265
Section 155(3)(a)(iv) 265
Section 155(3)(a)(v) 265
Section 155(3)(b) 265
Section 155(3)(b)(i) 265
Section 155(3)(b)(ii) 265
Section 155(3)(b)(iii) 265
Section 155(3)(b)(iv) 265
Section 155(3)(b)(v) 266
Section 155(3)(b)(vi) 266
Section 155(3)(c) 266
Section 155(3)(c)(i)(aa) 266
Section 155(3)(c)(i)(bb) 266
Section 155(3)(c)(ii) 266
Section 155(3)(c)(iii) 266
Section 155(3)(c)(iii)(aa) 266
Section 155(3)(c)(iii)(bb) 266
Section 155(4)(a) 266
Section 155(4)(b) 266
Section 155(5) 267
Section 155(5)(a) 267
Section 155(5)(b) 267
Section 155(6) 267
Section 155(7)(a) 267
Section 155(7)(b) 267
Section 155(7)(b)(i) 267
Section 155(7)(b)(ii) 267
Section 155(8) 268
Section 155(8)(c) 268
Section 155(9) 268
Sections 156–184 19
Section 156 307, 312
Section 156(a) 312
Section 156(b) 311, 312
Section 157(3) 297
Section 160 293, 311
Section 161 291, 293, 299, 306, 313, 314
Section 161(1)(a) 306
Section 161(1)(b) 306
Section 161(2)(b) 306
Section 162 12, 131, 134, 138, 140, 253, 291, 293, 294, 313
Section 162(5) 294
Section 162(5)(a) 134, 294, 295
Section 162(5)(b) 134, 295
Section 162(5)(c)–(f) 135
Section 162(5)(c)(i) 135, 136
Section 162(5)(c)(ii) 135
Section 162(5)(c)(iii) 135, 138
Section 162(5)(c)(iv)(aa) 135, 138
Section 162(5)(c)(iv)(bb) 136, 138
Section 162(5)(d)–(f) 137
Section 162(5)(d) 137
Section 162(5)(e) 137
Section 162(5)(f) 137
Section 162(6) 135, 294
Section 162(6)(a) 295
Section 162(6)(b) 295
Section 162(7) 255, 295
Section 162(8) 137
Section 162(9) 295
Section 162(10) 295
Section 162(10)(d) 295
Section 162(11) 135, 139, 295
Section 162(12) 135, 295
Section 163 291, 293, 299, 300, 301, 302, 313, 314, 343
Section 163(1) 12, 137, 299, 300, 301, 303, 304
Section 163(1)(a) 300
Section 163(1)(b) 300
Section 163(1)(c) 300
Section 163(2) 300
Section 163(2)(b) 301
Section 163(2)(l) 301
Section 163(3) 300
Section 164 19, 79, 87, 212, 214, 215, 216, 291, 293, 299,
303, 304, 305, 306, 313, 314
Section 164(1) 304
Section 164(2) 12, 215
Section 164(2)(a) 304
Section 164(2)(b) 304
Section 164(3) 215, 305
Section 164(4) 305
Section 164(5) 305
Section 164(5)(c) 215
Section 164(6) 305
Section 164(7) 215, 305
Section 164(8) 305
Section 164(9) 215, 305
Section 164(9)(a) 306
Section 164(9)(c) 105
Section 164(10) 305
Section 164(11) 216, 305
Section 164(12) 306
Section 164(13) 216
Section 164(13)(a) 216, 306
Section 164(14) 216, 305
Section 164(15) 305
Section 164(15)(a) 305, 306
Section 164(15)(c)(ii) 216
Section 164(15)(c)(iii)(aa) 306
Section 164(15)(c)(v) 216
Section 164(15)(c)(v)(aa) 306
Section 164(16) 216, 305
Section 164(17) 306
Section 164(18) 304
Section 164(19) 306
Section 165 8, 12, 19, 33, 291, 293, 294, 295, 296, 297, 298,
313, 314, 342
Section 165(2) 297, 298
Section 165(3) 297
Section 165(4)(a) 297
Section 165(4)(b) 297
Section 165(5) 297, 298, 299
Section 165(5)(b) 298
Section 165(6) 297
Section 165(7) 297
Section 165(14) 297
Section 165(16) 297
Sections 166–167 19
Section 166 198
Section 166(1) 312
Section 166(2) 312, 313
Section 166(3), (4) and (5) 312
Section 167(1) 313
Section 168(1) 12, 310
Section 168(2) 310
Section 168(3) 310
Section 169(1) 310
Section 169(2)(b) 310
Section 169(5)(c)–(f) 135
Section 170(1)(c) 311
Section 170(1)(g) 309
Section 170(2) 311
Section 171 19, 158, 198, 293, 309
Section 171(2)(a), (c) and (e) 199
Section 172 311
Section 174(1) 311
Section 174(2)(a) 311
Section 174(2)(b) 311
Sections 176–179 19
Section 176(1) 310
Section 176(3) 310
Sections 177(1) and (2)(b) 310
Section 177(3)–(6) 310
Section 178 310
Section 179 310
Sections 180–184 19, 312
Section 180(1) 312
Section 180(3) 312
Section 181 312
Sections 185–192 19
Sections 185–212 19
Section 185 48
Section 185(1) 308
Section 185(2)(a) 308
Section 185(2)(b) to (d) 308
Section 185(2)(d)(ii) 308
Section 186 41, 308
Section 186(1)(a) 308
Section 187 308
Section 187(2) 307, 308
Section 187(3) 308
Section 187(4) 309
Section 187(5)–(7) 309
Section 188(1)(a) 309
Section 188(2)(b) 309
Section 188(2)(c) 309
Section 189(1) 308
Section 189(3)–(4) 308
Sections 193–195 19
Section 193 313
Section 193(1) 311
Section 193(1)(b) and (d) 312
Section 193(4) 311
Section 194 313
Section 194(2)(a) 311
Section 194(6) 312
Section 195(7) 312
Section 195(9) 312
Sections 196–202 19
Section 196(1) 216
Sections 203–204 19
Section 203 308
Section 204 165
Section 205 311
Section 206 312
Section 207(3) 312
Section 209(1) 310
Section 209(3) 310
Sections 213–225 19
Section 214 292
Section 214(1)(d)(ii) 197, 199
Section 214(3) 310
Section 216(a) 199
Section 218 109, 127, 162, 293
Section 218(1) 197
Section 218(2) 12, 13, 31, 127, 199, 292, 293
Schedule 1 17
Item 1 37
Schedule 2 17, 37, 49, 335, 336
Schedule 3 17, 335
Item 5 334
Item 8 342
Schedule 4 17
Schedule 5 17, 38, 58
Item 6(4)(b) 337
Item 7(5) 97
Item 9 315, 317
Item 9(2) 316
Regulation 7 240
Regulation 7(3) 244
Regulation 20 39
Regulation 26(2) 143
Regulation 28 255, 258
Regulation 28(1)(b) 167
Regulation 40(6) 325, 327
Regulation 42 156
Regulation 43(1) 143
Regulation 92 143
Regulation 123(2) 239
Regulation 123(3) 240
Regulation 123(5) 240
Regulation 124 244
Regulation 127(2)(c) 255
Regulation 128 258
Companies Amendment Act 70 of 1984 4
Companies Amendment Act 78 of 1989
Section 6 224
Companies Amendment Act 37 of 1999 4, 73, 183
Companies Bill, 2008 50, 160
Explanatory Memorandum 38, 41, 43, 190, 308, 311
Companies Second Amendment Act 60 of 1998
Section 1 179
Competition Act 89 of 1998
Sections 26 and 27 311
Sections 52–56 312
Constitution of the Republic of South Africa, 1996 4, 22
Bill of Rights 6
Section 33 312
Section 34 22, 312, 313
Section 39(2) 84
Section 195 308
Consumer Protection Act 68 of 2008
Section 65(2) 157, 174
Criminal Procedure Act 51 of 1977 138
Custody and Administration of Securities Act 85 of 1992 224
D
Deeds Registries Act 47 of 1937 89
F
Financial Advisory and Intermediary Services Act 37 of 2002
416
Financial Intelligence Centre Act 38 of 2001 132, 287
Financial Markets Act 19 of 2012 (FMA) 116, 119, 132, 223–31,
287, 405, 410–20
Chapter X (ss 77–88) 225, 226
Section 1 84, 178, 180, 182, 225, 412
Section 29 84, 180
Section 76 228
Section 76(2) 229
Sections 77–79 119
Sections 77–81 116
Section 77 225, 227, 228, 229
Section 78 225, 227
Section 78(1)–(5) 119
Section 78(1) 119
Section 78(2) 119
Section 78(3) 119
Section 84 226
Section 85 225
Financial Markets Bill, 2012
Explanatory Memorandum 410, 415, 417
Financial Markets Control Act 55 of 1989 224
Financial Services Board Act 97 of 1990 226, 418
I
Income Tax Act 58 of 1962 4, 29, 157, 390
Section 1(c) 81
Section 24H 374
Section 73A 157
Insider Trading Act 135 of 1998 224, 227, 406, 418
Insolvency Act 24 of 1936 257
Section 13(1) 375
Sections 35A and 35B 251
Section 38 250
Section 49 375
Insolvency Act (unified) 235
L
Labour Relations Act 66 of 1995 260
M
Magistrates’ Courts Act 32 of 1944
Section 68(1) 338
P
Prescribed Rate of Interest Act 55 of 1975 80
Pre-Union Statute Law Revision Act 36 of 1976 370
Prevention and Combating of Corrupt Activities Act 12 of 2004
Chapter 2 132, 287
Prevention of Corruption Act 6 of 1958 132, 287
Promotion of Administrative Justice Act 3 of 2000 417
Public Accountants’ and Auditors’ Act 80 of 1991 273
Public Audit Act 25 of 2004 282
Public Finance Management Act 1 of 1999 57, 167
Schedule 2 or 3 35
S
Securities Services Act 36 of 2004 (SSA) 224, 225, 227, 410,
419
Special Partnerships Limited Liability Acts of the Cape Province
(24 of 1861) and Natal (Law 1 of 1864) 370
Stock Exchanges Control Act 1 of 1985 224, 406
T
Trade Marks Act 194 of 1993 52
Trust Property Control Act 57 of 1988 388, 395, 397, 398, 400,
401
Section 1 388, 390, 396
Section 6 396, 397
Section 6(1) 396, 397
Section 9(1) 398
Section 9(2) 398
Section 10 398
Section 11 398
Section 12 389
Section 16 398
Section 16(1) 399
Section 17 398
Section 19 399
V
Value Added Tax Act 89 of 1991 390
W
Wills Act 7 of 1953 395, 400
Regulations and rules
GAAP Standard for SMEs 166–8
Section 1 166
Magistrates’ Courts Rules
Rule 54 376
Rules for the Conduct of Proceedings in the Competition
Tribunal 287
Takeover Regulations (under the Companies Act, 2008) 202,
216, 217, 218, 222
Takeover Rules (under the Companies Act, 1973) 216
Uniform Rules of the High Court
Rule 14 375, 376
Codes and Guidelines
dti South African Company Law for the 21st Century:
Guidelines for Corporate Law Reform 8, 116, 144
King Report on Corporate Governance for South Africa 1994 4,
170
King Report on Corporate Governance for South Africa and
King Code of Governance Principles (King 3) 2009 4, 110, 111,
112, 113, 114, 142, 143, 151, 171, 172, 174, 175, 223, 229,
230, 231, 313
Chapter 2 230
Chapter 4 230
Chapter 6 230
Foreign law
Companies Act (United Kingdom) 5
Revised Uniform Partnership Act of 1997 (United States) 374
Sarbanes-Oxley Act, 2002 (United States) 161