COMPANIES ACT

Question 1

What is section 4?

Answer 1

The solvency and liquidity test.

Question 2

What is section 20?

Answer 2

Validity of company actions.

Question 3

What is section 76?

Answer 3

Standards of directors’ conduct.

Question 4

What is section 77?

Answer 4

Liability of directors and prescribed officers.

Question 5

What does section 4(1) say?

Answer 5

A company satisfies the solvency and liquidity test if considering all reasonably foreseeable financial circumstances of the company art that time:
1. the assets of the company equal or exceed the liabilities of the company
2. 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 12 months after the date on which the test is considered or distribution.

Question 6

On what principles is the solvency and liquidity test based on?

Answer 6

As long as the test is satisfied, creditors will not be prejudiced if the capital of the company is used other than for the ordinary business purpose of the company.

Question 7

What are the two types of solvency that the test requires?

Answer 7

1. Factual solvency
2. Commercial solvency

Question 8

What is factual solvency?

Answer 8

1. Balance sheet test
2. Based on all reasonably foreseeable financial circumstances that assets are in excess of liabilities

Question 9

What is section 77(3)(a)?

Answer 9

Acting without authority.

Question 10

What is section 77(3)(b)?

Answer 10

Reckless trading.

Question 11

What is section 77(3)(c)?

Answer 11

Fraud.

Question 12

What is section 77(3)(d)?

Answer 12

False or misleading statements.

Question 13

Which section deals with the registration of a company?

Answer 13

Section 14.

Question 13

What is section 77(3)(e)?

Answer 13

Unlawful distributions.

Question 13

Which section deals with the legal capacity of a company?

Answer 13

Section 19.

Question 14

Which section deals with the MOI, shareholder agreements and rules of company?

Answer 14

Section 15.

Question 15

Which section deals with amending the MOI?

Answer 15

Section 16.

Question 16

What does section 19(1)(b) hold?

Answer 16

1. Company has all the legal powers and capacity of an individual except to the extent that a juristic person is incapable of exercising any such power or having any such capacity.
2. The company’s MOI provides otherwise.

Question 17

What is section 20(1)(b)?

Answer 17

A statutory estoppel that precludes either the company or the other contracting party from relying on the limitation on company’s powers to assert that the contract is void.

Question 18

What does section 20(1)(a) hold?

Answer 18

If a company’s MOI restricts the powers of a company, no action of the company is void by reason only that the action was prohibited by the restriction or as a consequence of that restriction, the directors had no authority to authorise the action by the company.

Question 19

What does section 20(2) hold?

Answer 19

Allows for ratification by special resolution of an ultra vires contract.

Question 20

What does section 20(3) hold?

Answer 20

No ratification of action that is in contravention of the Act.

Question 21

What does section 20(5) hold?

Answer 21

Shareholders/prescribed officers/directors’ entitlement to institute legal proceedings to restrain company from doing anything inconsistent with the limitation imposed by the MOI, proceedings are without prejudice to any rights to damages of a third party who obtained rights in good faith and did not have actual knowledge of the restriction.

Question 22

What does section 20(6) hold?

Answer 22

Shareholders’ right to claim damages against any person who fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act or the limitation in the MOI.

Question 23

What is section 20(7)?

Answer 23

Turquand rule.

Question 24

What is the Turquand rule?

Answer 24

Rule that keeps an outsider’s duty to inquire into the affairs of a company within reasonable bounds and prevents the company from escaping liability on the basis of non-compliance with an internal formality, and protects third parties dealing with the company in good faith.

Question 25

What is section 20(9)?

Answer 25

Allows for lifting of the corporate veil.

Question 26

What does section 20(9) hold?

Answer 26

If a court finds that the incorporation of the company, any use of the company or any act by or on behalf of the company, constitutes an unconscionable abuse of juristic personality of the company as a separate entity, court may pierce the corporate veil.

Question 27

What is section 76(2)(a)?

Answer 27

Duty not to misappropriate corporate opportunities.

Question 28

What does section 76(2)(a) hold?

Answer 28

A director of a company must not use the position of director, or any information obtained while acting in the capacity of director to gain an advantage for themselves or for another person other than the company or to knowingly cause harm to the company.

Question 29

What is section 77(2)(a)?

Answer 29

Company’s right to hold director liable for breach of fiduciary duties and for any loss or damage suffered as a result of the breach.

Question 30

What is section 77(2)(b)?

Answer 30

Allows for company to claim delictual damages as a result of a breach of duty of care, skill and diligence, any other provision of the Act that is not mentioned and the MOI.

Question 31

What is section 77(3)(a)?

Answer 31

Director’s liability for loss/damages suffered as a result of an ultra vires contract.

Question 32

What is section 77(3)(b)?

Answer 32

Director’s liability for loss/damages suffered ebcause they acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by section 22(1).

Question 33

What is section 77(3)(c)?

Answer 33

Director’s liability for loss/damage suffered because they were party to to an act or omission that was a for a fraudulent purpose.

Question 34

What is section 77(3)(d)?

Answer 34

Director’s liability for loss/damage suffered because they were signatories to the publication of material that was false or misleading in a material respect.

Question 35

What is section 77(3)(d)?

Answer 35

Director’s liability for loss/damage because they failed to vote against a number of issues or distributions etc.