TEST 1 Flashcards
Does a company have physical existence? If not, how does a company run?
A company does not have any physical existence and can only perform actions through human beings - its shareholders and directors, managers and employees.
Which section of the companies act gives power to shareholders to remove directors at any time by ordinary resolution?
Section 71(1)
What does s 71(1) of the Companies Act state?
It states that a shareholder can remove a director at any time by ordinary resolution.
What does s 61 discuss?
It discusses the shareholder’s meeting and defines what it is as well as what a shareholder is.
Define what a shareholder is?
The holder of an issue of a share in a particular company and who enters into such either in the certificated or uncertificated securities register of the company.
Define a shareholder’s meeting:
It is a meeting where the holders of a company’s securities are entitled to voting rights in relation to the matter.
There are two types of meetings:
- general meetings
- class meetings
When is a shareholders’ meeting properly convened?
A shareholders’ meeting is only properly convened if the prescribed notice for convening the meeting was given by:
- the board of directors
- any other person specified in the company’s MoI.
- The shareholders by written demand. (10% voting rights)
Failure to comply with the prescribed formalities could result in an invalid decision.
Only in certain instances are exceptions made.
When must a notice of the meeting be in writing:
Public company: 15 business days prior
Other companies: 10 business days prior
If there is a lack of notice the meeting may proceed if all persons are present or waive notice that they were aware of the meeting.
What does s 61 state about AGM?
A public company’s first AGM must be held no more than 18 months after the company has been incorporated and no more than 15 months after the last AGM.
What business is to be discussed at the AGM?
- Presentation of director’s reports, audited financial statements, and an audit committee report.
- Elections of directors
- Appointment of an auditor and audit committee.
- Any matters raised by a shareholder.
The general practice of a chairman is to submit a chairman’s report.
Proceedings are regulated by the MoI.
What does s 59 of the companies act address?
It discusses matters around the record date.
The board of directors may set a record date for determining which shareholders are entitled to:
- receive notice of a shareholders’ meeting
- participate in voting
- decide any matter by written consent or electronic communication.
What does s 62(1) of the CA state?
It states that a company MUST deliver a notice to ALL of the shareholders and failure to do so will render the decision invalid.
What does s 58 of the CA state?
This section discusses proxies.
The proxy form must be:
- in writing
- signed by the shareholder who ordered the proxy.
- delivered to the company prior to the proxy exercising their rights.
This is only valid for one year since the signature was obtained.
According to what section in the CA, can a shareholder revoke a proxy?
According to s 58 of the CA, a shareholder can revoke a proxy by:
- cancelling the appointment of the proxy in writing
- make a later inconsistent appointment of a proxy.
- delivering a copy of revocation instrument to the proxy and to the company.
Quorums and Conducts at meetings are discussed in which section of the CA?
Section 63 and 64.
Quorums:
- At least 25% of all voting rights that are entitled to be exercised in respect of at least one matter to be decided at the meeting.
- At least three shareholders must be present at the meeting for it to commence, provided that the members presented makes up 25% of all voting rights that are exercised.
- Any person present including proxies is only entitled to one vote per person, it is not dependent on the amount of shares a specific individual owns.
Postponement and adjournment of meetings (s64):
- A meeting is postponed for one week if, within an hour after the appointed time of the meeting, no quorum is presented.
- Where a quorum is not presented at a postponed or adjourned meeting, those present will have to create one themselves.
- A meeting may be adjourned from time to time without further notice on a motion supported by a majority of the voting rights held by all those present at the meeting.
Decisions taken at a general meeting: s 65
for ordinary resolutions
- A decision was taken at a general meeting with the support of more than 50% of the voting rights exercised on the resolution.
- The MoI may specify a higher number.
- Provided that there is at least a margin of at least 10% between the requirements for the adoption of an ordinary and special resolution.
Decisions taken at a general meeting: s 65
for special resolutions
- A decision taken at the general meeting must hold at least 75% support.
- The MoI may permit a smaller percentage.
- Provided that there is at least a margin of 10% between the requirements of adoption of ordinary and special resolution.
It is required for the following decisions:
- Amendment of the Memorandum of Incorporation
- Approving the voluntary winding-up of the company
- Approval of a sale of assets, a merger, an amalgamation or a scheme of arrangement
- Approval of directors’ remuneration
- Any other matter required by the Memorandum of Incorporation,
Kaimowitz V Delahunt And Others2017 (3) SA 201 (WCC)
Presents a useful assessment of the limitations of director’s rights.
Kaimowitz was a director and an employee of a respondent firm. On receiving notice that his employment was to be terminated, the applicant’s role within the company had dramatically altered. Importantly, his directorship should be sustained, albeit in a capacity of a non-executive director. While he was entitled to attend director’s meetings, he was prohibited from being involved in the day-to-day runnings of the company.
The court was therefore called upon to determine whether the director, save for when provided in the MoI, is entitled to be involved in the day-to-day runnings of the business.
The courts distinguished between the roles of the directors and a manager, thus aiding on the evidence provided the court ruled that the director is not entitled to be involved in the day-to-day runnings of the business as in accordance with s 66(1) of the act.
The right to such decisions does not r5eside only one individual director. Thus the management is held by the board of directors as a whole and not by individual directors.
Kukama v Lobelo and Others
Kukama v Lobelo and Others, Tshabalala J found that the evidence before him indicated that the director in question had,inter alia,failed to refund SARS R39,000,000.00, causing irreparable harm to the company and also exposing the said company and the applicant in that case to criminal liability; and
Failed to alert his co-director and co-shareholder of the fraudulent transaction and a repayment by SARS of R22,000,000.00 into an account of another company over which the applicant held no directorship.
The conduct is, obviously, of an extremely serious nature and the director was declared delinquent in such circumstances.
Robinson v Randfontein Estates Gold Mining Co Ltd
Robinson was Chairman of the Board of REGM
REGM held lease in the mineral rights on a farm, Waterval (Waterfall)
Robinson wanted to buy farm from owner for the company, but they could not agree on terms of sale
Then Robinson bought undivided half share of farm through an agent for £60 000
Sold share of farm for £ 275 000 to Waterval Trust Company, which was established by REGM to buy and hold the farm for a period
Innes CJ: “Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or place himself in a position where his interests conflicts with his duty.”
If there was a breach of director’s fiduciary duty, then the company may choose to keep the acquisition and claim a refund of the profit made by the director
Hence, Robinson had to repay the profit of £ 215 000 made by him on the sale of the property to Waterval Trust Company
Regal (Hastings) Ltd v Gulliver
Regal (Hastings) Ltd (Regal) owned a cinema.
Regal took out leases on two more cinemas, through a new subsidiary (Hastings Amalgamated Cinemas Ltd), in order to create a viable sale package.
The landlord wanted personal guarantees from the directors. The directors refused to do so. The landlord then offered to up the share capital to£5,000.
Regal itself put in £2,000, but could not any afford more (though it could have got a loan).
Four directors each put in £500.
Mr Gulliver, Regal’s chairman, got outside subscribers to put in £500 and the board asked the company solicitor, Mr Garten, to put in the last £500. The directors sold the business and made a profit of nearly £3 per share.
Shortly after, the buyers brought an action against the directors, saying that this profit was in breach of their fiduciary dutyto the company. The directors had not gained fully informed consent from the shareholders
Was there a breach of the directors’ fiduciary duties to Regal?
Court held that directors must account for activities outside the company if
(i) what the directors did is related to the company in such a way that it can be said to arise out of their management of the co or as a result of their special knowledge as directors; and
(ii) their actions resulted in profits for themselves
“The rule of equity which insists on those, who by use of a fiduciary position make profit, being liable to account for the profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether profit would or would otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.”
Industrial Development Consultants Ltd v Cooley
Architect (Cooley), who was managing director of IDC Ltd (a construction co), negotiated with a gas board on behalf of IDC to develop gas depots.
Negotiations did not succeed, but in private meeting with representative of gas board, Cooley learned that there may be personal business opportunities for himself to develop a particular depot.
Thus, he claimed he suffered from ill health to secure a speedy release from his position as MD of IDC Ltd.
Subsequently appointed as project manager on four projects with gas board.
When IDC Ltd found out about this, instituted action for plaintiff to account for profits he made as a result of what they alleged was a breach of his fiduciary duty to IDC Ltd.
Court held:
“It seems to me plain that throughout the whole of May, June and July 1969 Cooley was in a fiduciary relationship with the plaintiffs. From the time he embarked upon his course of dealing with the Eastern Gas Board,… he embarked upon a deliberate policy and course of conduct which put his personal interest as a potential contracting party with the Eastern Gas Board in direct conflict with his pre-existing and continuing duty as managing director of the plaintiffs. That is something which for over 200years the courts have forbidden.”
Irrelevant whether IDC Ltd would have secured the contract with the gas board had Cooley not withheld information.
