MRL2601 oct nov examination 2021 memorandum PDF

Preview

Summary

PORTFOLIOMRL2601 SEPTEMBER OCTOBER 2021UNIVERSITY EXAMINATIONSMRLEntrepreneurial Law100 Marks Duration: 24 HoursFirst examiner: PROF J GELDENHUYS Second examiner: DR V MADLELAQUESTION 1 12MARKSThemba, who was a manager of the Men’s Club, approached the Commission for Conciliation, Mediation and Arbi...

Description

CONFIDENTIAL PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 UNIVERSITY EXAMINATIONS

MRL2601 Entrepreneurial Law 100 Marks Duration: 24 Hours First examiner: PROF J GELDENHUYS Second examiner: DR V MADLELA

QUESTION 1 MARKS

12

Themba, who was a manager of the Men’s Club, approached the Commission for Conciliation, Mediation and Arbitration (the CCMA) seeking severance pay after he was retrenched. The trade union that he belongs to was informed that he was not employed by the Men’s Club, but that he was in fact employed by a close corporation named Bad Boys CC. The trade union duly cited Bad Boys CC as the respondent in a referral to the CCMA. The sole member of Bad Boys CC, Tendai Munyai, during conciliation indicated that the Men’s Club was insolvent and that Themba had been dismissed for operational reasons. The commissioner advised Themba to refer an unfair dismissal dispute. When the matter was referred for arbitration, both the Men’s Club and Bad Boys CC were cited as respondents. After hearing the matter, the commissioner ordered Bad Boys CC to pay Themba an amount of R250 000 for his unfair dismissal. However, it was discovered that Bad Boys CC had no assets. In fact, Tendai Munyai who also participated in the running of the business had provided financial assistance to Bad Boys CC and he had secured claims against the close corporation for repayment of the loan amounts. Themba intends to seek an order from the Labour Court to the effect that Tendai Munyai was his true employer and that he must pay him the amount of R250 000. With reference to the relevant legislation and case law, indicate what Themba would have to prove in order to hold Tendai Munyai liable. (12) Maximum 12 marks

 

Section 65 of the Close Corporations Act 69 of 1984 has to be discussed and applied to the fact. Case law had to be discussed (here the question dealt with a close corporation and the following prescribed cases were relevant:

1

CONFIDENTIAL





PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 s (Pty) Ltd and another v Telefon Beverages CC and others, Le’ Bergo Fashions CC v Lee and another, Haygro Catering BK v Van der Merwe en Andere and Airport Cold Storage (Pty) Ltd v Ebrahim and Others. Marks were also awarded in leniency where reference was made to company law cases dealing with piercing of the corporate veil. Conclusion: The onus accordingly rests on Themba to show that Bad Boys CC had been formed and used as a front for unlawful business.

QUESTION 2 MARKS

5

Phiwe is one of the shareholders of GEP Fund Ltd. GEP Fund Ltd is a subsidiary of Global Investments Ltd. The legal manager of GEP Fund Ltd informs Phiwe that Global Investments Ltd has both a social and ethics committee and an audit committee. Advise Phiwe with reference to the Companies Act 71 of 2008, which companies must appoint the audit committee and whether or not GEP Ltd must appoint an audit committee. (5)

Maximum 5 marks 

Section 94 of the Companies Act 71 of 2008 had to be discussed and applied.



Conclusion: GEP Fund Ltd does not have to appoint an audit committee because it is a subsidiary of Global Investments Ltd who has already appointed an audit committee who will perform the necessary functions on behalf of the subsidiary company.

QUESTION 3 MARKS

15

The Memorandum of Incorporation of Pure Gold Ltd ('the company') provides that only the board of directors, or any director authorised by the board, has the power to conclude contracts on behalf of the company. It also states that any transaction that exceeds R50 million must first be authorised by the shareholders by the shareholders by way on an ordinary resolution. Maki, a director who is authorised by the board of directors to conclude contracts on behalf of the company, enters into a contract with Judith for the purchase of gold processing equipment to the value of R100 million, without first obtaining the authorisation for the purchase by the shareholders Judith knows about the provision in the Memorandum of Incorporation because she has dealt with the company before. However, she does not know that the transaction has not been authorised by an ordinary resolution of the company's shareholders.

2

CONFIDENTIAL PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 Discuss whether Pure Gold Ltd is bound by the contract concluded by Maki and Judith. (10)

3.1

Maximum 10 marks   3.2

The Turquand rule and section 20(7) of the Companies Act 71 of 2008 had to be discussed and applied to the facts. Conclusion: The company is bound to the contract.

Suppose that after seven years the board of directors of Pur e Gold Lt d has withdrawn Maki's authority to conclude contracts on behalf of the company by way of a board resolution and by amending the Memorandum of lncorporation of the company. However , the board of directors has allowed Maki to conclude contracts on behalf of the Pure Gold Ltd with Judith. One day, the board of directors suddenly argues that Maki is not authorised to conclude contracts on behalf of the company and that the contract concluded with Judith is invalid. With reference to the relevant authority and the facts, advise Judith on what she (10) must prove in order to hold Pure Gold Ltd bound by the contract.

10 marks   

Estoppel and the requirements for proof thereof had to be discussed and applied to the facts. Reference should have been made to Freeman and Lockyer v Buckhurst Part Properties (Mangal) Ltd.) Conclusion: Judith may have grounds to hold the company liable (or bound) based on estoppel.

QUESTION 4 MARKS

20

Molefe is an experienced quantity surveyor and he has extensive knowledge of the valuation of immovable property. He is approached to serve as a director of New House Properties (Pty) Ltd, a small company that deals in property speculation. Molefe agrees to serve as a director on the understanding that he will only contribute his knowledge of valuation and that he will not be involved with the day-to-day running of the company. Two years pass and Molefe has made significant contributions to the company in terms of property advice, but only when he has been asked to value a specific property. Molefe has never attended a formal board meeting during the two-year period and trusts the rest of the board with all other decisions. Molefe is informed by the managing director that it was decided at the previous evening’s board meeting that they should invest in a new property development. This development is in a rural area and Molefe warns that the potential for losses is always higher in such areas. However, the managing director insists that they must act swiftly otherwise the opportunity to 3

CONFIDENTIAL PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 invest may be lost. Molefe agrees that the company should take the risk and New House Properties (Pty) Ltd invests in the property development. After six months it becomes clear that the development is a failure. The loss incurred by the company is in the region of R4 million. 4.1

Molefe approaches you for legal advice because some of the shareholders want to take legal action on behalf of the company against the directors for breach of their duty of care and skill. Advise Molefe on the statutory provisions that the shareholders would rely on to hold him liable for a breach of his duty of care, skill and diligence and repayment of the loss suffered by New House Properties (Pty) Ltd. (5) 

4.2

Section 77(2)(a) and (b), Section 77(3)(b) and section 76(3)(c) (i) and (ii) of the Companies Act had to be discussed. Molefe is perplexed by the fact that he had only supported the decision to invest in the property development, because he had relied on information that was obtained from others and that he is now being held accountable. He also feels that there should be some defence available to him as he was only appointed as a nonexecutive director and he had supported the decision in good faith. Explain whether any of the arguments that Molefe raises can be used in his defence to avoid liability. (15)

Maximum 15 marks A director may rely on information provided by the following persons: 

One or more employees of the company whom the director reasonably believes to be reliable and competent in the functions performed. The information, opinions, reports or statements provided by legal counsel, accountants, or other professional persons retained by the company. The board or committee as to matters involving skills and expertise that the director reasonably believes are matters within the particular persons professional or competence or as to which the particular person merits confidence or a committee of the board of which the director is not a member, unless the director has a reason to believe that the actions of the committee do not merit confidence.



There is no general standard of expertise required from directors. However, it is accepted that directors should have at least some understanding of the business of the corporation, and be informed about its activities.



Reference should have been made to section 76(1) of the Companies Act.



Reference should have been made to case law: Cyberscene Ltd and others v i- kiosk internet and information (Pty) Ltd and Howard v Herrigel.



The business judgment rule in section 76(4) of the Companies Act had to be discussed and applied to the facts.

4

CONFIDENTIAL



PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 Conclusion: A director cannot rely on the protection of the business judgment rule if, like Molefe, he or she was not present as and when the decision to invest in a rural development was taken. He therefore also cannot rely on the application thereof as a defence.

QUESTION 5

6 MARKS

Bouwer Inc is a personal liability company that specialises in providing project- and construction management services. The company’s registered office is situated in the Hatfield, Pretoria. Riaan, Charles, Aubrey and William are the directors of Bouwer Inc. In order to ensure that the company does not deviate from its core business namely projectand construction management services the following clauses was inserted into the Memorandum of Incorporation: “Capacity



The company may not participate in any other trades or transactions besides for purposes of the provision of project- and construction management services.



The company may not enter any transaction for the purchase or sale of any immovable property outside the borders of the Gauteng Province.

Bouwer Inc has a substantial amount of cash in its bank account which does not yield much interest as a result of the low interest rate the Bouwer Inc’s bank offers. While on holiday in Port Elizabeth, Eastern Cape, William spotted a beach house for sale and though it would be a great investment for Bouwer Inc. William immediately, without the knowledge of the shareholders and directors, arranged an appointment with the owner of the beach house, Mr Williams, and concludes a contract for the purchase and sale of the beach house at a price of R800 000 on behalf of Bouwer Inc. When William arrives back at the office and informs the other directors of the transaction they are not impressed. Advise the board of Bouwer Inc whether the company can escape liability for performance in terms of the contract on the basis that the transactions falls beyond the capacity of the company. (6)

Maximum 6 marks 

Section 19(1) and 20(1) of the Companies Act had to be discussed and applied to the facts.



Mention should have been made to section 19(4) of the Companies Act.

Conclusion: The company cannot rely on the doctrine of constructive notice in this case as Mr Williams cannot be regarded as having had knowledge or received notice of the contents of the Memorandum of Incorporation because it has been filed or is accessible for inspection at the office of the company. Bouwer Inc cannot rely on a lack of capacity on the part of the company.

5

CONFIDENTIAL QUESTION 6

PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 5 MARKS

Cool Coals (Pty) Ltd operates within a poor community and made three times the usual profit at the end of 2020. The board of directors of Cool Coals (Pty) Ltd debates whether the company should issue university bursaries to learners who have completed grade 12 in 2020 in the community. Some of the directors are opposed to this view. They claim that the company should be managed exclusively in the interests of the shareholders with the result that: (a) the interests of other stakeholders such as the community and its grade 12 learners cannot be taken into account; and (b) all the profits of the company must be distributed to the shareholders of Cool Coals (Pty) Ltd. As the company secretary, the board of the company approaches you for advice. With reference to the principle of Ubuntu as expressed by Madala J in the case of S v Makwanyane 1995 (6) BCLR 665 (CC) and the facts in the scenario above, advise the board of Cool Coals (Pty) Ltd on whether the payment of university bursaries may be justified on the basis of the principle of Ubuntu, or whether the profits of the company should be distributed exclusively to its shareholders. (5) Maximum 5 marks  Ubuntu refers to the saying umuntu ngumuntu ngabantu, which means a person is a person through others.  In the case of S v Makwanyane 1995 (6) BCLR 665 (CC), Madala J expressed the view that ubuntu advocates social justice and fairness.  Conclusion: In the set of facts provided, the view of the directors that the company should be managed solely in the interests of the shareholders is not in line with the principle of ubuntu which advocates for social justice and fairness. This approach fails to acknowledge the responsibility of the company towards the community within which it operates. Based on the principle of ubuntu which promotes social justice and fairness, the company’s payment of bursaries can be justified.

QUESTION 7 MARKS

5

Briefly outline the procedure that must be followed to register a private company in terms of the Companies Act 71 of 2008. (5) 5 marks •

One or more persons may incorporate a private company. A copy of the Memorandum of Incorporation and the Notice of Incorporation must be lodged with the Companies and Intellectual Property Commission (Commission) and the prescribed fee must be paid.

QUESTION 8

5 MARKS

Lesedi and Sipiwe are the members of Private Investigators CC. Upon formation of the corporation they agree that their respective membership contributions will consist of cash 6

CONFIDENTIAL PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 only. Each member was required to contribute R100 000 and these amounts were duly recorded in the founding statement. Apart from the monetary contribution, Lesedi also entered into a lease agreement in terms of which he rents out a building he privately owns to the close corporation for use as an office. Sipiwe, who is a part-time student at UNISA, also enters into an employment contract with the close corporation. In terms of the contract of service he is required to be in the office to attend to the corporation’s day-to-day business. At a meeting of the members, Lesedi and Sipiwe decide that due to a lack of profits generated from sales, the corporation will repay each member 2% of their respective contributions to enable them to provide for personal needs. They further agree that the corporation will make some payments to them in respect of their respective rental and employment agreements. Advise the members of Private Investigators CC whether these payments meet the requirements in terms of the Close Corporations Act 69 of 1984. (5) Maximum 5 marks  Section 51 of the Close Corporations Act 69 of 1984 had to be discussed and applied to the facts.  Conclusion: The section 51 requirements do not apply in respect of payments made in the capacity as creditors. The requirements do not need to be adhered to in respect of the lease agreement and the employment contract. QUESTION 9 MARKS

12

Beauty wants to subscribe for shares in Gangnam’s Tile Ltd. She is not in a financial position to do so without acquiring a loan. She obtains a loan from Lone Shark Bank and Gangnam’s Tile Ltd agrees to stand surety for the loan. Advise the board of directors of Gangnam’s Tile Ltd whether the company has provided financial assistance as envisaged in terms of the Companies Act 71 of 2008. Refer to relevant case law. (12) Maximum 12 marks  Reference should have been made to section 44 of the Companies Act.  Relevant case law had to be discussed and applied to the facts: Lipschitz v UDC Bank Ltd 1979 (1) SA 789 (A) and Gradwell (Pty) Ltd v Rostra Printers Ltd 1959 (4) SA 419 (A)  Conclusion: In this case the transactions pass both tests as laid down in the case law, in other words financial assistance is provided for the purchase of the company’s shares. QUESTION 10 MARKS

10

Briefly explain, with reference to relevant authority, the scope of discretion that a court has in making an order to assist a member whose rights are unfairly and prejudicially affected by a close corporation’s conduct or by the conduct of one or more of the other members. (10) 10 marks 7

CONFIDENTIAL PORTFOLIO MRL2601 SEPTEMBER OCTOBER 2021 • Section 49 of the Close Corporations Act 69 of 1984 should have been discussed. Reference should have been made to relevant case law: • Gatenby v Gatenby [1996] (3) SA 118 (E) • De Franca v Exhaust Pro CC [1996]4 All SA 503 (SE) • Kanakia v Ritzshelf 1004 CC t/a Passage to India • Feni v Gxothiwe & another 2014 (1) SA 5 (ECG).

TOTAL: 100 marks

8...