AUE1601 EXAM PACK
PAST QUESTIONS AND SOLUTIONS 2012-2013 www.gimmenotes.co.za
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Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
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MAY/JUNE 2012 QUESTION 1 1.1 As a computer services(Pty) is a private company, its MOI x Will prohibit it from offering the shares to a public company x Will restrict the transferability of its shares 1.2 in making the issue the board will have to consider any requirements in the MOI related to the proposed issue. x In terms of the section 39(3) each existing shareholder of Computer Services (Pty) ltd has a right, before any other person who is not a shareholder of computer Services (Pty) Ltd, to be offered ,and to subscribe for, a percentage of the shareholders general voting rights before the offer was made x The companies MOI may limit, negate, restrict or place restrictions on this right x In terms of section 39(4), if the shares are offered to the existing shareholders as stated above the shareholders may subscribe for fewer shares than entitled to and those shares not subscribed for by the existing shareholders within a reasonable time, x may be offered to other persons such as directors in the scenario 1.2 SHARES AVAILABLE FOR ISSUE %POSSIBLE AMENDMENTS TO MOI 1.2.1 Computer services (Pty) Ltd’s MOI sets out the number and class of authorized to the MOI will have to be made 1.2.2 in terms of section36(3) the board may increase the number of authorized shares except to the extent the MOI provides * the board may amend the MOI. 1.2.3 since the amendment to MOI is made, the company must file a Notice of Amendment to its MOI with CIPC
1.3 AUTHORITY REQUIRED FOR THE SHARE ISSUE 1. 3.1THE BOARD OF Computer services (pty) Ltd may resolve to issue more shares at any time but only within the class and to the extend the shares have been authorized. 1.4 REQUIREMENTS APPLICABLE WHERE SHARES OF NO PAR VALUE ARE ISSUED AND THE CONSIDERATION FOR THE ISSUED SHARES 1.4.1 In the terms of the companies Act 2008 shares have no par value
1.4.1 the in of section 40 the board must determine the consideration for which the share will be issued –this must be adequate consideration from the perspective of the company 1.4.2 the consideration determined by the directors can’t be challenged other than on the basis that the that the directors did not act in good faith in the best interests of the company and with the degree of skill and diligence reasonable reasonably excepted of a director.
1.5.1REQUIREMENTS WHERE SOME SHARES ARE ISSUED TO DIRECTIORS 1.5.1 in terms of the section 41 this issue of shares must be approved by a special resolution of the shareholders because its intended that some of the shares be issued to the directors * in certain instances special resolution is not required, however that does not apply in this situation since -the directors do not have pre-emptive right as they are not shareholders -the issue is not pursuant to an employee share scheme or underwriting agreement -the issue is not proportion to existing holdings
1.6 *REQUIREMENTS REGARDING NOTICES FOR THE MEETING WHERE THE ISSUE OF SHARES TO DIRECTORS IS TO BE 1.6.1 AS THERE IS A NEED TO HOLD A SHAREHOLDERS MEETING TO PASSA SPECIAL RESO;UTION, THE BOARD WIL HAVE TOPROVIDE ALL SHAREHOLDRES WITH WRITTEN NOTICE *OF the date and time and place of the meeting *The specific purpose of the meeting *the percentage of voting rights required for the special resolution *that the shareholder entitled to vote, may appoint a proxy *That satisfactory identification will be required from shareholders to attend 1.6.2 this written notice must be given at least 10 business days before the meeting is to begin
1.7 QUORUM REQUIREMENTS FOR THE MEETING TO BOVE AND RELATED MATTERS IN DETERMINATION TO ABOVE AND RELATED MATTERS IN DETERMINATION OF THE VALIDITY OF THE PERSONS MAKING UPTHE QUORUM 1.7.1 The meeting to pass this resolution may only begin if 25% of the voting entitled to vote on the least of the matter to be decided at the meeting are present SECTION64(10(a) 1.7.1 for the debate to commence on the share issue resolution there must be holders of at least 25%
of the shares entitled to vote on the share issue present when the matter is called on the agenda. For a computer services (Pty) Ltd this means holders of at least 25% of the existing ordinary shares 1.7.2 As Computer Services (Pty0 Ltd has more than two shareholders, the meeting may not begin or a matter begin to be debated, unless the least three shareholders are present at the meeting 1.7.3 At the commencement of the meeting, shareholders identities must be verified and their right to attend or participate verified. The presiding over the meeting must be satisfied with the validity of the shareholders identities
1.8 REQUIREMENTS REGARDING THE CONTENT OF THE RESOLUTION TO BE VOTED UPON 1.8.1The proposed resolution must be sufficiently clear and clear, and must be accompanied by sufficient information to enable a shareholder to decide whether to participate in the meeting and “influence of the outcome” of the vote on the resolution.
1.9 VOTING RIGHTS REQUIRED TO BE EXERCISED FOR A VALID RESOLUTION 1.9.1 For the special resolution on the share issue to be passed, it must be supported by at least 75% of the voting rights exercised on the resolution. (Note: the MOl may stipulate a lower (or higher) percentage but the difference between the percentage for an ordinary and special resolution, must be at least 10%). 1.9.2 Voting should be by poll (not on a show of hands). Voting by poll enables those shareholders with larger shareholdings to have more influence on the vote.
1.10 SECRETARIAL REQUIREMENTS AFTER RECEIVING THE CONSIDERATION FOR THE
SHARES 1.10.1 When Computer Services (Pty) Ltd has received the consideration for the shares (s40(4)) ... 1.10.1.1 the shares are regarded as fully paid up and
1.10.1.2 the company must issue share certificates in the name of the new shareholder and 1.10.1.3 enter the details of new shareholders/shareholdings in the company's share (securities ) register, e.g. name, address and number of shares.
QUESTION 2
2.1 2.1.1 In terms of the Companies Act 2008 (section 76) ... 2.1.1.1 Greg O'Reilly should have communicated to the board of Shipping Engineers (Pty) Ltd at the earliest practicable opportunity, any information which was material to Technical Systems (Pty) Ltd e.g. it would be important for the board to know that Greg and Brian are related as a R7.5 million deal could be influenced by the relationship. 2.1.1.2 Greg O'Reilly must at all times perform his function and exercise his powers as a director ... 2.1.1.3.1 in good faith 2.1.1.3.2 in the best interests of the company. 2.1.2 In effect Greg O'Reilly had a conflict of interest the company or his brother. 2.1.3 In terms of section 75 of the Companies Act 2008, if Greg O'Reilly had a personal financial interest in the matter to be considered at a meeting of the board (sale of the radar systems) or had known that a related person had a personal financial interest, he should have:
2.1.3.1 disclosed the interest and its general nature before the matter was considered at the meeting. 2.1.3.3 disclosed any observations or pertinent insights into the matter if he had been requested to do so by the other directors. 2.1.3.4 left the meeting (if he was present) immediately after making the disclosures to the meeting and 2.1.3.5 have taken no further part in the meeting and 2.1.3.6 would not have voted on the decision. 2.1.4 As Greg and Brian O'Reilly are brothers, they are regarded as related for the purposes of the Companies Act 2008, as they are within two degrees of consanguinity. (1%) 2.1.5 In terms of section 76(2) (b) the information need only be disclosed if it is material. A R7.5 million contracts would probably
be regarded as material.
2.2 2.2.1The meeting of shareholders to ratify the contract can be held by electronic communication provided 2.2.1.1 the company is not prohibited by its MOl from conducting the meeting by electronic communication. 2.2.2 In terms of section 63, one or more shareholders (or their proxies) may participate in an electronic meeting, provided 2.2.2.1 the electronic communication employed ordinarily enables all persons participating in that meeting, to communicate concurrently with each other without an intermediary and to participate reasonably effectively in the meeting. 2.2.3 The notice of the meeting must inform shareholders of the availability of that form of participation and provide the necessary information to enable shareholders (proxies) to access the available medium (cost to be borne by the shareholder). 2.3 Voting by a show of hands each shareholder (or proxy) has one vote irrespective of number of shares held by the shareholder. Voting by a poll shareholder (or proxy) must be allowed to exercise all the voting rights attached to the shares held by the shareholder. 2.4 In terms of section 46, Shipping Engineers (Pty) Ltd must not make any proposed distribution unless (a) the distribution
(i) is pursuant to an existing legal obligation (not applicable) of the company, or a court order (not applicable); 2.4.1 ii the board of the company has the distribution (b) It is reasonably appears that the company will satisfy the satisfy the solvency and liquidity test immediately after completing the processed distribution
© the board of shipping Engineers (Pty) Ltd resolution has acknowledged that it has applied the solvency and liquidity test, and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution Shipping Engineers does not satisfy the solvency and liquidity test after making a dividend distribution, considering all reasonable foreseeable financial circumstances of the company Liabilities (5000000) of the company fairly valued exceed the (4000000) of the company fairly valued Shipping Ltd is not liquid since the current liabilities (3000000) exceed current assets (1000000) Based on the information the dividend distribution will be illegal since it does not satisfy the solvency test and liquidity requirement thereby breach of section 46 of the Companies Act 2008
QUESTION 3 3.1 1 If John Smith is to have the audit requirement include in the Company’s Memorandum of Incorporation (MOI), the MOI will have to be amended in terms of the Act 2 A special resolution to amend the MOI is required 3If the resolution is passed, a Notice of amendment must be filed with CIPC
3.2THE REQUIERMENTS APPLICABLE TO APPOINTING AN AUDIT COMMITTEE IN TERMS OF THE COMPANIES ACT2008 3.2 1THE COMPANIES Act does not require a private to appoint an audit committee but according to the information Painters (Pty) Ltd’s MOI does not require such an appointment 1.1 shareholders must appoint the audit committee at each annual general meeting 1.2 The audit committee must consist of at least 3 members 1.4 Each member must be a director of the company 1.5each member must satisfy the minimum qualifications prescribed by the ministers to ensure that the audit committee taken as a whole, compromises persons with adequate financial knowledge and experience. Regulation 42 requires that at least one third of the members of the audit committee have academic qualifications or experience in economics law accounting corporate governance etc.
1.6Members of the audit committee must not be *involved in the day to day of the company or have been so involved at any time during the previous financial year *a prescribed officer or a full time employee of Painters (Pty) Ltd or have held such post at any time during the previous three financial years * a material supplier or customer of the company, such that a reasonable and informed third party would conclude that , in any circumstances , the integrity impartially or objectivity of that member of the audit committee would be compromised *a “related person” to any person subject to these prohibitions
3.2THE DUTIES PF THE AUDIT COMMITTEE IN TERMS OF THE COMPANIES ACT 2008 ARE TO…. 2.1 Nominate a registered auditor by the share-holders 2.2 determine the auditor fees and terms of engagement 2.3ensure the appointment of the auditor complies with the companies Act & auditing Profession Act 2.4 determine the nature and extent of any non-audit services the auditor for the these services 2.5 prepare a report to be included in the AFS which *describes how the audit committee carried out its function *states whether the auditor was independent to the company *comments in any way the committee considers appropriate of the financial statements the accounting practices and internal controls of the company 2.6 receive and deal with appropriately, any concerns of complaints relating to *the accounting practices and internal audit of the company *the content or audit of the AFS *internal financial controls Or any related matters 2.7 make submissions to the board on any matters dealt with above 2.8 perform other functions determined by the board
3.3 ADVISE JOHN SMITH ON WHETHER RYAN HANSEN COULLD BE REMOVED AS A DIRECTOR OF PAINTERS (PTY) LTD 1 If the MOI contained a clause which designated an individual e.g. John Smith in his capacity as CEO the power to remove RYAN Hansen from the board, that power could be exercised .2 Ryan Hansen can also be removed by an ordinary resolution of the shareholders at any general meeting 3 Ryan Hansen may also be removed if a shareholder or a fellow director alleg , interlia, that he has been negligent or derelict in his duties as a director The board may vote and the allegation on his removal 4 Whatever “method “of removing Ryan Hansen is attempted he must be affordable the chance to defend himself 4.1 He must be given notice of the meeting 10 business days and a copy of the resolution to remove him 4.2 He must be given an opportunity to represent himself before the voting takes place 5 Where Ryan Hansen is to be removed by the board, he may not vote on his removal For the removal needs to accept, the majority of the directors voting would need to vote in favor 6 If Ryan Hansen is removed by the board, he has 20business days to go to court for a review 7 If he is not removed, any director or shareholder who voted to have him removed, may go to court for a review 20 business day
3.4 Lee Westwood : not suitable for appointment as he is in terms of the IRBA code of Professional Conduct, not independent as he is the brother of one of the major shareholders of Painters (Pty) Ltd In terms of section (90)(20(c0 of the companies act an auditor must be acceptable to the company’s audit committee as being independent of the company and according to the above given information, he is not independent Fin Advisors not suitable for appointment as the company could not be registered with the IRBA and therefore cannot conduct audits {section 90 (2)(a0 The reason that the company could not be registered with IRBA is that for any incorporated practice to register as an audit company all shareholders must be registered auditors; Anne Naidoo is a lawyer and obviously not qualified for registered with IRBA.
Tel : 0127704239 www.grtutorials.co.za email:
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Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
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OCT/NOV 2012 QUESTION 1 1.1a) Turnover employees
1200000 50
2 Average
50
Every security holder
102
Third party liabilities
500000
102 0 154
The public interest score for Mastering Chef is 154 Revision: x 1 point for R1mil turnover x 1 point for an employee (based on the average number of employees employed during the year x 1 point to every security holder of the company (shareholders) x 1 point for R1mil or part thereof owed to third party (e. g banks) b) The public score of Mastering chef is 154 therefore: -in terms of the companies act, a company with a public interest score of at least 100 but less than 350 and with financial statements not internally compiled requires a review. -also a company with a public interest score of at least 100 but less than 350 and financial statements that are internally compiled require an audit by a registered auditor Mastering Chef requires an audit because its financial statements are prepared internally by Michael Knife 1.2a) Appointing an auditor x A public company must appoint an individual or a firm as an auditor at their AGM x Must be a registered auditor Must not be: -a director or prescribed officer of a company -an employee/consultant who has been engaged for more than one year in the maintenance of
financial records or preparation of financial statements of the company -a person performing duties of an accountant or secretarial work for the company -a person who at any time during the five financial years preceding the date of appointment was any of the above -a person related to any of the above b) Michael Knife- not permissible as he is the financial director of Mastering Chef x Adam Fork- not permissible as he is the managing director of Mastering Chef x Marion Fork- not permissible as she is not an independent auditor because she is related to Adam Fork (managing director) x No Repeat Incorporated- permissible as no employee of No Repeat has any relationship with Mastering Chef 1.3) MOI may be amended in accordance with the companies act if: -there are new shareholders in the company and they wish to change the name -the name is similar to any other company’s name and they are asked to change it -they wish to change their company from e.g. a private company to a public company 1.4) Shareholders and directors -the company and shareholders agreements -company must be consistent with the provision of the act
QUESTION 2 2.1) Yes there are related parties. Wasseem Crossing has a direct control over I-Roll, holds 60% of the shares therefore I-Roll is its subsidiary 2.2) Granting a loan to a person related to a director is legal when the company meets all the requirements in the companies act x Conditions or restrictions in the MOI: -it does not apply when the primary business is lending of money -it does not apply if the loan is to cover legal costs relating to the company -it does not apply if it is to cover expenses paid on behalf of the company x Solvency and liquidity: -Minnesh Crossing satisfy the solvency and liquidity tes -the current assets are exceeding the current liabilities -Minnesh Crossing’s net asset value is R8mil
-Minnesh Crossing is in a liquid state, they are able to pay their debts and obligations as they become due -Minnesh Crossing can lead money to I-Roll as financial assistance x Authorisation to approve the loan -the board of directors must approve the loan -Minnesh must meet MOI requirements -a special resolution must be obtained within the previous 2 years -the loan must be fair and reasonable towards the company x Requirements to give notice of the resolution: -the date, time and place of the meeting -purpose of the meeting -copy of proposed resolution -percentage of votes (when a special resolution is required) -the rights of the shareholders (that they may appoint a proxy) -that the shareholders must provide identification at the meeting -a meeting may commence if 25% of shareholders who are able to vote are available x The granting of the loan was legal as it was approved by directors and it meets the solvency and liquidity test 2.3) In terms of the companies act: x The director may be removed by an ordinary resolution unless stated otherwise in the MOI x The director must be given notice of the meeting and resolution to remove him x Must be offered the opportunity to make a presentation to the meeting before voting takes place x Where a shareholder or a director alleges that a fellow director: -has become ineligible or disqualified -is incapacitated to perform as a director -neglected his/her duties or have been derelict as director x The board may vote on the removal of the director x The director may not vote on his removal x Director must still be given notice and an opportunity for representation x The director may apply (within 20days) to the court for a review x This cannot apply to companies with fewer than 3 directors
QUESTION 3
3.1.1) Authority to issue shares x Barking Mad is a public company, its MOI -will not prohibit it from offering shares to the public, and -will not restrict the transferability of its shares. -in making the issue, the board will have to consider any requirements in the MOI related to the proposed issue. For example, the rights of existing shareholders of Barking Mad 3.1.2) Authorised shares available for issue The board of directors of Barking Mad has the authority to issue shares as far as those shares are authorised in the MOI of barking mad. The decision is exercised by means of board resolution Unless if the shares are issued to the director or a prescribed officer or a person related to a director or prescribed officer then a special resolution of shareholders is required 3.1.3) Consideration of the shares In terms of the companies act, share have no par value. 6The board must determine the consideration of shares for which the shares will be issued, this must be an adequate consideration from the perspective of the company. The consideration determined by the directors cannot be charged other than basis that the directors did not act in good faith in the best interest of the company and with the degree of skill and diligence reasonably expected of a director. 3.1.4) Shares issued to Anamalia Authorised share capital 100000 Issued share capital (80000) Available shares for issuing 20000 x Barking mad is making a decision to issue 30000 shares of which they only have 20000 shares available According to the companies act, the board may increase the number of authorised shares and this can be decided by the board except to the extent that the MOI provides otherwise. Since an amendment to the MOI is made, Barking mad must file a Notice of Amendment to MOI with CIPC 3.1.5) Voting requirements for a special resolution to be approved by shareholders For a special resolution on shares to be passed, it must be supported by at least 75% of the voting rights exercised by the resolution Voting should be by poll. Voting by poll enables those shareholders with larger shareholdings to have more influence on the vote 3.1.6) Notice of the shareholders meeting As there is a need to hold a shareholders meeting to pass a special resolution, the board will have to provide all shareholders with written notice x Of the date, time and place of the meeting x The purpose of the meeting
x The percentage of the voting rights required for a special resolution This notice must be given at least 10 business days before the meeting is to begin. 3.1.7) Requirements for a shareholders meeting quorum The meeting to pass this resolution may only begin if 25% of voting rights to be entitled to be voted at least one matter to be decided at the meeting. Before deliberation of the matter commences 25% of shareholders who are able to vote on the matter must be present At the commencement of the meeting, shareholders identities must be verified and their right to attend or participate verified. The person presiding over the meeting must be satisfied with the validities of the shareholders identities. 3.2.1) Share buy-backs In terms of the companies act: x A company or its subsidiary may buy back the shares of the company x This is authorised by the board resolution of a company or board resolution of the subsidiary x Unless the shares are bought back from the director or any person related to the director then a special resolution of the shareholders is required. x After the shares are bought back there must still be shares of the same class and type. x All subsidiaries of the company must not, in aggregate, hold more than 10% of the shares of the company x Subsidiaries may not exercise voting rights in terms of these shares 3.2.2) Information based on the scenario The acquisition of Backing mad shares by Barking mad and Multivet is illegal because the financial statements of Barking mad does not meet the solvency and liquidity test LIQUIDITY TEST x The current assets must exceed the current liabilities (5000000-9000000=4000000) therefore Barking mad does not satisfy the liquidity test x Barking mad is not in a position whereby to pay-off its short term debts and obligations SOLVENCY TEST x The non-current assets must exceed the non-current liabilities (40000006000000=-2000000) therefore the non-current liabilities exceed the non-current assets so Barking mad does not satisfy the solvency test. In terms of the companies act: x Barking mad may repurchase its own shares (a share buyback) provided that they meet the solvency and liquidity test. x The company can buy shares in its holding company (a share buy in) provided that the number of shares in the holding company held by all its subsidiaries collectively does not exceed 10% of the number of issued shares of any class of shares in the holding company x A share buy in may be authorised by the board without any need of the shareholder approval.
Again, this is different from the current companies act which would require a special resolution (of either the subsidiary or holding company-the current companies act is not clear) for a share buy-in. CONCLUSION x Barking mad is contravening the liquidity and solvency test therefore it breaching the companies act x The board of directors will be liable for any losses incurred regarding this buy back of shares 3.3.1) PRE-INCORPORATION CONTRACTS In terms of the companies act, pre-incorporation contracts: x Must be in writing x After incorporation the directors have three months to ratify or reject the contract\ x After three months have expired the contract automatically ratified x If the company is not incorporated, the person who entered into the contract will be personally liable x If the contract is rejected, the person who entered into the contract will be liable but may also claim any benefits already received from the company. x If a company rejects an agreement, a person who bears any liability for that reject agreement or action may assert a claim against the company for any benefits it has received, or is entitled to receive, in terms of the agreement or action CONSEQUENCES CONCERNING PRE-INCORPORATED CONTRACTS x If the company is finally incorporated there are a number of possibilities as to the consequences of the pre-incorporated contracts
x x x x
The company can fully ratify the contract If the company fully ratifies the contract it is bound by the contract for all purposes If it partially ratifies the contract it’s bound to extend the ratification, the person will be jointly and severally liable for the remainder of the contract not ratified. If the company rejects the contract in its totality the person responsible for signing the contract will be jointly and severally liable for the contract. Same applies if the company’s incorporati on fails.
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AUE1601-May/June2013
QUESTION 1 Yes. Andrew Webber and Eva Peron are living together in a relationship similar to marriage. 1.1 i)True. When a company is able to pay its debts it meets the solvency and liquidity test. ii)False. The quorum for all shareholders’ meetings is the presence at the meeting of the holders of at least 25% of the shares entitled to vote. 1.2 False. A personal liability company is not entitled to the MOI. The MOI is for the private, state and public companies. 1.3 False a personal liability company is not entitled to the MOI.the MOI is for the Public company and any oher companies that are juristic person. 1.4 i) True. An increase of shares to be issued must be passed by a special resolution and alteration of increasing authorised shares must be voted for. ii) True. Rights, limitations and class of shares may be altered in the MOI if the board of directors or shareholders approve iii) False. Cats may hold any number of shares but may not sell all the shares (share buy-back) 10% to Webber Productions 1.5) No, it’s not allowed until they liquidate the company and form a new company. Companies may not change to a close corporation
QUESTION 2 2.1) i) In terms of the companies act: •
the board of directors have the authority to issue shares as far as those are authorized in the MOI of the company
• •
this is exercised by the board resolution unless if shares are issued to directors or future directors or a prescribed officer/ future prescribed officer or to a person related to a director or a prescribed officer then a special resolution of shareholders is required
•
notice and quorum requirements must be adhered to regarding the board meeting and resolution
•
in terms of section 38 if the board issues shares which have not been authorized or which are in excess of the number of authorized shares per MOI -the issue may be retroactively ratified by special resolution(sec36)
•
in terms of section 36 the authorization, classification and number of authorized shares as well as the preference rights and limitations MAY BE CHANGED ONLY BY:
•
an amendment to the MOI by special resolution of the shareholders or
•
the board of a company in the manner contemplated in section 36 -except to the extent that the MOI provides otherwise
•
Bond Ltd has unissued authorized ordinary shares of 50000 and they want to issue 200000shares.
•
And there for the 150000shares are exceeding the authorized unissued shares as per the MOI
•
Bond Ltd must increase the authorized share capital. -if the board of a company acts pursuant to its authority contemplated in section 36(3) the company must file a Notice of Amendment of its MOI ,setting out the changes effected by the board.
Consideration for the shares -in terms of section 40 the board may issue authorized shares only for adequate consideration to the company as determined by the board. -before a company issues any particular shares, the board must determine the consideration and the terms on which those shares will be issued. -the shares will be issued at the current market value, which can be regarded as adequate consideration as determined by the board
2.2 Mr Craig’s financial interest in the acquisition of the Fox Pictures shares by Bond Ltd Theory In terms of section 75(4), if a director has interest in respect of any matter to be considered at a meeting of the board or knows that a relate d person has a financial persona interest in the matter the director *must disclose the interest and its general nature before the matter is considered at the meeting * must disclose to the meeting any known material information relating to the matter * May disclose any observations /pertinent insights relating to the matter if requested to do so by the other directors If present at the meeting, must leave the meeting immediately after making any disclosures as indicated above, and -Must not take in the consideration of the matter While absent from the meeting *Is to be regarded as being present at the meeting for the purpose of determining whether sufficient directors are present to constitute the meeting and *Is not to be regarded as being present at the meeting for the purpose of determining whether a resolution has sufficient support to be adopted -Must not execute any document on behalf of the company in relation to the matter unless specifically requested to do so by the board - In terms of section (73)(6) any declaration given by notice or made by a director as required by section75 must be included in the minutes of the minutes of the board meeting APPLICATION *Mr Craig, the managing director has a personal financial interest in the acquisition of the Fox Pictures by Bond Ltd *Since he is a holder of 20% of the shares in Fox Pictures *Mr Craig discloses his financial interest and its general nature before the matter was considered at the meeting *Nobody required any further information therefore the requirement that any insights may be disclosed if requested by the other directors was complied with
*Mr Craig should leave the meeting immediately after making disclosures because the voting are to be done *Mr Craig voted on the meeting therefore took part in the consideration of his matter Based on the information provided the requirements in terms of section 75(5)(d)9e)(f) were not met ,therefore the decision of the board constitutes a breach of the Companies Act 2008 as amended
2.3) The transaction is in fact the selling of the greater part of the company’s •
assets.
The MOI must provide for such transactions -in terms of section 112, a company may not dispose of all or the greater part of its asset unless the disposal has been approved by a special resolution of the shareholders and;
•
Section 112 also provides that the notice of the meeting of shareholders for considering the special resolution must be delivered within the prescribed time and in the prescribed manner to each shareholder
•
Each notice must be accompanied by: -a written summary of the precise terms of the transaction considered at the meeting -reference to the provisions of section 115 and -reference to section 164(indicating shareholders rights should the special resolution be passed but where there are dissenting shareholders)
•
Any part of the asset of the company to be disposed of as contemplated in section 112 must be fairly valued as calculated in the prescribed manner as at the date of the proposal in accordance with the financial reporting standards 2.4) Disposal of the machine -directors may not dispose of a machine without a special resolution taken by the shareholders -if the directors are minors, they will not have sufficient voting rights on their own -the directors need to give 10 business days notice of the meeting to the shareholders -the notice must include a written summary of the terms of the transaction -unless the MOI stipulates a different percentage, the resolution must be passed by 75% of the voting rights present in person or proxy 2.5) Solvency Test
•
Assets fairly valued =/> liabilities fairly valued Liquidity Test
•
A company can pay its debts as they become due in the normal course of business for a period of 12months
•
Current assets fairly valued=/> current liabilities fairly valued Scenario
• •
The company’s total assets should exceed the total liabilities(35mil-20mil=15mil) Total current assets exceed total current liabilities by 7million
•
Bond Ltd is in a position of paying its debts as they become due and their obligation as they become due
•
Bond Ltd meets the liquidity and solvency test therefore it can declare the dividend
2.6) Declaration of a dividend In terms of section 46, a company must not make any proposed distribution unless: •
The distribution -is pursuant to an existing legal obligation of the company or a court order -the board of the company by resolution has authorized the distribution
•
It reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution
•
The board of the company by resolution has acknowledged that it has applied the solvency and liquidity test and reasonable concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.
•
APPLICATION -Bond Ltd satisfy the solvency requirements are making the dividend distribution -the assets of the company fairly valued exceed the liabilities of the company fairly valued -Bond Ltd is liquid since its current assets exceed the current liabilities by 7mil -based on information provided the dividend distribution will be legal since it satisfies the solvency and liquidity test, therefore its not breaching the section 46 of the companies act as amended
2.7) In terms of the companies act, resignation of a company secretary: -must give one month notice -notice must be in writing -may be less than one month if the board of directors approves -if removal from the office, may request to include a presentation of his or her removal in the AFS -notice of removal/resignation must be filed within 10days •
2.8) The candidate that can be permitted is the Quantum of Solace because: in terms of the companies act, a company secretary can be appointed if the company is a juristic person or a partnership if: -no partner or employee is disqualified to be a director -at least one employee is a resident in RSA -at least one employee or partner has requisite knowledge and experience Quantum of Solace(Pty) Ltd's managing director Mr. Dalton lives in SA and was once a company secretary of a few well-known companies therefore he has experience.
2.9) Duties of a company secretary: -record minutes -make directors aware of the relevant laws -provide directors with guidance regarding duties, responsibilities and powers -report failure of company or directors to comply with the act or MOI -certify in AFS that returns and notices have been filed, are true, correct and up to date -distribute a copy of the AFS to all the individuals entitled to receive it
QUESTION 3 3.1) Yes a vacancy may arise. In terms of the companies act an auditor must not be:
-involved in the day to day running of the business -a prescribed officer 3.2) Yes because it is a public company it ends with a LTD. All companies by mandatory must have an audit committe 3.3) Composition of the audit committe in terms of the companies act: -at 3 members -must be directors -must adhere to minimum qualifications prescribed -must have adequate financial knowledge and experience MUST NOT: -be involved in the day to day management -be a material supplier or customer of the company -be a person related to the above
APPLICATION: -Mr. Spencer is a director therefore he qualifies -His son is related to Mr. Spencer a director and has chaired in the audit committe in the past, he does not qualify -Ms. Sarah Ferguson is a major customer therefore she does not qualify
3.4) -turnover every R1mil -every employee average number -every security holder -every R1mil third party liabilities
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
Tel : 0127704239 www.grtutorials.co.za email:
[email protected] Cell : 0710354903
OCTOBER/NOV2013 QUESTION 1 1.1)-Financial assistance to purchase shares -issuing shares to director or prescribe officer -financial assistance to directors/related parties to directors -sale of the greater part of the asset 1.2)i) at least one director Ii) the owner is the director ii) at least 3 directors
iv) minimum of 3 directors 1.3)-juristic person -a person prohibited by the court -unemancipated minor -any person not meeting the requirements of the MOI -a person removed from a previous position due to misconduct that involved dishonesty 1.4)i)No, a company secretary who is not a director cannot be included
Ii) No, the auditor is not included iii) Yes, he is the financial director 1.5) Unless the director believes that the info is immaterial to the company 1.6)i) true, auditors must have access to the accounting records, documents and storage warehouses of the company ii) false, the auditor attends shareholders meetings not directors meeting iii) true, auditor should be notified and communicated with concerning transactions conducted by the company
1. 7)-special resolutions of shareholders must be obtained -shareholders must receive notice of the plan to sell the asset which should be included in addition to the info that must always be on the notice -written summary of the transactions -sale value must be fair towards the company 1.8) Yes, in terms of the companies act all public companies must be audited 1.9) if it does not satisfy the solvency and liquidity test
if a company is in no condition to
pay its debt and obligation as they become due
QUESTION 2 2.1) Reckless trading -Rocknroll Ltd will not satisfy the solvency test considering all foreseeable financial circumstances of the company. The assets of the company (8mil) do not exceed the liabilities (10mil). -Rocknroll is not liquid, current liabilities exceed current assets -Rocknroll is therefore trading recklessly and is in contravention with the companies act 2.2)i)In terms of the companies act ,financial assistance to Mr Elton John: -must be approved by the directors -must meet MOI requirements -must be fair and reasonable towards the company -must give notice to unions -must give notice to shareholders -a special resolution must have been obtained within the previous 2years ii)Ms. Monroe did not give notice to the shareholders and she approved the loan even though Rocknroll does not satisfy the solvency and liquidity test. In terms of the companies act the loan does not apply when:
-the primary business is lending of money -the loan is to cover legal costs relating to rocknroll -the loan is to cover expenses paid on behalf of rocknroll Ms. Monroe will be liable if rocknroll suffer any losses
-she did not consult shareholders or directors when approving the loan Iii) The granting of the loan was illegal as it was in contravention with the companies act
2.3) Appointing an auditor •
In terms of section 91,if a vacancy arises of an auditor of a company the board of the company:
-must appoint an auditor within 40 business days of incorporation -directors must nominate at least one auditor within 15 days of the vacancy -the audit committe has 5 business days to reject the newly appointed auditor in writing
2.4) Duties of audit committe: -nominate auditor for appointment, determine the fees and conditions of audit -ensure appointment of auditor meets legal requirements -determine nature and extent of non-audit service -approve agreement with auditor non audit services -compile reports to be included in the AFS including: >internal controls
>whether there are satisfied that auditor is independent >comment on the financial statements and internal control -deals with any concerns regarding >internal controls >accounting practices and internal audit -make presentation to the directors regarding accounting practice, financial controls, records and reporting
-perform other functions as required by the board of directors 2.5) REMOVAL OF DIRECTORS Where a shareholder or director alleges that a fellow director: -has become ineligible or disqualified -is incapacitated to perform as a director
-neglected his/her duty or have been derelict as director x The board must consider the allegation x The board may vote on the removal of the director x The director may not vote on his removal x The director must still be give notice and an opportunity for representation x The director may apply (within 20 days) to court for a review APPLICATION In terms of the companies act: A director may be removed from the board -Requirements of the companies act: >if the shareholders wish to remove a director, they must pass the ordinary resolution. The majority of the voting rights held by the shareholders who had who had the right to vote upon Ms. Monroe appointment must support her removal >however, if the shareholders wish to remove Ms. Monroe they must give at least 10 business day’s notice of the meeting and that there are intending to remove her >before the meeting votes on her removal, the shareholders should give her or her representative a reasonable opportunity to make a presentation on her removal
QUESTION 3 3.1) Special resolution of the shareholders is required when issuing shares to the director 3.2) Shareholders meetings and resolutions •
Notice of a shareholders meetings should be issued at least 10 days before the meeting is to be held
•
Notice should include: -date, time and place of meeting -purpose of meeting -copy of proposed resolutions -percentage of votes (when a special resolution is required) -the rights of the shareholders (that they may appoint a proxy) -that the shareholders must provide identification at the meeting
•
A meeting may only commence if 25% of shareholders who are able to vote are present
Topic 2 Solvency and Liquidity Memorandum of Incorporation (MOI) • Incorporation Solvency test document of a company that includes not dealt with the Companies Act as well as • aspects Assets fairly valued =/>inLiabilities fairly valued • alterations to certain aspects that are dealt with in the Companies Act (stricter requirements, additional prohibitions etc.).
Liquidity test
• Company can pay its debts contracts •Pre-Incorporation As it become due • Must in writing In thebe normal course of business ( i.e. if it is a fruit and veg company, this would mean that their normal coursethe of directors business has is selling fruit and – or e.g.reject not selling their building • After incorporation three month s toveg ratify the contract (confirm and the their cars and obtaining additional loans etc.) contract) For a three periodmonths of 12 months • After have expired the contract becomes automatically ratified Current assets fairly =/> Current the liabilities fairly valued • If the company is valued not incorporated, person who entered into the contract will be personally liable •Solvency If the contract is rejected theare person entered into the contract will be liable, but may also and Liquidity tests usedwho when claim any benefits already received from the company. • Buying back shares • Granting financial assistance • Declaring a dividend (distributions ).
Topic 2 Categories Reckless trading of Companies A company may not: • Trade reckless; • Not for profit companies (NPC) • With gross negligence; • With the purpose of defrauding any person; •• For profit companies For fraudulent purposes; State owned (SOC)circumstances • Or under insolvent • Public companies (Ltd ) • Private (Ltd)) a company is trading reckless is a subjective test and it should The test forcompanies determining(Pty whether be reasonable person under the same circumstances would have acted in the • asked Limitedwhether liability acompanies (Inc. ) same way.
Familiarize yourself with table 2.1.6 on page 19 of the study guide.
Directors (Board) meetings • • • • • •
Topic 5
Director may call a meeting of the board of directors at any time, or A meeting must be called if required by 25% of the board (if there is at least 12 directors), or If there is less than 12 directors, a meeting must be called if 2 directors request a meeting All directors must receive notice of the meeting (or acknowledge notice or waive the notice) Voting may commence if majority of directors are present Majority of directors must vote in favour for resolution to be passed
Directors interest in contract • • • • • • • • •
If a director or person related to a director has a financial interest Must disclose the general nature of the interest Must disclose any material information If requested, must disclose other observations or insights Must leave the meeting before voting commence Must not vote Part of meeting quorum Not part of voting quorum Must not execute documents relating to the matter on behalf of the company
Topic 5 Directors conduct Review the list on page 70 under 5.4.1
Topic 6 Company secretary Duties • Provide guidance to directors regarding duties, responsibility, powers • Make directors aware of relevant law • Report failure of company/director to comply with the Act or MOI • Record minutes of meetings • Certify in AFS that returns and notices have been filed, are true, correct and up to date • Distribute copy of AFS to all entitled to receive it
Topic 6 Company secretary Appointment • All public, state owned or companies required by MOI must appoint company secretary • Must be appointed within 40 days of incorporation or 60 days from vacancy • Notice of appointment must be filed within 10 days • Must be resident of RSA • Must have required knowledge and experience • Must not be disqualified to be a director (refer back to topic 5 for list of disqualified persons) • Can be juristic person or partnership if: o o o
No partner or employee is disqualified to be a director at least one employee or partner is a resident At least one employee or partner has requisite knowledge and experience
Topic 6 Company secretary Resignation/Removal • Must give 1 month notice • Notice must be in writing • May be less then 1 month if the board of directors approves • If removed from office, may request to include a presentation regarding his/her removal in the AFS • Notice of removal must be filed within 10 days
Topic 6 Auditors • • • • •
Must be appointed within 40 days from incorporation Must be appointed within 40 days from vacancy Directors must nominate at least one auditor within 15 days from vacancy Audit committee has 5 business days to reject the auditor in writing NB! Review the table on pages 87 and 88 ( table 6.3.1.1) regarding appointment, vacancies and rotation of the auditor
NOTE: The auditor and audit committee members are NOT the same thing. An auditor is an EXTERNAL person/firm. Members of the audit committee must be DIRECTORS of the company. The auditor may NOT be a member of the audit committee
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Topic 7 Financial assistance to purchase shares • • • •
Must be approved by directors Must meet MOI requirements Special resolution obtained within previous 2 years Must determine beforehand whether solvency and liquidity tests will be met after the assistance was granted • Must be fair and reasonable towards the company • Must meet quorum and notice requirements Does not apply if the primary business of the company is the lending of money
Topic 7 Financial assistance to directors/related parties of directors • • • •
Must be approed by directors Must meet MOI requirements Special resolution obtained within previous 2 years Must determine beforehand whether solvency and liquidity tests will be met after the assistance was granted • Must be fair and reasonable towards the company • Must meet quorum and notice requirements • Must give notice to unions • Must give notice to shareholders Does not apply when • Primary business is lending of money • The loan is to cover legal costs relating to the company • The loan is to cover expenses paid on behalf of the company • The loan is to cover costs relating to the removal of the director
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Exam Technique • • • • • • •
Write in point format Do not write long paragraphs with a lot of information in it, rather structure your answer line by line Write neatly Leave lines open Do not include section numbers – it is not required Read what is required, if you are only asked to list requirements then you should only list theory from the Act If you are required to discuss a matter you should: o o o
• •
Give the theory Apply it to the given scenario Draw a conclusion
Limit your answer to what is required Number properly!
Good luck! All the best!
Charlene Roets
