MRL2601
Assignment 2
SEMESTER 2
2022. Section 44 of the Companies Act 71 of 2008 governs the instances when a company may
provide financial assistance for the purchase of the company’s securities. In terms of this
section, financial assistance by a company would include extending a loan, gua...
, Subject Code : MRL2601
Name and Surname
Student Number
Assignment Number : 02 Semester 2
Unique Number
Question 1
1Section 44 of the Companies Act 71 of 2008 governs the instances when a company may
provide financial assistance for the purchase of the company’s securities. In terms of this
section, financial assistance by a company would include extending a loan, guarantee or the
providing of security to enable a person to obtain funding for purposes of acquiring shares
in that company. The final decision to assist a person acquire shares in a company lies with
the board of directors.
Section 44 further requires that the board must be satisfied that the solvency and liquidity
requirements will be satisfied immediately after providing the financial assistance, and that
the assistance is given on terms that are fair and reasonable to the company.
The judgment in 2Gradwell (Pty) Ltd v Rostra Printers Ltd gave rise to the impoverishment
test. The test examined whether a company had become poorer by virtue of the transaction
and, if so, financial assistance was deemed to have been given. 3This test was subsequently
criticised and reduced to merely a helpful guide, as it did not make provision for the giving
of security or a guarantee, both of which would not involve a movement of money from a
company, but both of which fell within the ambit of the definition of financial assistance in
the Act. 4In Lipschitz v UDC Bank Ltd the court held that the impoverishment test was not
only a measure of financial assistance but that exposing the company to risk will also qualify
as financial assistance for purposes of the Act.
It must then be determined whether the assistance is for the purpose of acquiring shares in
the company.
In conclusion thererefore the board of directors of Bethal Brooks (Pty) Ltd has provided
financial assistance for purchase of its shares as it met all the requirements and has passed
all tests.
Question 2
Close Corporation (CC) exceeding the threshold Public Interest Score (PIS) as indicated or
those acting in a fiduciary capacity are required to audit their financial statements. A CC will
be required to audit its financial statements in the same circumstances as those under
which a private company is obliged to audit its financial statements. The general rule is that
1
Section 44 of the Companies Act 71 of 2008
2
Gradwell (Pty ) Ltd v Rostra Printers Ltd
3
www.hoganlovells.com – what constitutes financial assistance
4
Lipschitz v UDC Bank Ltd
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller STUDYLAB2023. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.80. You're not tied to anything after your purchase.
