Exam (elaborations)
LML4806 Assignment 1 2024
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LML4806Semester 1
Assignment 1 2024
, Question 1
Relevant Statutory Provisions:
Companies Act, 2008 (Act No. 71 of 2008) - Section 44:
Section 44 of the Companies Act governs financial assistance to be provided by a
company for the acquisition of its own shares or the shares of its holding company.
On account of this section, financial assistance is allowed in cases provided it does
not violate the provisions relating to MOI and only if it meets certain conditions,
including special resolution by the board, fairness, and reasonableness, or
compliance with the solvency and liquidity tests.
Relevant Case Law:
Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A):
In this case, the court gave guidance on what financial assistance consists of. It held
that financial assistance encompasses each act by which the resources of a
company have been used to enable a person to acquire shares in the company. It
can take the form of loans, guarantees, or any other kind of financial arrangement.
Trevor v Whitworth 1887 12 App Cas 409:
It laid down that a company is not allowed to provide financial assistance where it
would have the effect of reducing the capital of the company.
Application to the Facts:
In the facts:
Mandla is a director and shareholder in Cargo Logistics Ltd, a company. Mandla lets
a warehouse to the company for R1.2 million per annum. He uses part of the rent
received to buy 10,000 shares in Cargo Logistics Ltd.
What should be taken into account to arrive at a conclusion as to whether this is a
case of financial assistance in the following respect:
Nature of Transaction:
Cargo Logistics Ltd is payable for rent as regards making available a warehouse.
This will be an entirely valid commercial transaction if payment on rent is based on
reasonable regard to its market value for such a warehouse.
Utilisation of Funds by Mandla:
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