MRL2601 Assignment 2 SEMESTER 2 2022. 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, guara...
, Subject Code : MRL2601
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Assignment Number : 02 Semester 2
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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
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