Identify and discuss the functions of any two sub-committees that a company’s board of

directors may set up for the efficient management of the company. In your answer
illustrate how each committee will help the board to be more effective.

The effectiveness of the board in executing the role of oversight and stewardship over the affairs
of the company is facilitated by the existence of sub-committees. Mallin C.A (2010) posits that
the board may appoint various sub-committees, which should report regularly to the board of
directors, and although the board may delegate various activities to these sub-committees, it is
the board as a whole that remains responsible for the areas covered by the subcommittees. RBZ
(2004) further asserts that board committees assist the main board and its directors in discharging
their duties and responsibilities.

Charkham (2005) states that committees of the board are used for various purposes, the main one
being to assist the dispatch of business by considering it in more detail that would be convenient
for the whole board. The second purpose according to the author, is to increase objectivity either
because of inherent conflicts of interest, such as executive remuneration, or else to discipline
personal preferences as in the exercise of patronage. The Cadbury Report (1992) contends that
there should be a formal procedure for certain functions of the board to be delegated, describing
the extent of such delegation, to enable the board to properly discharge its duties and
responsibilities and to effectively execute its decision-making process. This discussion focuses
on two main sub-committees of the board namely, the audit committee and the remunerations
committee.

The Audit Committee

The audit committee is arguably the most important of the board sub-committees. The Smith
Review (2003) asserts that the audit committee has a particular role that it plays independently,
of ensuring that the interests of shareholders are properly protected in relation to financial
reporting and internal control. RBZ (2004) supports this view and argues that the role of the
audit committee is to provide an avenue for internal audit department to effectively communicate
findings.

It is the role of the audit committee to review the scope and outcome of the audit, and to attempt
to ensure that the objectivity of the auditors is maintained. This involves a review of the audit
fees and fees paid for non-audit work, and the general independence of external auditors. RBZ
(2004) further states that the audit committee should also be involved in the selection of external
auditors for appointment by the board on an annual basis.

The Cadbury Report (1992) highlights that the audit committee provides a useful connection
between both internal and external auditors and the board, helping to ensure that the board is
fully aware of all relevant issues related to the audit. This view was echoed by Mallin C.A
(2010), the author maintains that the role of the audit committee includes the review with the
external auditors, the scope of their audit plan, system of internal audit reports, assistance given
by management and its staff to the auditors, and any findings and actions to be taken.

The audit committee’s role may also involve reviewing arrangements for whistle-blowers, that is,
staff who wish to maintain confidentiality to raise concerns about improper practices in the
company. Furthermore, where there is an absence of a risk management committee, the audit
committee should assess the systems in place to identify and manage financial and non-financial
risks in the company.

The Combined code (2003) maintains that the main responsibility of the audit committee is to
monitor the integrity of financial statements of the company and to any formal announcements
relating to the company’s financial performance, reviewing significant financial reporting
judgements contained in them.

The Remuneration Committee

The Cadbury Report (1992) recommends that boards should appoint remunerations committee,
consisting wholly or mainly of non-executive directors and chaired by a non-executive director,
to recommend to the board the remuneration of the executive directors in all forms, drawing on
outside advice as necessary. The King IV Report (2010) states that all members of the
remuneration committee should be non-executive members of the governing body, with the
majority being independent non-executive members of the governing body.

The Combined Code (2003) posits that the remunerations committee is saddled with the
responsibility to determine and agree with the board the framework or broad policy for the
remuneration of the chief executive, the chairman of the company and such other members of the
executive management as it is designated to consider. Mallin C.A (2010) states that at a
minimum, the committee should have delegated responsibility for setting remuneration for all
executive directors, the chairman and, to maintain and assure their independence, the company
secretary. The remuneration of nonexecutive directors shall be a matter for the chairman and
executive members of the board. No director or manager should be involved in any decisions as
to their own remuneration.

The Corporate Governance Guide (2013) states that the remuneration committee is also
responsible for reviewing and recommending to the board on the remuneration of non-executive
directors, especially on whether the remuneration remains appropriate to each director’s
contribution by taking into account the level of expertise, commitment and responsibilities
undertaken.in the same vein, the remunerations committee is saddled with the task of supporting
the board in overseeing the design and operation of the company’s remuneration system.

The remunerations committee is also involved in the review and recommendation to the board on
total individual remuneration package for executive directors and senior management personnel
including where appropriate, bonuses, incentive payments within the terms of the agreed
remuneration policy and based on individual performance.

Deloitte (2015) argues that members of the committee are required to maintain a fine balance
between recommending over-generous remuneration, which is not in the interest of shareholders,
and a level of remuneration which fails to attract the desired quality of individuals on the board.

The role of the committee in assisting the board is to ensure that the disclosure of the directors’
remuneration is accurate, complete and transparent. The King IV report (2010) outlines that the
remunerations committee oversees the qualitative and quantitative disclosures of remuneration
made in the annual report and notice to general meetings.
Question 2a.

The two directors are former senior executives in Future -Tech Apps who were directly involved
in the negotiations with the supplier Spaceage Apps, despite the negotiations collapsing,
subsequent to them incorporating a new company that is in direct competition with their former
employer. There is need to determine whether there is a valid restraint of trade that can be
enforced by Future-Tech Apps.

A restraint of trade is a provision in a contract of employment that typically provides that after
termination of employment, the employee is restricted in the work he can perform in that he will
be restrained from performing similar work in competition with his or her former employer, for a
prescribed period of time and in a specific geographical area.

In the case in question, the two directors cannot be restrained on the basis of forming a company
that rivals their former employer. The accepted proposition that an employer (Future- Tech
Apps) is not entitled to protection from mere competition by a former employee(s) means that
the employee is entitled to use to the full, any personal skill or experience even if it has been
acquired in the service of his employer.

Tapiwa and Tinashe have the freedom to use their ability and talent to the full as enshrined in the
constitution of rights, which states that every citizen has a right to choose his or her trade,
occupation and profession freely. The additional knowledge and skills acquired during
employment belong to the employees and their exercise cannot be lawfully restrained by an
employer as they are not his property.

In this regard, the employer- Future- Tech Apps cannot restraint its former directors on the basis
of pursuing a trade which is in direct competition to the business as this is considered to be
against public policy.

The directors of Future-Tech, however have a valid and enforceable case against the two
directors in the use of confidential information. The confidential clauses may be enforced in
employment contracts which prevents ex-employees from using or disclosing confidential
information obtained in the course of the employment contracts. The information that the two
directors obtained from negotiations with the software licensing company is considered to be
confidential and hence cannot be used in their current business.

Moreover, there is the non-solicitation clause which prevents former employees from engaging
the services of the employer’s customers and suppliers. Corporate law holds that where an
employee has access to customers and suppliers and is in a position to build up a particular
relationship with customers or suppliers, so that when he leaves his employer’s service, he would
easily influence them to follow to his new business, a restraint of trade should be enforced to
protect the employer’s trade connections.

In this case, there is enough evidence to suggest that Future -Tech has a legitimate interest in
protecting its current customer base. In particular, it had an interest in protecting prospective
customers with whom it had entered into discussions or negotiations, and maintaining the
confidentiality of information that might have been utilised in the course of discussions or
negotiations with such customers or potential customers.

The restraint also extends to potential clients with whom negotiations and discussions had
occurred, but who had not yet ordered products or services. Such a restraint is legitimate, as the
process of building up a relationship to the point where a bundling arrangement could be entered
into was prolonged and delicate.

Therefore Future-Tech Apps has a case against its former directors in as far as the restraint with
regards to the engagement of Spaceage Apps by the new incorporated Zim-Apps and can claim
for damages or remedies.

Question 2b.

Mergers and acquisitions refer to the consolidation of multiple business entities and assets
through a series of financial transactions. The merger and acquisition process includes all the
steps involved in merging or acquiring a company from commencement to finish. A merger is an
agreement between two companies to consolidate functions and assets, then continue as one
united company. Due diligence involves a review of the target’s financial, legal, and operational
position to ensure an accuracy of information obtained earlier in the acquisition process and full
disclosure of all information relevant to the transaction. After due diligence is completed, the
parties negotiate definitive agreements. Any regulatory approvals necessary for consummation of
the transaction are obtained and the transaction is closed. During transaction execution, the
acquirer should monitor the acquisition or merger to ensure that the negotiated transaction
continues to meet the goals and objectives established for the transaction at the end of the
strategic assessment. The procedural steps required to successfully complete a merger after the
process of due diligence is carried out are explained below.

Deal closure. With due diligence complete, parties make the final decisions on moving forward
to execute the transaction. For legal teams, this comes with several responsibilities. Corporate or
pre-clearance filings must be made in advance of the closing date. These include merger filings,
amendments, ordering of good standings, or issuance of bring-down letters. Once a merger is
agreed to, there is needed for filing merger documents including reserving a name, reinstating an
entity, forming an acquisition subsidiary, obtaining supporting documents, and more.

Financing and Restructuring. Although financing options are explored during the merger
planning process, the final details typically come together once the purchase and sale agreement
are complete. Van Horne (2013) postulates that to avoid delays and ultimately close the deal,
an independent director or special board member may be appointed. These directors serve on the
boards of the entities to safeguard the assets of the entities.

Integration and back-office planning. Managing the integration of an acquired company is a

full-time job and should be treated as such. Both parties should work together to ensure a
seamless integration. For legal teams this means entity planning and compliance work in the
localities involved. Tasks include, entity set up, consolidations, and or local entity management,
governance structure changes, representation/directorship services where required. To meet the
requirements of a transaction, a trusted agent is needed to receive service of process and other
legal documents.

Question 2c.

Corporate rescue entails proceedings to facilitate the rehabilitation of a company that is

financially distressed. The concept of corporate rescue was introduced into Zimbabwean law by
the enactment of the Insolvency Act [chapter 6:07. The enactment saw the substitution of judicial
management, which was provided for in the old Companies Act (Chapter 24;03), by the concept
of corporate rescue. The concepts of judicial management and corporate rescue are similar in
nature and designed for the same purpose but the law has detailed and more transparent
provisions for the conduct of corporate rescue proceedings. 

A company such as XYZ Limited is deemed to be financially distressed when it appears to be

unable to pay all of its obligations as they become due and payable within the immediately
ensuing six months. Corporate rescue therefore gives relief to such a company by providing for,
the temporary supervision of the company, and of the management of its affairs, business and
property by an outsider and a temporary moratorium on the rights of creditors against the
company or in respect of property in its possession. The rationale for the moratorium is to
provide the company with the much-needed breathing space or a period of respite to enable the
company to restructure its financial affairs.

The corporate rescue plan for XYZ Limited would allow for the development and
implementation, if approved, of a plan to rescue the entity by restructuring its affairs, business,
property, debt and other liabilities, and equity in a manner that maximises the likelihood of the
company continuing in existence on a solvent basis or, if it is not possible for the company to so
continue in existence, results in a better return for the company’s creditors or shareholders than
would result from the immediate liquidation of the company.

The aim of corporate rescue is to resuscitate distressed companies, saving them from extinction
which would have been otherwise suffered through liquidation. Corporate rescue intends to
award distraught companies with a second chance of survival. In other words, corporate rescue
aims to rehabilitate distressed companies to avoid the winding down of the business.
Reference List

1. The Companies and Other Business Entities Act (Chapter 24:03) Harare Zimbabwe.
2. The Insolvency Act (Chapter 6:07) of 2018, Harare Zimbabwe.
3. Deloitte (2015) The Role of the Remunerations Committee in Corporate Governance.
4. King Mervin E (2016) The King IV Report on Corporate Governance, Johannesburg,
South Africa.
5. The Combined Code on Corporate Governance (2003). Financial Reporting Council
6. Cadbury A (1992) The Financial Aspects of Corporate Governance. Gee and Company
Limited.
7. Charkham J (2015) Keeping Better Company: Corporate Governance Ten Years on.
Oxford University Press, Oxford.
8. Mallin C.A (2010) Corporate Governance. 4th Edition. Oxford University Press, Oxford.
9. Van Horne J.C and Wachowicz J.M (2008) Fundamentals of Financial Management 13 th
Edition. Pearson Education Limited.