LML4806 Ass 1 Memo

Question 1

Firstly, you had to identify all 7 views / concerns / legal rights of Zelda and Velaphi.
Secondly, you had to discuss the legal principles that relates to each of them. Lastly you
had to apply the legal principles to the fact of the matter. You failed to deal with all Zelda
and Velaphi’s views, concerns and legal rights in your answer. Please compare your answer
to what is set out below to see how you could have obtained additional marks:

Whether AGI and Realty had the right to demand that Pristine call a shareholders’ meeting
and whether the demand was valid:
● The holders of at least 10% of the voting rights entitled to be exercised in relation to
the matter may demand that the company hold a shareholders’ meeting. (s 61(3) of
the Companies Act).
● A company’s Memorandum of Incorporation (MOI) may specify a lower percentage
in substitution for the 10%.
● The demand must be written, signed by the relevant shareholders, and delivered to
the company.
● Such demand must describe the specific purpose for which the meeting is proposed.
● As holders of more than 10% of the voting rights in Pristine, AGI and Realty (50.1% +
2% = 52.1%) have the right to demand the holding of a shareholders’ meeting.
● The demand in this case is valid: – AGI and Realty have delivered the demand to
Pristine in compliance with the provisions of section 61(3) – i.e. the demand is
written, signed and describes the specific purpose of the proposed meeting.

Whether there was a legal obligation on the Pristine board to call a shareholders’ meeting:

● The board of a company (or any other person specified in the MOI or rules) must call
a shareholders’ meeting if a written and signed demand for such a meeting has been
delivered to the company. (s 61(3)).
● Therefore, the Pristine board had no choice but was required/obliged by the
Companies Act to call a shareholder’s meeting to consider the proposed resolutions.

Whether AGI and Realty have any right to remove these two directors from the board of
Pristine:

● A director may be removed by an ordinary resolution of the shareholders. (s 71(1)).

● The resolution to remove a director must have been adopted at a shareholders’
meeting by the persons entitled to exercise voting rights in an election of that
director.
● The shareholders’ right to remove a director by an ordinary resolution applies
notwithstanding anything to the contrary in the MOI or rules, or any agreement
between a company and a director, or between any shareholders and a director.
● In this case, AGI and Realty, as shareholders, are entitled to the right to remove these
two directors by way of an ordinary resolutions.
Whether AGI and Realty will have the power to remove these two directors:

● An ordinary resolution for the removal of a director requires the support of more than
50% of the voting rights exercised on the resolution for it to be approved, and this
threshold for passing an ordinary for the removal of a director may not be altered by
the MOI. (s 65(7) and (8)).
● In this case, AGI directly holds 50.1% of the voting rights in Pristine and Realty holds
2% (50.1% + 2% = 52.1%), which is more than 50%.
● AGI and Realty therefore have the power/enough voting rights to pass the ordinary
resolutions for the removal of these two directors.

The concern that no explanation has been provided for their envisaged removal:

● There is no requirement in the Companies Act that an explanation/reason should be

provided where a director is removed by the shareholders.

Whether they will be entitled to be heard before resolutions pertaining to their removal are
voted on:

● The director concerned must be given notice of the contemplated removal and must
be given a reasonable opportunity to make a presentation before the resolution is
put to a vote. (s 71(2)).
● Therefore, Zelda and Velaphi will be afforded the opportunity to be heard before the
resolution for their removal is voted on.

Zelda’s rights in terms of the five-year contract of employment:

● The removal of a director by shareholders does not remove any right that the
director may have at common law or otherwise to apply to a court for damages or
compensation for loss of office. (s 71(9)).
● Therefore, Zelda will be entitled to claim damages or compensation from the
company for loss of office based on breach of contract.

Question 2

Please compare your answer to what is set out below to see how you could have obtained
additional marks:

Relevant legal principles:

● Definition of ‘related’ (s 2(1)(c)): a juristic person such as a company is related to

another juristic person if, among other things:
- either of them directly or indirectly controls the other, or the business of the other, as
determined in terms of subsection (2)
- either is a subsidiary of the other, or
- a person directly or indirectly controls each of them, or the business of each of them,
as determined in terms of subsection (2).
● Definition of relevant aspect of ‘control’ (s 2(2)(a)): a person controls a juristic
person that is a company, or its business, if:
 that first person together with any related or inter-related person, among other
things, is directly or indirectly able to exercise or control the exercise of a majority of
the voting rights associated with securities of that company.

● Definition of the relevant aspects of ‘subsidiary relationships’ (s 3(1)(a) and (b)): a

company is a subsidiary of another juristic person if, among other things, that juristic
person, one or more other subsidiaries of that juristic person, is or are directly or
indirectly able to exercise, or control the exercise of, a majority of the general voting
rights associated with issued securities of that company. Furthermore, a company is
a wholly-owned subsidiary of another juristic person if all of the general voting rights
associated with issued securities of the company are held or controlled, alone or in
any combination, that juristic person or one or more subsid either is a subsidiary of
the other subsidiaries of that juristic person.

Application of the legal principles to facts:

● Realty indirectly controls Pristine and the business of Pristine in that Realty, together
with AGI (which is a related or inter-related person as its holding company), is
directly or indirectly able to exercise or control the exercise of a majority of the
voting rights associated with securities of Pristine (i.e., 50.1% held by AGI and the 2%
held by Realty).
● AGI directly or indirectly controls each of Realty and Pristine and the business of
each of them in that:
- AGI directly controls 50.1% and indirectly (through Realty) controls 2% of the
voting rights in Pristine. Pristine is therefore a subsidiary of AGI.
- AGI controls all the voting rights in Realty. Realty is, therefore, AGI’s
subsidiary.

Conclusion:

Therefore, Pristine and Realty are related.