SCENARIO

BACKGROUND INFORMATION
Maupa (Pty) Ltd (hereafter “Maupa”) is a privately owned company registered in South Africa with
a 31 December year-end. The company is registered for VAT purposes and adopts International
Financial Reporting Standards (IFRS) as its financial reporting framework. Maupa was started by
Garry Nkomo and Calvin Rust in January 2019, and both are company directors. Garry and Calvin
completed an undergraduate degree in logistics management at the University of Johannesburg
(UJ) and have been friends since sharing a room while staying in the Karibu-Jamii Residence at
the university. Since the company's inception, the sales of Maupa have grown, mainly ascribed to
the movement of South Africans and businesses purchasing sustainable red meat products online
and the efficiency of Maupa in delivering customer orders as promised.

BOARD OF DIRECTORS
The board of directors of Maupa is as follows:
NAME AND SHAREHOLDING DESCRIPTION
SURNAME
Garry Nkomo 50% Chief Executive Officer (CEO) and Chairperson
Calvin Rust 40% Chief Financial Officer (CFO)
Sarah Dlamini 10% Chief Operations Officer (COO)
Kevin Nkomo - Non-executive and independent director (not involved
with the operations of the company)
David Beck - Non-executive and independent director (not involved
with the operations of the company)

PROPOSED DISTRIBUTION
Calvin Rust & Garry Nkomo suggested that Maupa declares a dividend to the shareholders.
Calvin mentioned to the CEO that he is under pressure to fund the acquisition of an office park
for his start-up company. Garry mentioned that Maupa will not be able to adhere to the
requirements of s46 of the Co Act (2008) as it relates to the solvency and liquidity position
because the entity has cash flows has been steadily declining since 2020. Calvin mentioned
that he would appreciate support towards his proposal at the next board meeting as he is under
significant pressure and this is a once in a lifetime opportunity for him.
REQUIRED A:

Use the information under the heading “BACKGROUND & BOARD OF DIRECTORS”, to
discuss if the composition of the governing body of Maupa (Pty) Ltd, would comply with the King
IV Report on Corporate Governance.

SUGGESTED SOLUTION

NB: APPLICATION Vs THEORY

1.4 Use the information under the heading “BOARD OF DIRECTORS AND OWNERSHIP
CONCENTRATION”, to discuss if the composition of the governing body of Maupa (Pty)
Ltd, would comply with the King IV Report on Corporate Governance.
Theory: The King IV suggests the governing body to consist of a balance of executive
0.5
and non-executive directors.
Theory: Of which the majority of the directors should be non-executive directors that are
0.5
independent.
Application: The governing body consists of three executive directors and only two non-
1
executive directors resulting the majority of directors to be of an executive nature.
Garry, Calvin and Sarah are regarded as executive directors because they are involved
1
in the day-to-day activities of Maupa (why executive in nature).
Kevin and David are regarded non-executive because they are not involved in the day-
1
to-day activities or operations of the company.
INDEPENDENCE OF NON-EXECUTIVE DIRECTORS:
Kevin Nkomo is not independent because of the following: 1
• Kevin is closely related to Garry, the CEO of Maupa. 1
• This is because Kevin is Garry’s bother. 1
David is an independent director. 1
The majority of non-executive directors are not independent (only David is
1
independent).
CHAIRPERSON:
Theory: The chairperson of the governing body should be a non-executive and
0.5
independent directors.
Theory: The chairperson of the governing body is recommended to not be the CEO of
0.5
the company.
Theory: Unless there is a lead independent director. 0.5
Application: This is not the case as Garry, the CEO of Maupa is not a non-executive and
1
independent director (he is an executive director).
Application: It is not evident that there is a lead independent director. 1
TOTAL MARKS 8
REQUIRED B:

Use the information under the heading “PROPOSED DISTRIBUTION”, to discuss any ethical
threats and concerns relating to the proposed distribution.

SUGGESTED SOLUTION

NB: APPLICATION Vs THEORY

Marks
Calvin is a CA(SA) who is in business and should comply with parts 1 and 2 of SAICA’s 1
code of Professional Conduct
ISSUE
Calvin has proposed a dividend distribution despite knowing that the solvency and liquidity 1
test of the company Act will be contravened.
THREATS & FUNDAMENTAL PRINCIPLE
There is a self-interest threat 0.5
to objectivity and professional behavior. 0.5
REASON
Calvin appears to be manly interested in furthering his start up company despite 1
knowing that Maupa is not able to distribute cash to its shareholders. Calvin is thus
biased and is most likely to vote for the proposed distribution.
ADDRESSING THE THREAT
The threat is significant as it could lead to contraventions of the Co Act by Maupa
in which Calvin is a director and shareholder. 1
Calvin should retract his proposal as it might cause further cashflow strain on 1
Maupa
TOTAL MARKS 6