LML4806 Semester 2 Assignment 1 - 2024

Company Law

LML4806

Semester 2 Assignment 1 - 2024

Mercantile Law Department

 CONTENTS

Page

1 GENERAL INSTRUCTIONS .......................................................................................................... 3

2 ASSIGNMENT 01 ........................................................................................................................... 3
Question: 1 ................................................................................................................................................ 3
Question: 2 ................................................................................................................................................ 4

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 1 GENERAL INSTRUCTIONS
• Assignments test your understanding of the learning material and your ability to apply what
you have learnt. Two written assignments are set for this module i.e., Assignment 01
and Assignment 02. Answering these questions gives you practice in answering the type
of questions that you may expect in the examination.
• The marks you obtain for Assignment 01 and Assignment 02 make up your year mark.
• You should answer all questions under each assignment. Your answer to each assignment
should generally not exceed two and a half pages if it is typed (excluding the bibliography).
• You may reference your sources as you wish (e.g., in-text or in the footnotes) but it is
preferable that you reference your sources within the text of your answers. It is not
mandatory to include a bibliography. You may include a bibliography at the end of your
assignment voluntarily. However, you should remember to include your Honesty
Declaration Form.
• Refer to Paragraph 9 of your Tutorial Letter 101 for the general information about
assessment.
• Also refer to Paragraph 10 of your Tutorial Letter 101 for important information regarding
academic dishonesty (plagiarism and cheating).
• You should study and refer to the prescribed study material (textbook, Companies Act 71
of 2008, and tutorial letters, prescribed cases, information that is provided on the module
site under “Additional resources” etc) when answering your assignments. You should not
use Artificial Intelligence Software (e.g., ChatGPT) to give you answers to the assignment
questions as this will prevent you from achieving the learning objectives as well as attaining
all the skills and values needed in legal practice. Artificial Intelligence Software can give
you inaccurate answers that are not aligned to the prescribed study material. The
University can easily identify the answers obtained from Artificial Intelligence Software
as well as answers copied from internet sources, and the markers will award a zero
mark for such answers. Furthermore, students who engage in academic dishonesty may
be referred to a disciplinary hearing.

2 ASSIGNMENT 01

Question: 1

Jane, John and Jabulani are the directors of Touring Africa by Bicycle (Pty) Ltd (“the company”),
a company that is based in Johannesburg. The memorandum of incorporation of the company
provides that only the board of directors have the authority to enter into contracts on behalf of the
company. James, the branch manager of the company in Durban, attends an outdoor show in
Durban to scout for useful new products for the company’s cycling excursions. At the outdoor
show one of the exhibitors, Cycle for Life (Pty) Ltd, has a limited special offer on electric bicycles
for the amount of R120 000.00 per bicycle. James contacts the directors of the company by way
of a Zoom call, and while speaking to the directors of the company on the Zoom call, James keeps
his mobile phone on speakerphone. The directors instruct James to purchase six of the electric
bicycles on behalf of the company. Nancy, the representative of Cycle for Life (Pty) Ltd, hears the
instruction, and because James has previously entered into agreements with Cycle for Life (Pty)
Ltd without any problems, she enters into an agreement with James for the sale of six electric
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bicycles to Touring Africa by Bicycle (Pty) Ltd. The electric bicycles are delivered to the company’s
Durban office. When Cycle for Life (Pty) Ltd sends an invoice for payment of the total amount of
R720 000.00 for the six electric bicycles, Touring Africa by Bicycle (Pty) Ltd refuses to pay,
arguing that it is not bound by the contract as James did not have the authority to act on its behalf.
Nancy approaches you for legal advice.

With reference to the relevant authority/principle and the facts, advise Nancy on what Cycle for
Life (Pty) Ltd must allege and prove in order to prevent Touring Africa by Bicycle (Pty) Ltd from
arguing that it is not bound by the contract concluded by Nancy and James. (5)

Question: 2

Tebogo, Mbali and Dominique are the directors of Jenkins Investments Ltd (“the Company”). The
Company’s business is to subscribe for shares and invest in property development companies.
Tebogo is an admitted attorney. Mbali and Dominique are chartered accountants and have
considerable experience as directors of various property companies. Pursuant to resolutions
supported by all the directors at a board meeting, the Company enters into the following
transactions:

• The Company borrows R50 million from the bank and uses the money to acquire a 10%
shareholding in Abby Realtors Ltd, a company that is controlled by Tebogo’s wife, Abigail.
Although Tebogo convinces Mbali and Dominique that there will be a 100% return on the
investment within 24 months, all the directors are aware that Abby Realtors Ltd has for a
long time been experiencing financial difficulties and that its business is on the verge of
collapsing. After eight months, Abby Realtors Ltd is liquidated and the Company loses its
entire investment of R50 million. In the meantime, the Company has not yet repaid the loan
taken from the bank and interest on the loan has increased.

• The Company makes unsecured loans totaling R8 million to Mbali and Dominique interest-
free without the knowledge or approval of the shareholders. Mbali and Dominique do not
repay the loans, resulting in the company losing at least R8 million.

When they become aware of the above transactions, the shareholders of Jenkins Investments
Ltd are dissatisfied with the way the directors are managing the affairs of the Company, which
has resulted in the Company suffering the above losses.

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With reference to the Companies Act 71 of 2008 and the facts provided, advise the shareholders
on the following matters:

2.1 Whether the directors of Jenkins Investments Ltd have breached their duty of care, skill
and diligence, and whether they may be held liable for the losses that the Company has
suffered. (7)

2.2 What the so-called statutory business judgment rule entails and whether the directors of
Jenkins Investments Ltd may rely on this rule to avoid any liability that may arise out of
their decision to cause the Company to acquire 10% shareholding in Abby Realtors Ltd.
(8)

TOTAL FOR ASSIGNMENT 01: [20]

__________The End__________