CENTRE FOR OPEN AND LIFELONG LEARNING - Namibia University Of Science .

CENTRE FOR OPEN AND LIFELONG LEARNINGCOMPANY LAW [CPL 511S]TUTORIAL LETTER 03/2018

2Dear StudentI trust that, by the time you are reading this Third Tutorial Letter of 2018 for Company Law, you havereceived and perused your marked Assignment number 2.By now you will know whether you qualified for the examination. If you did your preparation muststart IMMEDIATELY! Contact me if you need help, but contact me NOW, I will NOT be available toexplain the entire semester’s work within a couple of hours to students who have not made theeffort to work during the semester.Please note that the feedback letters do NOT contain model answers: please do not memorise / copythese.Company Law is a difficult course, especially so if you are not proficient in the English language.However, it is not impossible to pass, or even to do exceptionally well. All it takes is hard work andcommitment. Please feel free to contact me for assistance while you are studying. I prefer e-mail asmethod of communication and will try my best to respond as soon as possible. Very few studentsapproached me for assistance while they were completing their assignment. Yet during the weekbefore the exam I am inundated with students crying that they do not understand the work. By thenit is too late! I must unfortunately make it clear that I will NOT be available to explain the entiresemester’s work to students who have not made the effort to work during the semester.IMPORTANT INFORMATION FOR THE EXAMINATION Unit 1 is an introductory Unit and a thorough reading should suffice. Make sure you understandthe concept of legal personality. Students need NOT memorise the statutory provisions contained in Unit 7. In the examinationyou will be provided with selected extracts from the Companies Act 28 of 2004. You must beable to APPLY the relevant statutory provisions to case studies. Unit 10 will not be assessed, however it is important that you understand the roles of thevarious functionaries of a Company. The following Units will be assessed by way of short questions only: Unit 4 paragraphs 4 – 6;Units 13, 14, 17. Unit 16 and 18 will not be assessed.EVERYTHING ELSE NOT MENTIONED HERE MUST BE STUDIED!!!

3COMPANY LAW [CPL 511S]ASSIGNMENT 2/2018The purpose of this feedback letter is, inter alia, to make certain observation regarding your answersto the questions as contained in the aforesaid assignment to guide you to find the most appropriateanswers and/or solutions.Remember that tutorial letters form part of your study material for examination purposes.1.Always remember that in a problem-type question the purpose is to see whether you cansolve a problem by applying the relevant legal principles. Just stating the legal principles isnot enough – apply the law to the facts to come to a well-motivated conclusion. Also, do notstart your answer with a conclusion. The conclusion is the result of the application of thefacts to the law.2.Problem-type questions sometimes have more than one possible answer, depending on yourinterpretation of the facts. Even judges sometimes differ on how the facts of a case shouldbe interpreted, so it is not unusual that you will, too. If your conclusion is motivated byapplying the correct legal principles, you will get maximum marks.3.Note that no marks are awarded for a correct conclusion (“yes” or “no”) if it is not supportedby a correct motivation based on both the facts and the law. This same style of marking willbe applied in the examination.4.Do not use “bullet-points” when answering problem-type questions. Use full sentences andproper paragraphs. In the exam marks will be deducted for the inappropriate use of bulletpoints.5.The study guide contains all the information you need. There are no Namibian Company Lawtext books, and South African Company law differs from Namibian law. Google and Wikipediawill also not assist you – in most instances these sites refer to USA law, which is notapplicable in Namibia.6.Watch your mark allocation. There is no need to write a page if the question is only worththree marks.

4QUESTION 1These questions were knowledge based and you can find the answers in your study guide.Remember that “briefly answer” means just that - it is unnecessary to write half a page for a mereone mark. The examinations tend to be long; watch the mark allocation and do not waste time!1.1The share capital of a company was the fund to which creditors of the company could look for thesatisfaction of their claims. Apart from the perils of business it had to be maintained and could not bereturned to the shareholders. The requirements of solvency and liquidity in the new legislationaddress these issues.Read your questions carefully. The question did not ask you to list the common law rules of capitalmaintenance, but to state the purpose of these rules, and how the new legislation addresses theseissues. Simply listing the legislative changes did not answer the question.1.2“Distinguish between” means “stress the differences between concepts, qualities, events or problems”or “compare two concepts or situations to show or emphasise differences between them”. It wastherefore not sufficient to simply explain the meaning of each of the two concepts.Any type / class of shares can be bought back in terms of section 89 of the Companies Act, 2004,whereas only shares that are specifically indicated to be redeemable preference shares can beredeemed. Preference shares may only be redeemed out of the proceeds of a fresh issue of shares orout of divisible profits, whereas the consideration for shares bought back in terms of section 89 canbe paid out of any reserves. Using section 89 will result in a reduction of share capital, but theredemption of preference shares will not.1.3A wholly-owned subsidiary is a company that has no other members apart from its holding company.Fellow subsidiaries are two or more companies that are both subsidiaries of the same holdingcompany.1.4Every member who is aware of the assistance, as well as the person to whom such assistance isgiven, is jointly and severally liable for every debt of the corporation incurred prior to the giving ofthe assistance, unless the member can prove that he/she took all reasonable steps to prevent theassistance.

5Many students gave identical, totally incorrect, answers to these questions. Somebody has beenproviding you with incorrect information! The question refers to a Close Corporation, not a Company.1.5A minor over the age of 18 years can participate with written consent of his/her guardian.QUESTION 2In a problem question it is not sufficient to merely refer to the applicable legal principles – you needto apply these to the facts of the question.Read your questions carefully and only provide me with relevant information. Writing downeverything you know about a topic is a waste of time and could result in you not completing yourexamination in time. Also read all the sub-questions before you start answering.2.1“Will the company be bound?” relates to the contractual liability of the company and is in no mannerinfluenced by whether the director is in breach of his fiduciary duty or not! Do not confuse the twoissues.Express authority is a specific instruction to conclude a specific transaction. In this instance there wasno indication in the facts that Mr Leroy had express authority. Although a Managing Director of acompany normally has implied authority to conclude transactions on behalf of the company, in thisinstance he exceeded the limitations on authority contained in the articles, and accordingly did nothave implied authority, either. However, section 40 of the Act provides that a company “may notassert that a person held out by the company as a director, officer or agent of the company does nothave the authority to exercise a power normally exercised by a director, officer or agent of acompany carrying on the business of the kind carried on by the company”. The purchase of prefabricated huts is connected to the business of the company. Furthermore, the MD would normallyhave implied authority to contract on behalf of the company. The company will be bound to thecontract.2.2Mr Leroy exceeded the limitations of his powers and is accordingly in breach of his fiduciary duty.The company can claim damages suffered (if any).

6You should only discuss the relevant aspects of the applicable legal principle. The question referredto a very specific aspect of a director’s fiduciary duty, namely the duty not to exceed the limitationsof his powers, not to the duty in general. Accordingly, you did not need to refer to the other aspectsof the director’s fiduciary duty, like exceeding the limits of his/her authority.QUESTION 3This question dealt with the requirements for membership of a Close Corporation, NOT with thesteps the company must follow in order to convert, or with the consequences of the conversion.Please note that in a problem question it is not sufficient to merely refer to the applicable legalprinciples – you need to apply these to the facts of the question. Furthermore, the question statesclearly that you must advise the members, with regard to all relevant aspects, whether theconversion would be possible. Accordingly, you also had to address the other requirements, not justwhether all the shareholders qualify for membership of a close corporation.The important issue is that all the members of the company wishing to convert into a CC must qualifyfor membership of a corporation. Using this statement as a basis you then had to detail whether theindividual shareholders of the company qualify for membership.All the shareholders of the company must become members of the CC, which implies that thecompany must have ten or less members, all of whom qualify for membership of a close corporation.The number of members of Montavi (Pty) Ltd is within the limit. Moses and Maria can becomemembers, because any natural persons, including persons under legal disability, may becomemembers of a close corporation. The trustee of an inter vivos trust cannot become a member; Josuadoes therefore not qualify. The trustee of a testamentary trust may become a member, providedthat no juristic person is the beneficiary of such trust. In this instance Genesis Pty (Ltd) is a juristicperson and Daniel does therefore not qualify. A partnership cannot be a member of a CC; PP Partnersdoes therefore not qualify. The company must be solvent and liquid – in this instance it appears thatthey are having solvency problems. The accounting officer must state in writing that there are noirregularities and in this instance we can assume that this requirement is met. In conclusion, it is notpossible for Montavi (Pty) Ltd to convert to a Close Corporation.The rules regarding membership of a close corporation (Unit 12 section 3) can be summarized asfollows: