INTERNATIONAL QUALIFYING BOARD

EXAMINATION
OCTOBER 2014
CORPORATE SECRETARYSHIP (BE-4)

MEMORANDUM

All references to the Act = The Companies Act 71 of 2008

All references to the CC Act = The Close Corporations Act 69 of 1984
All references to King III = King Report on Governance/King Code of Governance
Principles for South Africa 2009
All references to CSSA notes = CSSA Corporate Secretaryship study material
All references to CBA = South African Corporate Business Administration by Juta
Note: All references are to the prescribed reading material.

When reading these answers, please note that they are not intended to be viewed as a
definitive model answer, as in many instances there are several possible
answers/approaches to a question. These answers indicate a range of appropriate content
that could have been provided in answer to the questions. They may be a different length or
format to the answers expected from candidates in the examination.

QUESTION 1
Reference: CSSA Pages 31, 43 48, Chapter 2.1.5, 2.5.3 and 2.5.7, Companies
Act sections 75, 76, 77, King III, Principle 2.14
Outcomes addressed:
The concept of the duty of care and of fiduciary duty of directors in terms of
legislation
The powers of directors in terms of legislation together with the MOI of the corporate
entity
1.1

In summary, the answer should cover the following:

Sections 75, 76 and 77 of the Companies Act (6);
the Regal Hastings case; the Organic Fertilizers case; the Robinson case (7) (or
other relevant case law); and
King III Principle 2.14 (2), leading to
the conclusions (4)

(19)

A sample answer is provided below:

Section 75; a director is required to disclose any personal financial interest in a
contract or transaction in order to avoid a conflict of interest.
Section 76; executive and non-executive directors are required when acting in that
capacity:
to act in good faith and for a proper purpose,
in the best interests of a company
with the degree of care, skill and diligence that may be reasonably expected of a
person carrying out the same function and having the general knowledge, skill
and knowledge of a director.
Section 77: A director of a company may be held liable:

In accordance with the principles of the common law relating to breach of a

fiduciary duty, for any loss, damages or costs sustained by the company as a
consequence of any breach by the director;
Having been party to an act or omission calculated to defraud, a creditor,
employee or shareholder of the company;

Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134: Regal [Hastings] (RH) owned a
cinema. Directors learned that two other cinemas in town were for sale. Owning all
three would add a great deal of value to the assets of the company. RH had
insufficient capital to purchase the two cinemas.
A subsidiary was formed to
purchase the two cinemas, in which RH held some shares, the balance being bought
by the directors providing sufficient capital to purchase the cinemas. Following the
acquisition RH and the subsidiary was sold. The court rules that directors were
required to pay the secret profits made on the sale of the cinemas because being
directors they had the knowledge and opportunity to make a profit. However, had the

Corporate Secretaryship Memorandum October 2014

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directors disclosed the profit to shareholders in general meeting and the shareholders
had approved the transaction, the directors would have been able to retain the profits.
Atlas Organic Fertilizers Ltd v Pikkiwyn Ghwano (Pty) Ltd 1981 (2) SA 173 (T): At
common law directors owe a fiduciary duty to the company, and where he is also an
employee of the company, he may, depending on circumstances act in breach of
fiduciary duty not use information for his own purpose.
Robinson v Randfontein Estates Gold Mining Company Ltd 1923 AD 155: A director
is expected to act honestly and in the belief that he is acting for the benefit of the
company. Directors must not make a personal profit from a transaction even if it is
also for the benefit of the company.
King III Principle 2.14 states that the board and its directors should act in the best
interest of the company, adhere to legal standards of conduct, disclose real or
perceived conflicts of interests.
Based on the above, if Knowall failed to declare his personal financial interest, i.e.
the R20 million he was to receive from Archibald, and/or voted at the meetings on the
contract, he would clearly be in contravention of the Act.
In terms of Section 77 and common law the company can be seen to have suffered
a loss for Archibalds breach of fiduciary duty in declaring a secret profit as set out in
the Regal (Hastings) matter and used information gain as an employee and director
to use information for his own purpose and gain as in the Atlas Organic case. In
addition he has failed to comply with the principles of Corporate Governance.
1.2

(19)

In summary, the answer should cover the following:

Companies Act Section 76 (1); Fisheries Development Corp. SA Ltd (3); Boulting v
Association of Cinematograph Television & Allied Technicians (2)

(6)

A sample answer is provided below

Section 76 of Act spells out the standards of conduct that are expected from directors.
Where a director is appointed as a nominee for another or representative for a major
shareholder to represent their interests the director must always ensure that he acts
in the best interests of the company rather than the person who has appointed him.
In Fisheries Development Corp. SA Ltd v Jorgensen & another 1980 (4) SA 156 (W)
it was set out clearly in the judgement that a director is in that capacity not the servant
or agent of a shareholder who votes for or otherwise procures his appointment to the
board. The directors duty is to observe utmost good faith towards the company, and
in discharging that duty he is required to exercise independent judgement and to take
decisions in the best interest of the company to the exclusion of his nominator.
In Boulting v Association of Cinematograph Television & Allied Technicians (1963) 2
OB 606 it was stated that there was nothing wrong in a shareholder appointing a
person to represent his interests provided that the director is left to exercise his
judgement in the interests of the company he serves.

Corporate Secretaryship Memorandum October 2014

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[25 marks]

Corporate Secretaryship Memorandum October 2014

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QUESTION 2
Reference: CSSA Chapters 1, 2, 12; Pages 29, 30, 33-36 246-248; Companies
Act sections 69 and 94, King III Principle 2.18; 3.2.3; JSE Regulations
Outcomes addressed:
The procedures relating to the appointment, resignation and removal from office of
directors and the company secretary
In summary the answer should cover

Report format (1 discretionary mark)

Appointment of Mr Raj and Mr Ndlovu as directors in terms of Section 69(7) of
the Act (6)
Requirements for audit committee members - Companies Act 94(4); Regulation
46, King 3 Principle 3.2.1 (8)
Evaluation of nominees for audit committee (7)
Documents completed to finalise appointments Schedule 21 JSE, round robin
resolution, COR39, SENS (4)

(25)

A sample answer is provided below:

THINK BIG TECHNOLOGIES LIMITED
(Reg. No 1959/001001/06)
REPORT IN RESPECT OF PROPOSED CHANGES TO THE BOARD AND
AUDIT COMMITTEE
Discretionary point for heading
2.1

Appointment of Mr Raj and Mr Ndlovu as a director

Provided that Mr Raj is not ineligible from being appointed as a director as
set out in section 69(7) of the act, the requirements of which are as follows
(any three):

A juristic person;
An un-emancipated minor or under a similar legal disability;
Does not satisfy any qualification stipulated in the Memorandum of
Incorporation;
A person prohibited from being a director in terms of section 162 for
delinquency;
Un-rehabilitated insolvent;
Is prohibited in terms of any public regulation or been removed from
an office of trust on the grounds of misconduct involving dishonesty;
or
Has been convicted and imprisoned without the option of a fine or
fined more than the prescribed amount for theft, fraud, forgery or
perjury.

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King III, principle states that it is desirable to have independent non-executive

directors on the board who have the ability to act with an unfettered mind,
particularly if he has ties with the company. Mr Raj has ties being a
shareholder appointee and an employee of PB Energy and would therefore
not be regarded as independent (represents a major shareholder) but could
be appointed as non-executive director.
Provided Mr Ndlovu is not excluded from being a director as set out above,
he could be appointed an independent non-executive director.
2.2

Audit Committee
Section 94(4) states that each member of an audit committee must be a
director of the company who satisfied any applicable requirements but may
not be:

Involved in the day-to-day management of the companys business;

A prescribed officer or full-time employee of the company or been such
an officer or employee during the past five years;
A material supplier or customer of the company;
Not related to any person who falls within any of the criteria set out
above.

Regulation 46 states that at least one-third of the members of a companys

audit committee must have academic qualifications or experience in
economics, law, corporate governance, finance, accounting, commerce,
industry, public affairs or human resource management.
King III Principle 3.2.1 states that all members of the audit committee should
be independent non-executive directors and 3.2.3 states that the chairman of
the board should not be the chairman of the audit committee.
Based on the abovementioned legislation and regulation;

The chairman of the board should not be appointed as chairman of the

audit committee without good reason based on the King III principle
and which requires a comply or explain principle by the JSE if the
recommendation is not adhered to;
Mr Raj is not independent so in terms of King III cannot be appointed
a member of the audit committee;
Ms Joubert, the CFO cannot be appointed a member of the audit
committee as she is involved in the day-to-day management of the
company and is prohibited by legislation from being a member of the
audit committee; and

Mr Brown is also not independent so should not have been on the audit
committee in the first place and should resign. Only Mr Ndlovu is suitable to
serve on the audit committee. A recommendation would need to be urgently
made to the board to consider appointing additional independent directors

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who are suitably qualified to serve on the audit committee as section 94(6)
stipulates that any vacancy must be filled within 40 business days after the
vacancy arises.
2.3

Documents completed to finalise appointments

Completion and signature of Schedule 21 JSE Fit and Proper Person to

be a Director to be completed by the new directors.
Preparation of either a round robin resolution for signature by the
remaining directors appointing the new directors and audit committee
members or resolution to be included in the agenda for approval at the
next board meeting.
Completion of the COR 39s and submission to CIPC within the required
period.
Preparation, approval and submission to JSE of the necessary SENS
announcement.
[25 Marks]

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QUESTION 3
Reference: CSSA Chapter 13, Pages 264 to 266, Companies Act sections 39
and 96
Outcomes addressed
The means by which shares are acquired and the different requirements applicable
to each: [issue of fresh shares, rights offers, capitalisation offers, share buy-backs,
STRATE]
In summary the answer should cover:

The Memorandum of Incorporation of private companies (1)

Section 30 of the Companies Act (6):
Section 96 of the Companies Act (4)
A letter of offer (4)
Acceptance, renunciation and reallotment (5)
Board actions required (5)

(25)

A sample answer is provided below:

The Memorandum of Incorporation of private companies stipulates that a private
company may not issue an offer to the public to subscribe for shares or debentures.
Section 30 of the Companies Act:

gives existing members of a private company the pre-emptive right, before any
other person who is not a shareholder of that company to be offered and be given
a reasonable time in which to subscribe for any new shares in direct proportion to
their existing shareholdings as at the time of the offer.
states that the Memorandum of Incorporation may limit, negate, restrict or place
conditions on the proportion in which the rights are offered to existing
shareholders.
except to the extent that the Memorandum of Incorporation provides otherwise
the shareholder may subscribe for fewer shares than the shareholder would be
entitled and shares not subscribed for may be offered to other persons.

Section 96 of the Companies Act states that an offer to the public is not an offer to
the public if it is made to:

persons who are engaged in the business of dealing in securities whether as an

agent or in their own right;
The Public Investment Corporation;
A person or entity regulated by the SA Reserve Bank;
An authorised financial services provider as defined in the Financial Advisory and
Intermediary Services Act of 2002;
A financial institution as defined by the Financial Services Board;
A wholly owned subsidiary of person acting as an agent in the capacity of an
authorised portfolio manager for a registered pension or provident fund;
A person acting as a manager of a registered collective investment scheme;

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Any combination of the above.

A letter of offer giving reasonable time to accept the offer, will have to be prepared
together with a letter of renunciation which will give the shareholder the option to:

Take up all his rights;

Split his rights to take up some and renounce the rest;
Renounce the full entitlement.

Once the shareholders have accepted the rights the shareholder makes payment for
the shares. Any shares not taken up are placed into a pool under the discretion of
the directors. Shareholders often advise that they would be interested in acquiring
more than allocated as per the size of their shareholding and the directors can then
allocate pooled shares on the first come first served basis or pro-rata. Those
shareholders allocated additional shares will be notified and advised to secure these
rights by paying for the shares by a new deadline.
The actions that are needed if the Board approves the proposal are as follows:

Convene a board meeting where the board will consider a form of application of
shares already prepared by the shareholders;
If necessary convene a general meeting at short notice to approve an increase in
the authorised share capital (no par value) or to give the directors authority to allot
shares if there enough par value shares in authorised capital;
Adjourn the board meeting to hold the general meeting;
Holding the general meeting to pass the necessary resolution.
[25 marks]

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QUESTION 4
4.1
27

Reference CSSA Chapter 8, Pages 154 and 155, Companies Act section

Outcomes addressed:
Key concepts in corporate governance in terms of legislation and the King Report
The statutory requirements and effects of ordinary and special resolutions with
reference to resolutions of members: [amendments, counter-resolutions,
resolutions in writing]
In summary the answer should cover:
Section 27(4) of the Act (5)
Form CoR 25 and filing fee (1)

(6)

A sample answer is provided below:

Section 27(4) of the Act states that a company may change its financial year at any
time by filing a notice of that change, but:
-

May not do so more than once during any financial year,

The newly established financial year end must be later than the date on which the
notice is filed; and
The date as changed may not result in a financial year ending more than 15
months after the end of the preceding financial year.

The period may not be extended for longer than 18 months.

A resolution of the board must be passed approving the change.
A form CoR 25 must be submitted to CIPC and a filing fee of R100 paid.
4.2

Reference CSSA Chapter 12 Page 248, Section 72(4) Reg 43

In summary the answer should cover:

Companies Act Section 72 (4) and Regulation 43 applicability to Petervale (1)

Responsibilities of board: resolutions , appointments to committee (5)
Consideration of how and when PI Score is calculated (3)
Reasons for SE committee (3)

(12)

A sample answer is provided below:

A company is required to set up a social and ethics committee within one year after
it is required to set up a committee. For Petervale this would be two years after it
achieves above 500 Public Interest Points.
The board of directors must appoint the first committee and thereafter the
shareholders must appoint the members.

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The committee must comprise not less than three directors or prescribed officers of
the company.
At least one of the members must be a director who is not engaged in the day to day
operation management of the company and should not have been an executive
director in the previous three financial years.
After considering who should be appointed to the social and ethics committee, the
board must pass a resolution confirming the appointment of the members of the
committee.
Every company, at the end of each financial year, is expected to calculate its public
interest score. There are several areas that carry points and these are accumulated
to establish if the company has reached or exceeded 500 points. These areas
include number of employees, turnover and third party liability.
The mandatory introduction of the Social and Ethics committee seeks to expand the
role of the directors in upholding ethics in the organisation and adds further impetus
and importance to health and safety issues, unfair discrimination, consumer relations
and advertising standards as agenda items for the board and its committees.
4.3

Reference CSSA Chapters 4 and 5 Pages 84-86, 92 and 93 Companies

Act section 16

In summary the answer should cover:

Section 16(c) of the Act (2)

A form CoR15.2 (lodgement and fee) (2); special resolution (1); amended MOI
(1)
Practical follow-up changes to company documents (1)

(7)

A sample answer is provided below:

Section 16(c) of the Act provides that a companys Memorandum of Incorporation
may be amended at any time if a special resolution to amend is proposed, which in
this case was proposed by shareholders in terms of a shareholders agreement.
A form CoR15.2 must be lodged with the Commission within ten business days of the
change being effected, accompanied by a filing fee of R250.
Where the change was effected by the shareholders, a copy of the special resolution
must be attached to the CoR15.2.
A copy of the amended Memorandum of Incorporation must be attached to the
CoR15.2.
Once all the above amendments have been concluded, letterheads and other
company documents/notices should be amended to reflect the change of name.
[25 marks]
QUESTION 5

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Outcomes addressed
The definition of members of different legal entities together with an enumeration of their
rights through various classes of shareholding
The law and regulations concerning the convening and holding of meetings from a
practical perspective: [types of meeting, authority, quorum, chairman, formal motions,
points of order, adjournments, defamation, trespass, voting, minutes]
The role of the company secretary before, during and after general and board meetings:
[involvement of third parties including JSE Limited, Registrar of Companies, Master of the
High Court]
In summary the answer will cover:
An e-mail will be prepared to Mr Wilson advising as follows:
5.1
5.2
5.3

Rights of shareholders
Companies Act, S 62: Notice periods (4), MOI (3); immaterial defects (2);
advice to member (2); Relief available to shareholder (2)
Company secretary responsibility (1); definition of defamation (2);
difference between defamation and libel and liability (2); defences (4)

(4)
(12)
(9)

A sample answer is provided below:

5.1

Reference: CSSA Chapter 11, Pages 224 and

That shareholders are not entitled inspect the minutes of board meetings. He
may however either inspect the minutes of general meetings and annual
general meetings by visiting the companys offices or submitting a CoR24
requesting copies of the minutes he requires.

5.2

Reference: CSSA Chapter 11, Pages 186 and 187, 192 194, Companies
Act section 62 and CSSA Chapter 3, Pages 66
(Discretionary point/s if reference is made to the Companies Act
sections 115, 157,158, 161 or 164 but not mentioned in text book)
The notice of annual general meeting was posted 25 working days prior to the
holding of the annual general meeting and proof of posting is available for
inspection at the companys offices.
Section 62(1) was sent to shareholders on the record date which is set out in
the notice of annual general meeting and, in the case of a public company,
must be 15 days before the meeting is to begin.
A companys Memorandum of Incorporation (MOI) may provide for a longer
minimum notice period than required by the Act. Advise him that the posting
date was within the 15 days period and therefore the posting is within the
requirements of the Companies Act.

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An immaterial defect in the form or manner of giving notice of a shareholders

meeting, or an accidental or inadvertent failure in the delivery of the notice to
any particular shareholder to whom it was addressed, does not invalidate any
action at the meeting.
Confirm that the meeting was duly called in terms of legislation and that it will
proceed as indicated in the notice.
A shareholder may petition the High Court to obtain relief if he feels that any
act of the company could result in an unfair prejudice to his interests.
5.3

CSSA Chapter 11, page 199

Company secretaries must familiarise themselves with defamation in relation
to meetings and the documentation in relation to the meeting.
Defamation is where the reputation of person is harmed as a result of the
publication of information and causes the affected person to suffer loss of
respect. It is not sufficient to prove defamation by demonstrating that there
has been financial loss.
Written defamation is known as libel and spoken defamation as slander. The
question that needs answering is whether or not there has been publication
and whether the person will suffer a loss of esteem as a result of the published
of alleged unsavoury facts about a person. The newspaper, reporter, subeditors and editor could also be held liable.
In order to defend allegations, Mr Wilson should be able to prove
Justification: in the public interest to publish the information
Fair comment; the publication is based on truth without malice, fair and
reasonable and in the publication of an obligation.
Privilege.
[25 marks]

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QUESTION 6
Reference: CSSA Chapter 14 Page 279 - 281
Outcomes addressed:
An explanation of the share issue procedure for non-listed companies
In summary the answer will cover:

Checks to be made prior to transfer of the shares: MOI (2); price (1); STF (2);
classes of shares (1), taxes (1); FICA (2); accuracy and authenticity checks (3);
Transfer process: checking existing certificates (3), Transfer register (6); issuing
of new certificates (4)

(25)

A sample answer is provided below

Checks to be made prior to transfer of the shares:

Blue Horizons is a private company and this will mean that transfer of shares is
restricted in terms of the Memorandum of Incorporation and will require the
approval of the board by the passing of a resolution.
That a price for the shares has been agreed and paid.
Obtain a Securities Transfer Form, duly completed and signed and if the
transaction has been handled by a stockbroker, that his stamp is on the form.
If a company has more than one class of shares, ensure that the shares being
transferred are correctly described.
Check if there is transfer duty/securities tax to be paid.
Although it is not a requirement of the Financial Intelligence Control Act, it has
become general practice for transfer secretaries to request a recent utility bill and
a copy of the ID document of the buyer.
On delivery of the share certificate and transfer form, the form must be checked
to ensure that the form is duly completed and that the share certificate is attached.
Issue a receipt when delivery of the documents takes place.
Check that the signature is genuine.

The transfer process now commences and will include:

Check that the share certificate is genuine by reference to the Stop Register
to ensure that it has not been reported lost or stolen;
Check that the holding is free of any lien or restraint on transfer.
The share certificate is then cancelled.
The Transfer Register is written up (by hand or electronically). The receipt is
used as a reference for the transaction, (Transfer No xxxx), the date of entry,
the new balance in the transferors account and a new record for the
transferee showing Transfer Number, new certificate number the number and
class of shares acquired, the balance of the shares and full names and
address details.
New certificates to be prepared for the transferor and the transferee reflecting
their holdings after the transfer.
These new certificates to be signed by the authorised persons.

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If the transferor and transferee are non-residents, a Non-Resident

endorsement will have to be made by a commercial bank.
The shares certificates will now be ready for collection or mailing to the
shareholders.
[25 marks]

END OF MEMORANDUM

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