Question 1 (20 marks)
Read the case study below and answer the question that follows.
A-2-Z Financial Consultants (Pty) Ltd v SAAA Inc
Mr ABC and Ms XYZ are shareholders in A-2-Z Financial Consultants (Pty) Ltd. SAAA Inc, an
auditing firm, is appointed as the auditors for A-2-Z Financial Consultants (Pty) Ltd. Following a substantial loss in the value of their shares in A-2-Z Financial Consultants (Pty) Ltd, based on the alleged misconduct of directors in managing the affairs and business of A-2-Z Financial Consultants (Pty) Ltd and, Mr ABC and Ms XYZ allege they have suffered loss, given the
substantial decrease in the value of shares they hold in A-2-Z Financial Consultants (Pty) Ltd.
They alleged – had SAAA conducted proper audits and revealed the true financial position of
the company in which they hold shares, they as shareholders would have called a meeting of shareholders for the removal of directors, which would have ended the mismanagement of the company, which would have prevented the share value losses. However, because this was not properly conducted the shareholders did not take any steps, allowing the mismanagement to continue causing losses to the company, resulting in a decrease in share demand of A-2-Z Financial Consultants (Pty) Ltd and thus a decrease in A-2-Z Financial Consultants (Pty) Ltd share value and caused subsequent loss to both Mr ABC and Ms XYZ.
Advise, in no more than 400 words, whether shareholders Mr ABC and Ms XYZ may claim for loss suffered given the decrease in their share value.
Use the rubric below to guide your answer:
Demonstrate an understanding of the relevant legal principle, applicable case
law and implications for the shareholders. 5 marks
Application of the legal principle to the case study. Strong application with critical analysis of how the principle influences Mr ABC and Ms XYZ’s claim (if at all). 5 marks
Analysis of the practical application of the legal principle considering all stakeholders involved and potential outcomes. 5 marks
Structure and coherency of arguments – clear and logical structure. 5 marks
Total: 20 marks
Question 2 (20 marks)
Read the case study below and answer the questions that follow.
IOU (Pty) Ltd v URQ8 Ltd
IOU (Pty) Ltd is a shareholder in URQ8 (Ltd). URQ8 issued a notice to all its shareholders that it will be passing a resolution to repurchase approximately 6% of its shares for a total purchase price of R196 million. IOU gives notice that it objects to and intends to oppose the adoption of the special resolution authorising the share buy-back. On the date of the meeting for passing of the special resolution, IOU votes against the special resolution, which is nonetheless approved by 97% of URQ8’s other shareholders, thus approving the special resolution and share buy-back. IOU then sends notice to URQ8 exercising its appraisal right.
URQ8 responds with a written offer to acquire the shares for an amount of R0.80 per share. IOU rejects this offer and applies to the court requesting the court to determine the value of the shares, URQ8 contends that the right IOU is seeking to exercise is only triggered under very specific circumstances, which is not applicable in current circumstances given that a company is permitted to buy back its shares
Advise IOU (Pty) Ltd whether URQ8 Ltd.’s opinion is correct or not, providing reasons for your answers and referring to relevant case law, where applicable.
Use the rubric below to guide your answer:
Demonstrate an understanding of the applicable legal principles, with an insightful and accurate interpretation of relevant sections of the Companies Act (where relevant and applicable). 5 marks
Comprehensive and insightful application of the legal principles to the case study, integrating relevant sections of the Companies Act and case law (where applicable) effectively. 5 marks
Clear and persuasive arguments are presented with a strong logical structure and rational reasoning, demonstrating critical thinking. 5 marks
A conclusion that synthesises the analysis and provides appropriate legal advice with sound reasoning and justification. 5 marks
Question 3 (10 marks)
Read the case study below and answer the questions that follow.
MTN and ADT
MTN and ADT, two friends, want to start a small construction business together. They have some savings and each can make an equitable capital contribution. They want a simple structure, with minimal administrative obligations or compliance regulations, which vests them with sole but equitable ownership and management authority, allowing them to manage the business efficiently. They would prefer limited personal liability in so far as sequestration of personal estates is concerned. The reason is that MTN effectively lives on credit and is in substantial debt personally. ADT, on the other hand, ensures that she saves the majority of her money and does not live beyond her means. Ideally, the fact that MTN is starting a business should remain undisclosed and not revealed to the public as his creditors may then come after him. They further insist that they should both have an equitable say in the management and running of the business with equal liability for debts and liabilities, should the business fail.
Which form of business/enterprise would you advise them to incorporate? You must provide reasons for your answer and justify the enterprise form recommended based on the case study and prerequisites set out.
Marks will be awarded for correct identification of the most suitable enterprise form and a comprehensive explanation of characteristics relating to the case study with relevant and logical reasoning.
Question 4 (20 marks)
Read the case study below and answer the questions that follow.
EcoGreen v Global Winds
EcoGreen Energy Solutions (Pty)LtdRF is a private company involved in renewable energy projects. The company’s Memorandum of Incorporation (MOI) explicitly restricts its activities to projects related to solar energy. EcoGreen has a separate division, wholly dedicated to solar projects and all directors and employees are aware of this limitation. EcoGreen’s director, RR, enters into a contract with a third party, Global Wind Inc., to purchase wind turbines for a new project.
EcoGreen v Global Winds
Three months after the contract was concluded with Global Wind Inc., EcoGreen alleges that it is not bound to the contract and gives notice that it will not be proceeding with the contract despite the R1 million expenses Global Wind had incurred to start constructing the wind turbines.
Advise Global Wind Ltd whether they have a legal remedy and if so, what legal action they may institute, if any. You must provide reasons for your answer.
Use the marking rubric below to guide your answer:
Demonstrate an understanding of the applicable legal principle, with clear
identification and definition. 5 marks
Comprehensive discussion of relevant sections of the Companies Act (where
applicable) and any implications it may hold for the relevant stakeholders. 5 marks
Comprehensive and insightful application of the legal principles to the case study, with a demonstrated understanding of the effect of the legal principle
given the case study and legal action (if any) that is available. 10 marks
Total: 20 marks
Question 5 (5 marks)
Read the scenarios provided below and identify what remedy would be available to the shareholder in each of the scenarios. You must provide reasons to justify your answer, marks will be awarded for:
• Identification of harm.
• Reference to the relevant and applicable section of the Companies Act.
• Reasonable justification of legal remedy (if any).
BioMed Inc. is a pharmaceutical company where Peter, a minority shareholder, suspects that the majority shareholders and auditors are involved in fraudulent activities, siphoning funds from the company for personal use. Peter’s attempts to bring this to the attention of the board have been ignored. (1½)
Alpha Holdings Ltd, a company in which Susan holds a 5% minority stake, has been acquired by a larger company. She feels that the terms offered to her are significantly less favourable and no longer has any interest in the company. (1½)
FutureTech Ltd has been experiencing poor financial performance due to the CEO’s reckless decisions. Sam, a shareholder, discovers that the CEO has been making significant personal gains at the company’s expense. Despite this, the other shareholders refuse to take any action against the CEO, who is also the majority shareholder. (2)
Answers to Above Questions on Mercantile Law
Answer 1: The question as to whether shareholders of Mr ABC and Ms XYZ may claim for loss suffered given the decrease in their share value depends on the fact that …
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