In a landmark ruling the South African Supreme Court of Appeal (SCA) ruled that, “the matters mentioned in s 45(1)(a) [of the Companies Act, 2008 (Act)] are exhaustive of the meaning of “financial assistance”. Therefore, “financial assistance” under s45 of the Act can only apply to direct or indirect “financial assistance” which is limited to lending money, guaranteeing a loan or other obligation and securing any debt or obligation.
The SCA also confirmed that –
- noncompliance with s45 voids the “financial assistance” in question. Take note that the directors of the company may be subject to personal liability in these circumstances;
- the board must adopt a resolution to authorise the providing of financial assistance and comply with all the other provisions of Sec 45 which require performance before doing so;
- s20(7) (acting in good faith) cannot be used in defence of non-compliance with the substantive requirements of s45;
- the failure to give the notices required under s45(5) to shareholders and trade unions does not result in voidness of the financial assistance.
In an orbiter comment, the SCA remarked that s45(6) may amount to deprivation of property in contravention of s25(1) of the RSA Constitution.
The SCA judgement is to be welcomed as it removes much of the uncertainty surrounding the interpretation of “financial assistance”.
______________________________
If you like reading these “One-Liners”, please click the 🔔 (on my profile) so you don’t miss any new posts and please let me know your comments and share with others.