Part (c) Discuss, in terms of the Companies Act, the following with respect to the loan to Pieter: • The validity of the loan; • The possible implications for the financial director of BioEnergy Power; and • Recommend matters that should have been considered.
Answer
The document provides a suggested solution for part (c) of a professional exam question. It discusses a loan given to Pieter by BioEnergy Power, focusing on three aspects based on the Companies Act:
Validity: The loan is considered financial assistance to a director's relative (Pieter is the son-in-law of the financial director, Kobus). For it to be valid, a special resolution and board approval, including a solvency and liquidity test, were required. The terms also had to be "fair and reasonable," which the interest-free nature of the loan contradicts.
Implications for the financial director (Kobus): Since the loan was not fair or reasonable, the decision by Kobus is void. He could be held liable for damages under Section 77 and for breaching his fiduciary duties under Section 76 of the Companies Act.
Matters to be considered: The board was required to give written notice to shareholders and trade unions. The company's action could also be seen as reckless trading under Section 22 because the loan was used for unreliable trucks, potentially harming stakeholders.
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