QUESTION 1 [25]

1.1 Discuss the relevant section of the Companies Act 71 of 2008 that appears to be a codification of the common-law Turquand rule and highlight the similarities and the differences between the provisions of that particular section and the common-law Turquand rule. (10 Marks)

1.2 David is a non-executive director and chairperson of Free State Airlines SOC Ltd, a company that operates commercial flights between Johannesburg and Bloemfontein. David is also one of the major shareholders of Aerial Lease (Pty) Ltd, an aircraft leasing company. In a meeting chaired by David, and by a resolution proposed and supported by David, the board of directors of Free State Airlines SOC Ltd decides to lease three commercial aircrafts from Aerial Lease (Pty) Ltd. David does not inform the other directors of Free State Airlines SOC Ltd about his existing shareholding in Aerial Lease (Pty) Ltd. The entire board of directors of Free State Airlines SOC Ltd considers and approves the relevant lease agreement with Aerial Lease (Pty) Ltd. However, the other directors of Free State Airlines SOC Ltd subsequently become aware of David's shareholding in Aerial Lease (Pty) Ltd and they now want to retract the lease agreement. With reference to the relevant provisions of the Companies Act 71 of 2008, advise the board of directors of Free State Airlines SOC Ltd on the following matters:

1.2.1 Whether David has breached any specific duty that he owes to Free State Airlines SOC Ltd by not informing the board of directors about his shareholding in Aerial Lease (Pty) Ltd. (10 Marks)

1.2.2 Whether the lease agreement in this scenario is valid and binding on Free State Airlines SOC Ltd. (5 Marks)