QUESTION 1

Heavenly Experiences (Pty) Ltd has five directors, Kate, Mr Sam, Tina, Indiana, and Montana. The company has issued one class of shares (ordinary shares with ordinary dividend and voting rights). The shareholding is divided as follows:

25.5% Kate

25.5% Mr Sam

20% Tina

5% Indiana

5% Montana

19% Hope4UsAll NPC

There are no restrictive conditions applicable to the company, but in terms of the company's Memorandum of Incorporation (MOI), Kate, Mr Sam, and Tina do not have contractual authority, while Indiana and Montana do. It is further provided in the MOI that directors can only be removed by way of a shareholders' special resolution.

1.1 Indiana binds Heavenly Experiences to a contract with Let's Fix It, a company in which he holds a majority shareholding. He does not disclose this fact to the board or the shareholders before the transaction. Has Indiana breached any legal duties in terms of this transaction? Briefly discuss.(3 marks)

1.2 Tina's daughter, Katy, negligently destroys one of the company's properties, causing severe financial loss to the company. Hope4UsAll approaches you for advice, as the NPC is unhappy about the loss that is likely to result in a lack of dividend payments for at least the next two financial years. The NPC depends on dividends from Heavenly Experiences in order to conduct its charitable objectives, and is frustrated that the company does not wish to pursue a claim for damages against Katy. They are also not in a position to force the removal of the company's board of directors. Does Hope4UsAll have any rights in such a situation, and if so, how should it enforce these rights?(6 marks)

1.3 The board of Heavenly Experiences makes a proposal to merge with Company X. They have set the matter down to be voted upon at the next shareholders' general meeting. Hope4UsAll is against the merger because it is concerned that its interests and rights will be diluted if the merger proceeds. The problem is made worse by the fact that the NPC is unable to find a buyer for its shares on the open market. Thoroughly explain whether Hope4UsAll has any rights in this situation, and if so, what process must be followed to enforce these rights?(8 marks)

1.4 Kate identifies a potentially profitable opportunity that needs to be acted on immediately. She concludes a contract on the company's behalf with Supplier X. Hope4UsAll objects to this contract, but all the directors are in favour of it. Write an opinion in which you comprehensively analyse the validity of this contract, and the steps that the company can take to ensure that the contract is valid.(8 marks)