QUESTION 4 [20]

4.1 Thabang is a director of T-Shirts World (Pty) Ltd. The company has been experiencing financial difficulties and its business has declined. It owes money to a large number of creditors and is in financial distress. Thabang is considering placing the company in business rescue but approaches you first to advise him as to whether entering into a compromise is an option he could pursue. Thabang is also concerned that one of the creditors of T-Shirts World (Pty) Ltd may apply to court to liquidate the company and wants to know whether a compromise will still apply if the company is in liquidation. He is reluctant to go to court and wants to know whether a compromise may be concluded without involving the court. Advise Thabang on these matters. (8 Marks)

4.2 Andrew is the designated auditor of Electronics Ltd, a company whose shares are listed on the Johannesburg Stock Exchange. During the course of auditing the company's financial statements, Andrew becomes aware of confidential information relating to the overstatement of the company's financial statements that has been going on for three years. Andrew sends his friend, Ntombi, a text message advising her to sell all the shares she holds in Electronics Ltd. Ntombi immediately sells all the shares she holds in the company. The following week, Electronics Ltd makes a public disclosure of accounting irregularities involving overstatement of its annual financial statements for the past three financial years and the resignation of its senior executive directors who are directly implicated in the accounting irregularities. The company's shares have lost 80% in value since the company's public announcement of the accounting irregularities and the resignation of its senior executive directors. Ntombi realises that she would have lost R40 million if she had not sold the shares and she gives a total of R5 million to Andrew to express her gratitude for Andrew's advice to sell the shares.

With reference to the provisions of the Financial Markets Act 19 of 2012 and the facts provided, advise Andrew on his position in relation to inside information, the relevant insider trading offence(s) and liability for the relevant insider trading offence(s). (You should not deal with the defences to any insider trading offence(s) in your answer.) (12 Marks)