Abstract
The Companies Act 71 of 2008 replaced the Companies Act 61 of 1973. The objective of the Companies Act 71 of 2008 is, inter alia, to balance the rights and obligations of shareholders and directors within the companies. In line with this objective, section 45 of the Companies Act 71 of 2008 now allows a company to provide financial assistance to its directors and other persons. By allowing financial assistance, the Companies Act 71 of 2008 takes into consideration the interests of third parties and minority shareholders within the company. In this regard, it has allowed financial assistance subject to compliance with certain requirements and conditions. According to some of these requirements and conditions, the board of directors should, inter alia, ensure that immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test.
However, despite the aforesaid requirements, the provisions of section 45 are not satisfactory and, in certain respects, too far-reaching and treat directors too leniently. It is recommended, inter alia, that the legislature, in future amendments to the Companies Act 71 of 2008, should maintain a single solvency and liquidity test or scrap the test regards the provision of financial assistance to directors. Furthermore, terms and concepts such as “financial assistance” and “fair and reasonable” should be comprehensively defined.
A comparison between the South African and New Zealand jurisdictions revealed that the South African legislature can learn from the New Zealand Companies Act 105 of 1993. For instance, in New Zealand, the board of directors applies the solvency and liquidity test in instances where the shareholders authorise financial assistance.
Keywords: financial assistance; director; section 45 of the Companies Act 71 of 2008; liability of a director; section 161 of the New Zealand Companies Act 105 of 1993.
LL.M. (Corporate Law)