Principle 2 states that the governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture. Name the recommended practices on how the governing body should govern ethically.

1.          Briefly list the membership requirements for the audit committee according to section 94 by referring to what a member must and must not be.

2.          Briefly describe the main duties of the audit committee according to section 94.

The King IV Report states that the governing body should lead ethically and effectively. It states that members of the governing body should individually and collectively cultivate the following characteristics and exhibit them in their conduct: integrity, competence, responsibility, accountability, fairness and transparency.

Briefly discuss how these values and duties tie up with sections 76 to 78 of the Companies Act.

You are the auditor of Craft (Pty) Ltd, a manufacturing company in the marine engineering sector. The MOI contains, inter alia, the following clause:

Any director or prescribed officer of the company who has a personal financial interest in a contract into which this company has entered or will enter, either directly or indirectly, shall comply with the Companies Act, 2008. The contract will be binding, provided that the authority of the company in general meetings is obtained by poll for the contract, prior to the contract being entered into.

Your scrutiny of the minutes of directors’ meetings reveals that the company entered into a contract with Marine (Pty) Ltd for the purchase of 10 highly sophisticated and expensive radar systems valued at approximately R1 million each. Tony Teak is a director of Craft (Pty) Ltd and his brother Terry is the majority shareholder of Marine (Pty) Ltd.

REQUIRED

Discuss the requirements of the Companies Act of 2008 relating to the contract that Craft (Pty) Ltd entered into with Marine (Pty) Ltd, particularly in view of the relationship between Tony and Terry Teak.  

1.                 Is the following statement true or false? A resolution at a directors’ meeting will be approved if 50% of the directors vote in favour of the resolution.                                                                                        

2.                 What is the quorum for a directors’ meeting where the company has the following number of directors?

(i)            two directors

(ii)           three directors

(iii)         nine directors

(iv)         twelve directors                                                                        

3.                 When the directors of a public company have a meeting, the following individuals cannot be included in determining the quorum for that meeting. Indicate “true” or “false” AND give a reason for your choice.

(i)          company secretary

(ii)         independent non-executive chairperson

(iii)       other non-executive directors

(iv)       the chief audit executive (head of internal audit)

You are a chartered accountant (SA) and an expert on the Companies Act.

Document Exchange Ltd (Docex) specialises in the distribution of local and international mail and parcels. Docex has branches countrywide to spread its service delivery footprint and its customers range from individuals to large companies.

Docex holds a 70% interest in Carrier and Freight Company Ltd (CFC).

An extract of the minutes of the meeting of the board of directors of Docex is provided below:

Present:

Mr Fana Freight, chairman, independent non-executive director

Mr Clement Courier, non-executive director

Mr Tim Transport, sales and marketing director

Mr Lesley Logistics, managing director

Ms Patricia Post, financial director

Mr Mannie Mail, company secretary

Apologies:

Mr Rocky Road, executive director

Matters for discussion:

Dismissal of a director

Fana Freight presented to the board that allegations recently arose against Rocky Road regarding his involvement in a fraudulent scheme where R3 million was stolen from Docex.

Fana Freight explained that Rocky Road has not been found guilty yet; however, it is in the best interest of the company to dismiss Rocky Road immediately.

The board agreed and approved the decision to remove Rocky Road as director of Docex.

Appointment of director

The board resolved that Rocky Road will be replaced as director. Clement Courier presented a list of recommended candidates to be considered for the position to replace Rocky Road as director.

The following candidates appeared on the list:

·       Mr Air Mail, Patricia Post’s 17-year-old son who obtains high marks for Accounting

·       Container Incorporated, a personal liability company

·       Ms Delores Stamp, chartered accountant (SA), the court declared her as a rehabilitated insolvent

·       Mr Louis Letter was convicted and imprisoned due to his involvement in fraudulent activities at his previous company

The board resolved that the appointment of the new director from the list of recommended candidates will be made at the next board meeting.

REQUIRED:

Explain to the board which of the candidates listed under “Appointment of director” will be permissible and which of the candidates will not be permissible in terms of the requirements of the Companies Act to be appointed as the new director of Docex.

Discuss whether it was legal in terms of the Companies Act for the board to dismiss the director.

1.     List the persons that are ineligible from being appointed as a director in terms of the Companies Act.

2.     List the persons that are disqualified from being appointed as a director in terms of the Companies Act.

Describe what it means for an organisation to be an integral part of society.

Discuss in your own words what you understand by stakeholder inclusivity.

Explain in your own words what the concept “apply and explain” means.  Do you think that this allows directors to avoid adhering to principles of good corporate governance?