IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
CASE NUMBER:						9512/2010
DATE:							21 OCTOBER 2010
In the matter between: 

and

(Application for Leave to Appeal)

This is an application for leave to appeal against the judgment of this Court of 25 June 2010 in which summary judgment was granted in favour of the plaintiff. The defendants have now approached the Court for leave to appeal either to the Supreme Court of Appeal or alternatively to a Full Bench of this Division.

"The afore-mentioned dividends and amounts received by the plaintiff must be set off against the plaintiff's claim."

There is no legal basis in my view, by which these alleged amounts should be set off against amounts contained in the facilities agreement.

Insofar as section 38(1) of the Companies Act is concerned, the averment is made in an opposing affidavit (which is characterised by considerable vagueness and imprecision). The essential averment suggests that the defendants addressed their concern with regard to section 38(1) of the Companies Act with managers of the plaintiff, who advised that plaintiff had a method of structuring the purchase of the shares of the company in such a way that it would not amount to a contravention of section 38. Thereafter the affidavit sets out the background to the transaction and avers that the monies which flowed from the facility agreement, in effect were raised in the name of a company. The loan monies were then used directly by the two defendants to purchase shares in the company and accordingly the transaction fell foul of section 38(1).

"The general prohibition against financial assistance by a company for the purposes of the shares, does not apply if:
(a)(i)   the   company's   board   is   satisfied   that subsequent to the transaction,  the  consolidated
assets of the company fairly valued will be more than its consolidated liabilities;
(a)(ii) that subsequent to providing the assistance
and for the duration of the transaction, the company
will be able to pay its debts as they become due in
the ordinary cause of business, and that;
(b) the terms upon which the assistance is to be
given, is sanctioned by a special resolution of its
members."

On the papers before me, there is no averment at all that the board of the company was not satisfied, that the company was solvent and liquid, subsequent to the transactions in terms of which the alleged financial assistance was rendered by the company. There is, in other words, no averment which can be said to suggest that there has been a contravention of section 38 of the Companies Act when account is taken of the operative section, that is section 38(2A).