Companies ACt s75

Question 1

Harry is conflicted regarding the Board’s decision to award the contract to PackFast as:
 He (Harry) owns 10% of the equity interest in PackFast and is also the CFO and a director of DMG;

 His sister (Sally) owns 90% and is the CEO of PackFast who would benefit financially from the contract

Answer 1

Section 75 of the Companies Act as the contract between DMG and PackFast will lead to significant
personal financial benefits for him as as shareholder of PackFast.

Question 2

A further consideration is that Harry also did not acted with the required degree of care, skill and diligence
as required by section 76

Harry could be held liable in terms of Section 77 of the companies ac

Answer 2

Harry is a CA(SA) and must adhere to the SAICA CPC requirements for Accountants in Business.

Question 2

Accordingly he should have disclosed his personal financial interest in the contract with PackFast:
 his direct interest of 10%;
 his indirect interest arising from Sally being his sister and related in term of section 2 of the
Companies Act (90% ownership and being the CEO).

Answer 2

Following the requirements from section 75 Harry should further have:
 left the meeting immediately after disclosing his interest in the matter; and
 not taken part in the consideration of the matter (not have voted on the matter

Question 3

Objectivity/Independence:
 Self-interest threat exists due to -
 The interest in the contract/conflict might compromise his business judgement to act in the best interest of
DMG;

Answer 3

Integrity:
 Not disclosing his interest could lead to him not being honest and straightforward in his dealings with the
board of directors / DMG; and

Question 4

Professional behavior:
 Not disclosing his interest could lead to non compliance with laws and regulations and accordingly
contravening the SAICA CPC and Companies Act.

Answer 4

The threats to these fundamental principles cannot be regarded as being at an acceptably low level (is
significant) because not disclosing the interest and voting on the contract with PackFast:
 Contravene section Companies Act (section 75);

Question 5

Safeguards need to be applied to eliminate the threats to compliance created by conflict of interest or to
reduce to an acceptable level (e.g withdrawing from decision making process related to the matter,
consulting with third parties etc.)

Answer 5

Accordingly it is clear that Harry did not follow the safeguards as required by the SAICA Code and could
be found guilty of improper conduct (conclusion)