Section 45(3) provides that to the extent that any such financial assistance is provided directly or indirectly by a company to a:

• director or prescribed officer of the company or of a related or inter-related company (as defined in the Companies Act)

• related or inter-related company or corporation; or

• member of a related or inter-related corporation; or

• person related to any such company, corporation, director, prescribed officer or member,

such must be provided pursuant to – (i) an employee share scheme; or (ii) a special resolution of the shareholders adopted within the previous two years approving the financial assistance and (iii) the board having considered and been satisfied that:

• immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test.

• the terms under which the financial assistance is proposed to be given are fair and reasonable.

• any conditions or restrictions set out in the company's memorandum of incorporation relating to the provision of financial assistance have been satisfied.

If a company does not pass these resolutions, the Companies Act provides that the provision of such financial assistance would be void (not voidable as it cannot be ratified).

On 13 December 2022, the SCA delivered its judgment in Constantia Insurance Company Limited v The Master of the High Court, Johannesburg and Others1 (the Constantia SCA Case).

The court dealt with a number of issues, but for purposes of this article, we focus on:

(i) the court's ruling regarding the list of financial assistance being construed as an exhaustive list.

(ii) application of the board's mind when passing its resolution to approve the financial assistance and the result of failing to comply with such and the remaining provisions of section 45.

In the Constantia SCA Case, the Court considered whether the indemnity provided was considered financial assistance. By doing so, the provisions of section 45 were scrutinised based on the word "includes" which the Court stated generally denotes a term of extension, where the primary meaning of the term that is defined is well known and the word "includes" introduces a meaning or meanings that go beyond that primary meaning. The Court found that this was not the case in section 45 as all matters listed (and excluded) fell within the primary meaning and therefore the intention of section 45(1) is to determine the ambit of the term with certainty (i.e. it provides a closed list). However, notably the section still refers to directly and indirectly. On this basis, the indemnity was considered to be financial assistance as it indirectly secured obligations within the meaning of section 45(1)(a).

The Court in the Constantia SCA Case made it clear that the purpose of the provisions of section  45(1) is to ensure that the board has applied its mind to the facts and satisfy itself in terms of section 45(3)(b) that it is appropriate to place its assets at risk when providing such financial assistance. The Court noted that formal and procedural requirements must be distinguished from substantive requirements for the validity of a resolution or agreement and that the board passing its resolution and being satisfied on the matters is a substantive requirement.

In contrast, the requirement for the company who passed the financial assistance resolution to provide written notice to shareholders of the company in terms of section 45(5) of the Companies Act is procedural. Accordingly, failure to meet this requirement would not result in the financial assistance being void.

As key take-aways, please note that:

• a board of directors failure to consider and satisfy themselves to the terms of financial assistance and passing the required resolutions would result in the provision of such financial assistance being void.

section 45(1) list of financial assistance is intended to be a primary closed list of items in which a company may directly or indirectly provide to (i) director or prescribed officer of the company or of a related or inter-related company (as defined in the Companies Act), (ii) related or inter-related company or corporation, (iii) member of a related or inter-related corporation, or (iv) person related to any such company, corporation, director, prescribed officer or member.