Doctor Legum - LLD / The ideals of shareholder and creditor protection are affected by legislation pertaining
to the validity of a company’s transactions. Until legislative reforms introduced in the
twentieth century, a company’s capacity and the ultra vires doctrine traditionally limited
the company’s ability to contract. Therefore, the legal framework regulating corporate
capacity influences a company’s interactions with outsiders. The goal of the law in this
regard should be to facilitate commerce while providing adequate protection to all
affected stakeholders. South Africa’s Companies Act 71 of 2008 (the Act) contains
several novel provisions regarding a company’s capacity, the desirability of which is
questionable.
Special purpose vehicles (SPVs) are used for various purposes in commerce, from
asset holding in the financial services sector to concluding complex financial functions
in corporate finance. For instance, traditional securitisation is a financial engineering
technique that makes use of corporate SPVs. Traditional securitisation is a valuable
risk management, earnings management, and corporate financing tool. Incorporators
of securitisation SPVs often include capacity restrictions in the constitutions of such
entities as a means of reducing the likelihood that the SPV will be subject to liquidation
proceedings.This thesis analyses the capacity provisions in the Act to determine
whether they provide a commercially desirable framework to facilitate the activities of
SPVs used in traditional securitisation schemes.
The thesis argues that the capacity provisions in the Act in their current form are
undesirable because they place third parties at too great a risk in exchange for
inconsistent and unreliable shareholder protection. Executory ultra vires contracts
concluded by limited capacity companies are at the same time valid and capable of
being restrained by a single shareholder, director or prescribed officer of the company.
It is argued that the Act’s approach to corporate capacity is detrimental to commercial
certainty and creditor protection, and that capacity restrictions under the current
framework do not provide any more shareholder protection than ordinary authority
limitations would. Consequently, it is argued that the capacity provisions in the Act do
not make a positive contribution to the “insolvency-remoteness” of SPVs used in
traditional securitisation schemes. It is recommended that the capacity provisions in
the Act should be substantially amended, or deleted.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uwc/oai:etd.uwc.ac.za:11394/7635 |
| Date | January 2019 |
| Creators | Etienne, Aubrey Olivier |
| Contributors | Mupangavanhu, B.M. |
| Publisher | University of the Western Cape |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
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