What is “financial assistance” for purposes of section 45 of the Companies Act 71 of 2008?
 

Author: 

E Olivier

Summary: 

In South Africa, a company that wishes to provide financial assistance (e.g.,  loans, guarantees or provision of securities) to one of its directors, a related juristic person, or to a person related to a director or related juristic person, must comply with the requirements of section 45 of the Companies Act 71 of 2008 to validly execute such a transaction. The Act contains no precise definition of the term “financial assistance”, causing commentators to speculate that section 45 may be extremely wide, covering any transaction that is similar to a loan, guarantee, or the provision of security. However, in Constantia Insurance Co Ltd v Master, Johannesburg High Court 2023 5 SA 88 (SCA), the Supreme Court of Appeal adopted a narrow interpretation of “financial assistance”. In this article, the Court’s restrictive interpretation of the term is critically analysed. Despite disagreeing with the interpretive method used by the Court (particularly the absence of engagement with purposivism), the article argues that the Court’s decision was correct and that its narrow interpretation of “financial assistance” is consistent with the objectives of South African company law, and is likely to improve business efficiency without unduly prejudicing a company’s stakeholders. Nevertheless, to stimulate further research into this important area of corporate finance decision-making, the article proposes that the rationale for the existence of related-party financial assistance provisions should be reconsidered, and that Canada’s example of not regulating such transactions at all should be investigated as a more modern, streamlined, and facilitative approach to related party financial assistance.


Link to journal Article