The Meaning of “Financial Assistance” in Terms of Section 45 of the Companies Act 71 of 2008

• Citation: (2024) 35 Stell LR 40
• DOI: https://doi.org/10.47348/SLR/2024/i1a3
• Published date: 06 February 2025
• Pages: 40-60
• Author: Olivier, E.
• Date: 06 February 2025

https://doi.org/10.47348/SLR/2024/i1a3

40

THE MEANING OF “FINANCIAL ASSISTANCE”

IN TERMS OF SECTION 45 OF THE

COMPANIES ACT 71 OF 2008

Etienne Olivier

LLB LLM LLD

Lecturer, University of the Western Cape

Abstract

In South African law, a company that wishes to provide nancial assistance

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

contained in section 45 of the Companies Act 71 of 2008 to validly execute

such a transaction. The Act contains no precise denition of the term

“nancial assistance”, causing commentators to speculate that the reach of

section 45 may be extremely wide. However, in Constantia Insurance Co Ltd

v Master, Johannesburg High Court 2023 5 SA 88 (SCA), the Supreme Court

of Appeal interpreted “nancial assistance” narrowly. In this contribution,

the Court’s restrictive interpretation of the term is critically analysed. I argue

that the Court’s decision was correct and that its interpretation of “nancial

assistance” is consistent with the objectives of South African company law

because it is likely to improve business efciency without unduly prejudicing

a company’s stakeholders. I also propose that the necessity for related-party

nancial assistance provisions should be reconsidered.

Keywords: Statutory interpretation; nancial assistance; directors; related

persons; shareholders; creditors

1 Introduction

Companies often transact with parties who are familiar or related to them,

or with whom they share a common interest.1 Such transactions can take

various forms, for example a purchase or sale of assets, rendering or

receiving of services, leases, loans, provision of security, guarantees, waivers

and assignments.2 These transactions are commonly called related-party

transactions.3

1 W Kenton “What is a Related-Party Transaction” (16-07-2024) Investopedia <https://www.

investopedia.com/terms/r/related-partytransaction.asp> (accessed 31-10-2024).

2 IFRS “IAS 24 Related-Party Disclosures” (07-03-2024) IFRS para 21

en/standards/ias/ias24 national> (accessed 31-10-2024).

3 A related-party transaction is “a transfer of resources, services, or obligations between related

parties, regardless of whether a price is charged.” IFRS “IAS 24 Related-Party Disclosures”

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THE MEANING OF “FINANCIAL ASSISTANCE” IN TERMS OF

SECTION 45 OF THE COMPANIES ACT71 OF 2008 41

https://doi.org/10.47348/SLR/2024/i1a3

Related-party transactions are potentially prejudicial to a company’s

stakeholders, particularly its shareholders and creditors.4 These transactions

invariably present a conict of interest5 and, where directors are involved,

are regarded as “self-dealing” – transactions where directors act as agent of a

company on one side of a transaction and as principal for their own interests

on the other side of the transaction. It is unsurprising that such transactions are

subject to regulation and oversight,6 as they are capable of being abused, not

only to secure undue or inappropriately excessive benets for the controllers

of the company or related parties, but also to obscure economic realities

through nancial engineering. The ripple-effect costs of the undisclosed

related-party transactions that took place at Steinhoff International Holdings

NV and Enron Corp are prime examples of this.7

Financial assistance (usually loans and the conferral of other benets

of a nancial nature) between a company and a related person is subject

to statutory regulation in several Commonwealth and common-law

jurisdictions, including the United Kingdom, United States of America,

Australia, Malaysia, New Zealand and South Africa. The term “nancial

assistance” appears in two separate sections in South Africa’s Companies

Act 71 of 2008. Section 44 of the Act regulates transactions that amount to

“nancial assistance for the purpose of or in connection with the purchase

of or acquisition in a company’s securities” (“SP nancial assistance”)

and section 45 deals with nancial assistance (for any purpose) granted

to directors, a related juristic person or to a person related to a director or

related juristic person (“RP nancial assistance”).8 Sections 44 and 45 of the

Act are worded similarly and both seem to be modelled on the now-repealed

(07-03-2024) IFRS para 24 9. See also S Rachagan “The Agency Problem of Related Party

Transactions and the Legal Strategies Used To Resolve It in Controlled Companies in Malaysia”

(2007) Lawasia Journal 105 112-113.

4 A company’s stakeholders are persons who “have an interest in the way the company is managed

by the directors”. IM Esser “Stakeholder Protection: The Position of Consumers” (2009) 72

THRHR 407 408. These stakeholders include investors (shareholders and creditors), employees,

suppliers, consumers, and the general public.

5 FHI Cassim & MF Cassim Law of Corporate Finance (2021) 360-361 comment that

“the legal concern is that an inuential manager or director will transact with the company on

terms less favourable to the company than would be obtained in an arm’s length negotiation …

Loans to directors could be stealth compensation for directors if they fail to repay the loans or

the company simply forgave them the loans.”

See also Kenton “What is a Related-Party Transaction” Investopedia, who remarks that related-

party transactions “can cloud the business environment by leading to conicts of interest”.

6 Cassim & Cassim Corporate Finance 359.

7 See PricewaterhouseCoopers “Overview of Forensic Investigation: Steinhoff International

Holdings N.V.” (15-03-2019) Corruption Watch para 4.2

wp-content/uploads/2020/08/overview-of-forensic-investigation.pdf> (accessed 31-10-2024)

and WC Powers, RS Troubh & HS Winokur Report of Investigation by the Special Investigative

Committee of the Board of Directors of Enron Corp (2002) 17, 178, 186.

8 The terminology of SP and RP nancial assistance is used by W Gray “Reform of the Financial

Assistance Provisions in CBCA-Type Model Statutes” (2002) 37 CBLJ 186 188-189.

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