Gardner v Margo : a misapplication of section 38 of the Companies Act

Abstract

The notorious prohibition against the giving of financial assistance for the shares of a company contained in s 38 of the Companies Act 61 of 1973 arose yet again in the recent Supreme Court of Appeal case of Gardner & another v Margo 2006 (6) SA 33 (SCA), in a judgment handed down by Van Heerden JA. One of the issues before the court was whether a guarantee given by a company in respect of a sale of the shares of that company was a contravention of s 38. The court ruled that the guarantee given by the company had not constituted financial assistance. On a proper application of the principles laid down in Gradwell (Pty) Ltd v Rostra Printers Ltd 1959 (4) SA 419 (A) and Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A), it appears that the court may have misapplied the established legal principles. Had it not done so, it might well have reached a different conclusion as to whether the guarantee had constituted financial assistance.