Section 45 financial assistance-Unpacking the Constantia Case
Introduction:
Section 45 of the Companies Act of 2008 (the “Companies Act”) is notoriously regarded as a problematic provision in the context of business transactions, given its effect of voiding business transactions which constitute the provision of financial assistance and which do not comply with the requirements of section 45. The ambiguity around the meaning of the term “financial assistance” has only served to underscore the infamy of the provision and created uncertainty in the application of section 45 to business transactions. Our courts have long recognised that the term “financial assistance” has not been comprehensively defined, which invariably gives rise to difficulty in determining whether the business transactions of a company constitute the giving of financial assistance. However, the recent Supreme Court of Appeal decision in Constantia Insurance Company Limited v The Master of the High Court, Johannesburg and Others (512/2021) [2022 ZASCA 179] (the “Constantia Case”) has reduced the uncertainty synonymous with section 45 by providing a more focused and clearer interpretation of the term “financial assistance” in section 45(1) of the Companies Act.
In this article, we consider how South African courts have defined financial assistance and unpack the meaning of section 45 financial assistance as determined in the Constantia Case whilst highlighting some of the practical implications of the decision.
