"Gardner v Margo: A Misapplication of Section 38 of the Companies Act"

Abstract

This case note critically analyses the Supreme Court of Appeal case of Gardner and Another v Margo 2006 (6) SA 33 (SCA). 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 section 38 of the Companies Act 61 of 1973, which provision prohibited a company from giving financial assistance for the purpose of or in connection with a purchase or subscription of or for any shares of the company. The court ruled that the guarantee given by the company had not constituted financial assistance. This note argues that the court may have misapplied the established legal principles relating to the prohibition against the giving of financial assistance for the shares of a company and that had it not done so, it might well have reached a different conclusion as to whether the guarantee had constituted financial assistance in contravention of section 38 of the Companies Act.