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DealMakers - 2022 Annual (released February 2023)


What constitutes financial assistance for purposes of section 45?

by Thandiwe Nhlapho and Brian Jennings

The Supreme Court of Appeal set aside an indemnity agreement for failure to comply with financial assistance requirements.

Section 45 of the Companies Act 71 of 2008 (Companies Act) is one of the most applied sections in commercial practice, particularly in financing transactions. Given the wide application of the section, there has often been debate about which transactions or actions constitute “financial assistance”  and are, therefore, subject to the requirements of s45. The Supreme Court of Appeal  (SCA) in Constantia Insurance Company Limited v  The Master of the High Court, Johannesburg and Others (512/2021) [2022] ZASCA 179 (13 December 2022) recently laid the debate to rest.

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Thandiwe Nhlapo

The appellant, Constantia Insurance Company (Constantia) issued various performance guarantees to secure the obligations of Protech Khuthele Proprietary Limited (Protech Khuthele) (Guarantees) owing to third parties. Protech Khuthele was one of the six subsidiaries wholly-owned by Protech Khuthele Property Investments (Protech Investments), which in turn was wholly-owned by Protech Khuthele Holdings Limited (Protech Holdings) (together they constituted the Protech Group).

In return, Protech Holdings and its subsidiaries, represented by its CEO, undertook in favour of Constantia to indemnify and hold it harmless from and against, among other things, any demands, liabilities or payments payable by Constantia under the Guarantee to third parties (Indemnity). The effect of this was that each of the companies in the Protech Group undertook this obligation. 

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Brian Jennings

The Protech Group, including Protech Khuthele went into liquidation. Various third-party creditors made demands on Constantia in terms of the Guarantee. At the meeting of creditors of Protech Investments, Contantia unsuccessfully called on Protech Investments to indemnify it in respect of the demands under the Indemnity, which amounted to some R182m, to secure Protech Khuthele’s obligations (Claims). 

The liquidators of the Protech Group disputed the Claims on the basis, among others, that the Indemnity in respect of the Guarantees constituted financial assistance by Protech Investments to Protech Khuthele within the meaning of s45 and that the requirements thereof were not complied with; namely, the board of directors satisfying itself of the solvency and liquidity test and that the terms under which financial assistance was proposed were fair and reasonable (Board Consideration).

The SCA Decision 
In an appeal to the SCA, the court had to decide, among other things, whether the Indemnity constituted “financial assistance”  as contemplated in s45 of the Companies Act. In interpreting s45, the court found that:

  • All the matters included by s45(1)(a) (and excluded by s45(1)(b)) fall within the primary meaning of financial assistance, and concluded that the matters mentioned in s45(1)(a) are exhaustive of the meaning of financial assistance.

  • S45(2) applies to both direct and indirect financial assistance. Protech Investments (and not Protech Khuthele directly) put its property at risk through the indemnity to ensure that Constantia provided the Guarantees. Thus, Protech Investments indirectly secured the obligations of Protech Khuthele within the meaning of s45(1)(a).

  • The fact that the solvency and liquidity of the Protech Group was considered by the audit and risk committee of Protech Holdings clearly did not meet the requirements of the Board Consideration contemplated in s45.

  • Non-compliance with the ex post facto notices contemplated by s45(5) would not render a resolution or an agreement to provide financial assistance void.


The court ultimately found that despite that there may have been compliance with the requirement for a special resolution of shareholders by Protech Holdings authorising the CEO to execute the Indemnity on behalf of Protech Holdings and the members of the Protech Group, there was no board resolution evidencing the Board Consideration by Protech Investments and, as a result, the Indemnity was void in terms of s45(6) and the Claims had to be expunged.

Going forward
This judgment will be a reminder to parties entering into financial transactions that:

  • what constitutes financial assistance for purposes of s45 is a closed list;

  • the requisite board resolution under s45(3) must be passed by the directors of the company granting financial assistance at each instance and not at group level;

  • non-compliance with the Board Consideration will result in a transaction being void; and

  • the question is not whether there could have been compliance with the Board Consideration at the time, but rather, whether there was, in fact, compliance.


Nhlapho is a Senior Associate and Jennings a Director in Corporate and Commercial | Cliffe Dekker Hofmeyr.

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