11.7 DIRECTORS EXCEEDING THEIR AUTHORITY IN A SHARE ISSUE
S 38 (2) deals with the situation where the directors exceed their authority to issue shares. An unauthorized share issue transaction is to be reversed if the transaction is not ratified by the shareholders. In terms of S 38(1) the Board may resolve to issue any shares at any time but only within the classes and to the extent that the shares have been authorised or are in terms of the Company’s MOI. Such share issues are to be in accordance with s 36.
If the shares have not been authorised in accordance with s 36 or are in excess of the number of authorised shares of any particular class, the issuance of these shares may be retroactively authorised in accordance with s 36 within 60 business days after the date on which the shares were issued. If a special resolution to sort out the unauthorized issue, is not adopted when put to the vote at a general meeting, the share issue is a nullity to the extent that it exceeds any authorization. Also see s 200(2) in this regard.
In terms of s 38(d) the Company must return to any person the fair value of the consideration received by the company, together with interest in accordance with the prescribed rate of the Interest Act.