MARKING KEY – BS 390 TEST 2025

QUESTION 1 – SUGGESTED ANSWER

The question generally tests the students’ understanding of corporate governance in general
and its practical relevance for directors of the company. Specifically, the question asks the
students to explain the leadership principle as stated in the International Standard
Organisation (ISO) 37000:2021 Governance of Organisations. A good answer should
therefore start by explaining what corporate governance is in general.

Students should then refer to section 86 (1) of the Companies Act No. 10 of 2017 which
provides that, “the business of a company shall be managed by, or under the direction or
supervision of, a board of directors, who may pay all expenses incurred in promoting and
forming the company, and may exercise all such powers of the company as are not, by this
Act or the articles, required to be exercised by the members.” This section makes the directors
de jure leaders of the company. The correct answer should highlight and explain section 105
of the Companies Act which provides for the general responsibilities of directors and relate
these to the requirement to lead by example as follows:

(a) Take necessary measures to prevent, reduce and manage any attendant risks to the
business of the company.

(b) Not cause, allow or agree for the business of the company to be conducted in a manner
that is likely to create a substantial risk of serious loss to a member or creditor of the company;
and

(c) When exercising powers or performing duties of a director-

(i) Act in good faith and in the best interests of the company; and

(ii) Exercise the degree of care, diligence and skill that may reasonably be expected of a person
carrying out the functions of a director.

Section 106 which codifies the fiduciary duties of Directors must also be highlighted in the
answer. The student is expected to allude to those duties that are relevant to enforcing the
leadership principle and these include:

(a) Exercise the power of the director’s (i) in accordance with the Act and within the Articles
and (ii) for the purpose for which the power was given.

Compliance: The directors must exercise their collective powers in accordance with the
Incorporation Form, articles of association and the law generally. They must ensure that as
they discharge their functions, they have due regard to the Incorporation Form, articles and
the law as it stands. For example, if the directors were to declare a dividend when the
company had insufficient funds to warrant that dividend, it would be an example of this
breach of duty.

(b) Promote the success of the company

Loyalty: Directors must act in good faith in doing what they consider to be in the best interest
of the company.
No Secret Profit: The directors must not use their positions, i.e. use the company’s property,
name, information or indeed opportunities that belong to the company for purposes of
advancing their own or anyone’s benefit unless it is allowed by the company’s constitution or
in those cases where the directors will have appropriately declared their interest and the
company consented to the directors retaining the benefit.

(c) Exercise independent judgment

Independent judgment is linked to the issue promoting the success of the company or acting
in the best interests of the company. Directors are placed on boards to provide oversight roles.
This oversight role can only be effective if the directors are not influenced by anything other
than what will promote the success of the company. This also means that the directors must
be competent enough not necessarily in the technical sense of the business but in decision
making or providing strategic direction and leadership.

QUESTION 2 – SUGGESTED ANSWER

The question tests the student’s understanding of shareholders agreements and their effect on
the company and members. The question also tests the knowledge on the procedure for
alteration of articles. A good answer will therefore start by discussing the fact that it is
perfectly legal for shareholders to enter into shareholders agreements to deal with matters
relating to the company.

Some of these matters may or may not be specifically provided for in the articles. It is also
important to point out that as a general rule articles will prevail in so far as the conflicting
provision relates to the obligation of the company. If it relates to the obligations of the
shareholders, it is the shareholders agreement that will prevail (as long as the obligations of
the company are not being compromised). The students are then required to address the
judgment of the court of first instance which held that the shareholders agreement had the
same effect as a special resolution altering the articles by referring to the procedure for
amendments set out in section 27 of the Companies Act No. 10 of 2017.

The student is then expected to express a view on whether the non-compliance with the
procedure set out in section 27 of the Act would invalidate the alteration or as the court held,
it was immaterial. There is no one right answer here as long as the students can properly
justify their position with relevant authorities. Their answer to this question would then have
to lead them to express an opinion on whether or not to appeal the judgement of the court of
first instance. A note should however be taken of the fact that section 27 (4) of the Act only
provides for a penalty for non-compliance with section 27 (2) of the Act and does not
necessarily invalidate the decision of the members as regards alteration of the articles.

The relevant case here is Cane v Jones [1980] 1 WLR 1451 in which the court held that an
informal, unanimous agreement between members maybe effective as an extraordinary or
special resolution. Other cases that may be cited include Re Duomatic Ltd [1969] 2 Ch 365 - a
company is bound in a matter intra vires by the unanimous but informal agreement of its
voting members. Also Euro Brokers Holdings Ltd v Monecor (London) Ltd [2003] EWCA
Civ 105, [2003] 1 BCLC 506 (Court of Appeal) – applied the Duomatic principle to
shareholder’s agreements.
QUESTION 3 - SUGGESTED ANSWER

The question generally tests the students’ understanding and knowledge of lifting of the
corporate veil. The main issue in this question is whether Salamano Group of Companies
Limited can be held accountable for the debt of its subsidiary, Kulya Bwino Milling Limited.
Since the question asks the student to assume the role of a researcher that is drafting the Ruling
of the court, the students should discuss the major cases on lifting of the corporate veil that
are relevant to the facts of the case.

In the case of Madison Investment Property and Advisory Company Ltd v Peter Kanyinji
SJ No. 48 of 2018, the Supreme Court of Zambia extensively discussed the circumstances
under which the corporate veil can be lifted. The students should be able to refer to this case
in detail including some of the leading cases on lifting of the corporate veil such as Gilford
Motor Co Ltd v Horne; Jones v Lipman; DHN Food Distributors Ltd v Tower Hamlets;
Woolfson v Strathclyde Regional Council and Adams v Cape Industries Plc and clearly
bring out the pertinent issues in those cases as they relate to the question.

In terms of what the Ruling of the Court should be, the students should be able to point to the
case of Ord v Belhaven Ltd (1998) in which the court of appeal, based on the facts of that case,
took the view that the reorganization of the group was a legitimate and not merely a façade
to conceal true facts. The determining factor in this case would be the motive of the Group in
reorganizing. Since there is no allegation that it was meant to conceal or evade the payment
of the debt, Salamano Group of Companies Limited should ordinarily have no direct liability
to Pweteka Farms and Livestock Limited and therefore the application to join it to the action
only on that basis should be refused by the Court.

QUESTION 4 – SUGGESTED ANSWER

The question is generally about the effect of the articles as a contract and specifically on
whether the company was bound by a clause that had been inserted in the articles of the
company to appoint Muzezo Mojo as a director in the company for life. A good answer must
discuss section 26 of the Companies Act No. 10 of 2017 and what that section means as regards
the company’s articles as a contract.

The students must point out that the articles do not constitute a contract between the company
and someone who is not a member of the company. Section 26 of the Companies Act only
refers to there being a contract between the company and each of its members and amongst
the members and further that the articles shall bind the company and its members. The
students should cite the case of Hickman v Kent or Romney Marsh Sheep – Breeders
Association [1915] 1 Ch 188 in which the court stated what is in section 26 of the Companies
Act to the effect that the contract created by the articles affects members only in their capacity
as members, and not in any special or personal capacity such as a director.

By virtue of section 26 of the Companies Act, one member may sue another on a contract
created by the articles without joining the company as a party. The case of Rayfield v Hands
[1960] Ch 1 is an authority for this. The students should be able to argue that based on the
above, the company was not a proper party to the proceedings on account of there being no
contract between Muzezo Mojo and the company
QUESTION 5 – SUGGESTED ANSWER

The question is basically about how to set up a company under Zambian law bearing in mind
that the clients want to manage their risks including the legal risks. A good answer must then
list companies that can be set up under the Companies Act No. 10 of 2017 as follows as options:

a) Public Company

The term “Public Company” is used to describe a company which is incorporated in

b) Private Companies Limited by Shares

These are by far the majority of companies registered in Zambia. Private companies are
provided for under section 9 of the Companies Act. The legal letter of such companies is
summarized in the application form of companies. They are formed for purposes of creating
profit while at the same time offering limited liability.

c) Companies Limited by Guarantee

Section 10 of the Companies Act provides for a company limited by guarantee. This type of
company does not have share capital; must not carry on business for purposes of profit to its
members or anyone responsible for its management; it is not allowed to invite members of the
public to acquire shares. Companies Form 6 must be filled in by subscribers to indicate that in
the event of winding-up, the subscribers shall pay what they have guaranteed.

The members are not referred to as shareholders because there is no share capital. One
therefore, becomes a member by subscribing and by signing Companies Form 6 as well as
meeting the other pre-requisite requirements. A company limited by guarantee can make an
application to the Registrar by which it will be entitled to omit the use of the word “limited”
(section 37(1) of the Companies Act).

d) Foreign Companies

Section 299 under Part XIV of the Companies Act also provides for registration of foreign
companies.

In terms of the required information, section 12 of the Companies Act sets out the
documentation you must prepare for such purposes. In summary, the application for
incorporation must be accompanied by the following documents:

a) Proposed articles of the company or a statement that the Standard articles of association
have been adopted.

b) Declaration of compliance made in accordance with section 13 of the Companies Act.

c) Declaration of Consent from each person named in the application as a director or secretary
of the company.
d) Declaration of guarantee signed by each subscriber, if the company is limited by guarantee.

e) Statement of beneficial ownership in the prescribed manner.

f) Declaration by applicants that the particulars of the beneficial owners have been submitted
to the Registrar with the knowledge of those individuals.