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South African Journal of Economic and Management Sciences
On-line version ISSN 2222-3436
Print version ISSN 1015-8812
S. Afr. j. econ. manag. sci. vol.13 n.1 Pretoria Jan. 2010
LAW AND ECONOMICS
Making sense of the disclosure of latent defects in financial statements and company acquisition contracts
Cornelius Kilian
Former Interim Researcher at the European Academy (EURAC). Centre for Financial Planning Law, University of the Free State
ABSTRACT
This paper analyses the statement made by the South African Appeal Court Judge Holmes in the Phame v Paizes (1973) case and, using economic and unique South African legal principles, it examines the true legal nature of a contract to regulate company acquisitions.1 Two solutions are offered for financial managers in South Africa: (1) the contract to regulate company acquisitions is a forward contract and (2) the difficulty in identifying latent defects should not be grounds for reducing the price paid for a company or enterprise in the South African legal system.
JEL: G34, K20
“Full text available only in PDF format”
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Accepted July 2009
Endnotes
1 I am grateful to Dr. David Levey and two anonymous referees for useful and helpful comments on an earlier draft of this contribution.
2 The quality of a company is observed by means of reliable financial methods or ratios which are capable of being compared with those of other companies in the same economic sphere. Bloomfield (2000) states that these methods or ratios must be universally acclaimed, otherwise good company qualities become just another synonym for hoodwink. Steiner (1998) indicates that these methods usually make use of profitability to calculate investment attractiveness.
3 My inclusion.