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TransKaroo Exploration Ltd is a mining company, whose business included fracking for gas. The directors are Gerry, Khulubuse and Atul. All of the directors were incorporators of the company and became directors once the company was incorporated and they had all consented to be named as director in the prospectus offering shares to the public.

Included in its prospectus was a statement to the effect that they had acquired the mining rights to a piece of land in the Karoo near Oudtshoorn. The statement indicated that they had acquired rights to frack for gas. Atul had been mandated by the others to acquire the geological report. A geological report by Dr Verwey, a geologist, employed at the University of the Free State, was referred to in the prospectus and attached to the prospectus. The geological report was to the effect that the prospects of success were extremely high. Dr Verwey had consented to the attachment of his report.

On the faith of the prospectus many people subscribed for shares in TransKaroo Exploration Ltd. As it turned Dr Verwey was completely wrong with regard to the prospects of the success of the venture. It was later discovered that Dr Verwey was the third geologist that Atul had approached and that the other two reports were in agreement that if there was gas to be extracted from that piece of land it would be economically unviable to exploit it. Atul did not disclose to Gerry and Khulubuse that he had received the two negative reports.

Who could the shareholders hold liable for that loss? (10)

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