The New Companies Act

SELECT TOPICS ON THE COMPANIES ACT

AND COMPANIES COMMISSION, 2008

Adv Rory Voller

Deputy Commissioner

Companies and Intellectual Property

Commission - South Africa

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The New Companies Act -

Introduction

• The new Companies Act development process began in earnest over eight years agousing guidance developed in the Department of Trade and Industry (the dti) policy document titled South African Company Law for the 21st Century: Guidelines for Corporate Law Reform (May 2004). The ultimate goal of the reform was to ensure that the regulatory framework for enterprises [of all types and sizes] promoted ―growth, employment, innovation, stability, good governance, confidence and international competitiveness.‖

• The new Companies Act was introduced in Parliament during 2008 and published for general comment on 27 June 2008 as Bill 61 0f 2008.

• The President signed off the Bill during April 2009

• The new South African Companies Act became enforceable on the 1 May 2011

INSTITUTIONAL REFORM

The Act establishes of one new institution, and the transformation of three existing company law entities, which together will provide for a more predictable regulatory and enforcement system.

The four institutions are :

• The Companies and Intellectual Property Commission• The Takeover Regulation Panel

• The Financial Reporting Standards Council

• The Companies Tribunal

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THE COMPANIES AND INTELLECTUAL PROPERTY COMMISSION

The Commission will be a merging of the Companies and Intellectual Property registration office [CIPRO]and the enforcement division of the DTI, known as the Office of Company and Intellectual Property Enforcement [OCIPE]

Will be managed by a Commissioner and a Deputy Commissioner who were appointed by Cabinet on 30 March 2011.

The Registrars authority under all Acts administered by CIPRO, will be amended to provide authority for the Commissioners

CIPRO has been transformed from being an Administrator to a full Regulator of Companies and Company law.

Commission will be self –funded from fees charged for services

Commission will be an independent juristic person as

– an organ of state within public administration

– but an institution outside the public service

INSTITUTIONAL REFORM IN THE ACT

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INSTITUTIONAL REFORM IN THE ACT

Main functions of Commission

• Registration of Companies, Co-operatives and IP Rights and maintenance thereof

• Disclosure of Information on its register

• Promotion of education and awareness of Company and IP Law

• Promotion of compliance with relevant legislation

• Efficient and effective enforcement of relevant legislation

• Monitoring compliance with and contraventions of financial reporting standards, and

making recommendations thereto to FRSC

• Licensing of Business rescue practitioners***

• Oversight role of Independent Review professional bodies***

• Report , research and advise Minister on matters of national policy relating to company

and intellectual property law

The Re-birth

INSTITUTIONAL REFORM IN THE ACT

The Act further transformed the existing Securities Regulation Panel into an independent organ of state, the THE TAKEOVER REGULATION PANEL, with powers to regulate mergers, acquisitions, schemes of arrangement, change of control issues

The FINANCIAL REPORTING STANDARDS COUNCIL ( “the FRSC‖) is re-established as an advisory committee to the Minister, with responsibilities to advise on regulations establishing financial reporting standards, which will govern the form, content and maintenance of companies’ financial records and statements.

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INSTITUTIONAL REFORM IN THE ACT

THE COMPANIES TRIBUNAL :

which will be an independent organ of state, with a dual mandate—

(a) First, to serve as a forum for voluntary alternative dispute resolution in any matter arising under the Act; and

(b) Second, to carry out reviews of administrative decisions made by the Commission.

Those decisions of the Tribunal will be binding on the Commission, but not on the other party, which has a constitutional right of access to a court for further review.

As is the case under the Companies Act, 1973, the High Court remains the primary medium for resolution of disputes, interpretation and enforcement of the proposed Companies Act.

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COMPANY NAMES

This Act retains the broad outlines of the existing regime for company names, in particular continuing the practice of name reservation, but not making same mandatory.

The name reservation process will not be a stand alone, formal pre-registration process.

If a proposed name is rejected, then the registration number becomes the name of the company.

In addition, the Act proposes reforming the criteria for acceptable names in a manner that seeks to give maximum effect to the constitutional right to freedom of expression.

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COMPANY NAMES

• Symbols allowed in name : + & # @ % = ― – To be deferred for implementation• All languages accepted, with certified translations

• Name squatting process now included

• Names can be forwarded to the Human Rights Commission if unsure if offensive

• Names are allowed to be transferred from applicant to other persons

• New Category of Ring –fenced (RF) companies included – special conditions or

restrictions in MOI – no need for name change application as suffix only

• Business/Trading names to be registered under the Consumer protection Act

• Defensive name reservation process retained

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CATEGORIES OF COMPANIESThe Act provides for 2 categories of companies for registration:

• Non profit companies – NPC – 3 Directors – 3 Incorporators

• For profit companies: 1 Incorporator

– private companies – Pty Ltd – 1 director

– personal liability companies – Inc – 1 director

– public companies – Ltd – 3 director

– state-owned companies – SOC ltd – 3 directors

Alternate language expression now allowed

External company – cross cutting of categories

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COMPANY FORMATION

A company is incorporated by the lodging of a :

• Notice of Incorporation

• Memorandum of Incorporation (MoI) adoption with choices,• Payment of filing fee

The Act imposes certain specific requirements on the content of a Memorandum of Incorporation, as necessary to protect the interests of shareholders in the company, and provides a number of default rules/Alterable provisions, which companies may accept or alter as they wish to meet their needs and serve their interests.

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ACCOUNTABILITY AND TRANSPARENCY

Flexible regime:In order to provide a flexible regime that balance accountability and transparency, witha lessened regulatory burden, the Act provides for certain common requirements of allcompanies and differentiated requirements depending on their wider responsibility tothe public and their social and economic impact. The following would illustrate theflexibility:

• All companies must prepare annual financial statements (AFS), but not all require anaudit

• Public companies/State owned companies would be subjected to a more demandingregime and would also be required to have these AFS audited annually

• All companies would have to file annual returns with the Commission

• Other companies must either be audited voluntarily or Independently reviewed in accordance with ISRE 2400 by an Independent Accounting Professional

BUSINESS RESCUE

Regime of judicial administration of failing companies is overhauled with a modern business rescue regime:

• largely self-administered by the company, • under independent supervision but reportable to the Commission

• subject to court intervention

The Act recognizes the interests of stakeholders in general (shareholders, creditors and employees) and provides for their respective participation in the development and approval of a business rescue plan.

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BUSINESS RESCUEBusiness rescue practitioner

• BR Practitioner – power to suspend any agreement of company, except contracts of

employment and S35A and B Insolvency agreements

• Any agreement – no classification of agreements outside those mentioned

• BR Practitioner – cannot cancel contracts – require a court application and approval

to do so

• BR Practitioner – member of Legal, Accounting or Business Management

Professions – who is accredited by Commission to practice

BUSINESS RESCUELicensing of Business Rescue Practitioner

• Licensed by the Commission, or

• The Regulatory Authority to whom he/she reports to

The Commission after receiving application must either:

1. Issue a licence as applied for

2. Issue a Conditional license on terms that are reasonable

3. Refuse the licence

Categories of Practitioners:

1. Senior – 10 years or more

2. Experienced – 5 years or more

3. Junior – Less than 5 years

Joint appointments are allowed.

ENFORCEMENT

The Act decriminalizes company law. There are very few remaining offences, those arising out of falsification of records or documents, publishing of untrue or misleading information, or refusal to respond to a summons, give evidence, perjury, and similar matters relating to the administration of justice in terms of the Act.

Any such offences must be referred by the Commission to the National Public Prosecutor for trial in the Magistrate’s Court.

Generally, the Act uses a system of administrative enforcement in place of criminal sanctions to ensure compliance with the Act. The Commission or Panel, may receive complaints from any stakeholder, or may initiate a complaint itself, or act on a matter as directed by the Minister.

The Act introduces a compliance and enforcement tool called a Compliance Notice, empowering the Commission to force companies to correct certain behavior.

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ENFORCEMENT

A person who has been issued a compliance notice may of course challenge it before the Companies Tribunal, and in court, but failing that, is obliged to satisfy the conditions of the notice. If they fail to do so, the Commission may either apply to a court for an administrative fine, or refer the failure to the National Prosecuting Authority as an offence.

In the case of a company that has failed to comply, been fined, and continues to contravene the Act, the Commission or Panel may apply to a court for an order dissolving the company.

To improve corporate accountability, the Act states that it will be an offence, punishable by a fine up to a R1m or up to 10 years imprisonment, for a person to sign or agree to a false or misleading financial statements or prospectus, or to be reckless in the conduct of a company’s business.

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Thank You

Rvoller@cipc.co.za