The Department of Trade and Industry (“DTI”) has published the Companies Amendment Draft Bill (the “Bill”) for public comment. Interested parties may submit comments to the DTI by 20 November 2018.
The Bill seeks to make amendments to Companies Act No. 71 of 2008 (the “Companies Act”). The reasons for these amendments are listed by the DTI to keep up with current trends and also to close some loopholes in the in the Companies Act as discovered during the implementation period of the Act in the past five years.
The following are some of these amendments:-
1. Section 16(9) – Effective Date of Amendment of a Memorandum of Incorporation (“MOI”)
Section 16 (9), currently provides that the amendment to the company’s MOI would take effect on:
a) the date set out in the amended registration certificate issued by the Commission in the case of an amendment that changes the name of the company, or
b) in any other case, the date on which the Notice of Amendment is filed or the date, if any, set out in the Notice of Amendment.
This led to debate in the past about whether the amendment of a company’s MOI had to be accepted by the Commission. In terms of the Bill, the existing subsection 9 (b) will be replaced with the words that the effective date would be 10 business days after receipt of the Notice of Amendment if the Commission after the expiry of the 10 business days has not endorsed the Notice of Amendment or has failed to deliver a rejection of the Notice of Amendment to the company with reasons. These time periods will have to be taken into account in provisions in commercial agreements, such as conditions precedent, where an amendment or a replacement of an MOI is required in a transaction.
2. Section 25 and 26 – Location of and Access to Company Records
An amendment to section 26 will allow persons who are not shareholders of the company to inspect and copy that company’s MOI and rules, the records of directors, minutes and notices of shareholders’ meetings and notices sent to the holder of securities. A fee is still to be applicable.
In the past this right of access was limited to the securities register and the register of directors.
Financial statements are still excluded from this right of access, with the rights of shareholders, and the limited rights of judgement creditors and trade unions, to such financial information is dealt with in section 31 of the Companies Act. It is proposed that the offence arising from an unreasonable refusal to grant access to such records under this section is to be extended to a director or officer of the company, in addition to the company itself.
An insertion to section 25 has been proposed such that the notice filed by a company, setting out the locations at which these particular records are kept, must be published by CIPC as prescribed.
3. Section 33 – Annual Return
Currently, in terms of section 33(1)(a) when filing an annual return, only a company which is required to have its annual financial statements audited in terms of section 30(2) or the regulations contemplated in section 30(7) must include in that return a copy of its annual financial statement.
In terms of the amendment every company would be required to include a copy of its annual financial statements – audited or not. In addition, such annual financial statements must be the latest.
Furthermore, the proposed amendment to the section introduces a new subsection subparagraph (aA) which provides that the filing of an annual return must include a copy of the company’s securities register as required in terms of section 50.
4. Section 38A – Validation of Irregular Creation, Allotment or Issuing of Shares
This new section would empower a court to validate the irregular creation, allotment or issue of shares by a company, provided that the court is satisfied that it is just and equitable to do so.
The application can be brought by the company or by any interested person.
The current section 38(2) still provides that if an issuance exceeds the authorised share capital, this can be cured retrospectively by a shareholder resolution without approaching the court.
5. Section 40 - Consideration for Shares
This section deals with an exception to the general principle that shares can only be issued once they have been fully paid.
Currently this exception required that these shares be transferred to a third party to be held “in trust” until paid. There was uncertainty over this term “in trust” – did it mean a trust as envisaged under the Trust property Control Act, in trust akin to trust monies held say by an attorney or an amount in escrow.
The amendment substitutes the term “in trust” with the phrase to be held “by the third party as a stakeholder in terms of a stakeholder agreement but not as an agent for either the company or the subscribing party” and later transferred to the subscribing party in accordance with the trust agreement.
The section still refers to a ‘trust agreement” which presumably is referring to the stakeholder agreement mentioned in the proposed amendment.
6. Section 45 – Financial Assistance
The heading of the section has been changed from “Loans or other financial assistance to directors” to “Financial Assistance to directors and group companies”.
A new subsection (2A) has been inserted, which seeks to exempt a company from the requirements applicable to financial assistance if it is between a company and its subsidiaries. It provides, “the provisions of subsection (2) do not apply to the giving by a company of financial assistance to, or for the benefit of its own subsidiary”.
The company can still set requirements in this regard in its MOI as subsection (4) has not been amended and it reads:- In addition to satisfying the requirements of subsection (3), the board must ensure that any conditions or restrictions respecting the granting of financial assistance set out in the company’s Memorandum of Incorporation have been satisfied.
7. Section 48 – Company or Subsidiary Acquiring Company’s Shares
A new subsection (9) is proposed to be inserted to the section.
It requires that a decision of the board must be approved by the shareholders of the company if shares are to be bought back from a director, a prescribed officer or a person related to a director or prescribed officer.
This requirement does not apply if a pro rata offer is made to all the shareholders of the company or a particular class of shareholders of the company; or due to transactions effected in the ordinary course on a recognized stock exchange on which shares of the company are traded.
8. Section 56 – Beneficial Interest
The duty in subsection (7) to establish and maintain a register of the disclosures and to publish in its annual financial statements a list of the persons who hold beneficial interests, would no longer applicable to a regulated company only but any company.
9. Section 61 – Shareholder Meetings
In terms of proposed amendment to subsection (8), the social and ethics report and the remuneration report will be added to the documentation which must be presented at the meeting of shareholders of public companies. The proposed section 30A requires that the director’s remuneration report must be presented at the AGM of a public company.
10. Section 90(1A) – Appointment of Auditor
The criteria for appointing an auditor would change such that a company that is required only in terms of its MOI to have its annual financial statements audited as contemplated in sections 34 (2) and 84 (1) (c) (ii), must now appoint an auditor at a shareholder’s meeting.
Furthermore, subsection 90(2)(b)(v) would be amended such the period of five years is reduced to two years. Therefore a person appointed as an auditor must not be a person contemplated in subparagraphs (i) to (v) in the past two years.
11. Section 118(1)(c)(i) – Application of Takeover Regulations
This amendment seeks to limit the circumstances under which a private company will be a regulated company and therefore be subject to the Takeover Regulations.
In terms of the proposed amendment, a private company will become a regulated company only if at the time of the relevant affected transaction, the private company is required in terms of the Companies Act, Regulations or its MOI to have its annual financial statements audited every year.
Currently a company is a regulated company where its issued securities have been transferred, other than by transfer between or among related or inter-related persons, within the period of twenty four months immediately before the date of a particular affected transaction or offer exceeds 10% of the issued securities of a private company.
Companies can still make such Takeover Regulations applicable by including them in its MOI.
12. Section 135 – Post-Commencement Finance
A new subsection (1A) is proposed.
It provides that to the extent that there amounts due by a company placed under business rescue in respect of any property, including a lease/lord, such amounts must be regarded as post-commencement financing that must be paid to the owner or landlord of the property with preference over all unsecured claims against the company.
This subsection is subject to the proviso that the amounts due to the owner of the property or the landlord do not exceed the aggregate of all disbursements and outgoings paid by the owner or landlord to third parties from the date the company is placed in business rescue proceedings. These disbursements include rates and taxes, water and electricity.
13. Section 160 – Disputes Concerning Reservation or Registration of Company Names
A new subsection (5) is proposed.
It provides, where the company fails to change the name in terms of the administrative order of the Companies Tribunal issued in terms of subsection(3)(b)(ii) the applicant may approach the Commission to substitute the name of the respondent with its company’s registration number followed by “Inc”, “(Pty) Ltd”, “Limited”, “SOC Limited” or “NPC”.
14. Other Amendments Concerning ADR and the Companies Tribunal
Amendments are proposed concerning “alternative dispute resolution” is replaced by mediation, administrative changes regarding the powers and duties of the Companies Tribunal and the executive director thereof; “financial reporting pronouncements” may be issued by the Financial Reporting Council and new functions of the Companies Tribunal such as adjudicating on matters affecting a company as may be referred to it in the prescribed manner by the B-BBEE Commission in terms of the Broad -Based Black Economic Empowerment Act 2003 Act No. 53 of 2003.