Escrow agreements

We have been involved with a series of escrow arrangement the past weeks. An escrow is an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfilment of contractually-agreed conditions by the transacting parties. The word derives from the Old French word escrow, meaning a scrap of paper or a roll of parchment; this indicated the deed that a third party held until a transaction was completed. In my experience escrow arrangements were usually entered into between two parties and an escrow agent in terms of which the escrow agent is keeping software source code in escrow (in trust) and to make it available to the user -party in the case for instance of liquidation of the provider party. Continue reading “Escrow agreements” »

Public interest score in terms of the Companies Act

The Public Interest Score ("PIS") is to be determined at the end of each financial year by each Company. PIS= a+b+c+d Where:   a  =  average number of employees during the financial year   b  [...]

Why it was necessary for a new Companies Act

Why change? Political changesGlobal changes in how businesses function and operateNeed for higher standards in corporate governanceIncrease in international trade emphasisThe need to modernize company law New features •   MOI •   Director’s liability •   Director to [...]

New Companies Act – Mergers and Aquisitions

 Merger Two or more  profit companies including a holding and subsidiary companies may amalgamate or merge if upon implementation if the amalgamation or merger  will satisfy the liquidity and  solvency test Scheme of arrangement Continue reading “New Companies Act – Mergers and Aquisitions” »

Offences relating to financial statements in terms of the Companies Act

A person is guilty of an offence in terms of the Companies Act if the person: is a party to the falsification of any accounting records of a company;with a fraudulent purpose, knowingly provided false or misleading information inany circumstances in which the Act requires the person to provide information or give notice to another person; was knowingly a party to an act or omission by a company calculated to defraud a creditor or employee of the company, or a holder of the company’s securities, or with another fraudulent purpose; or is a party to the preparation, approval, dissemination or publication of a prospectus or a written statement that contains an “untrue statement”. Continue reading “Offences relating to financial statements in terms of the Companies Act” »

Companies Act: Delinquency of directors

A court must declare a person delinquent if:  he or she has consented to act as director while ineligible or disqualified –has acted as a director in a manner contrary to an order of probation; or has acted as a director in a manner amounting to gross negligence, wilful misconduct or breach of trust. The following may apply to a court for an order declaring a person delinquent or under probation: A company; A shareholder; A director; A company secretary or prescribed officer of a company; Continue reading “Companies Act: Delinquency of directors” »

Solvency and Liquidity test in terms of the new Companies Act

In terms of the new Companies Act the transactions that will require that “the solvency and liquidity test” be satisfied include: –the provision of financial assistance to third parties for the acquisition of the company’s own shares; –loans or other “financial assistance” to related parties; –dividends or other “distributions” to shareholders; –the issuing of capitalisation shares on terms whereby the recipient can choose whether to take the shares or to take cash; Continue reading “Solvency and Liquidity test in terms of the new Companies Act” »

Reckless trading in terms of the new Companies Act

The Companies Act prohibits a company from reckless trading , which means –A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose. A director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by the Act. Continue reading “Reckless trading in terms of the new Companies Act” »

The Memorandum of Incorporation (“MOI”)

What is interesting is that there is constantly more and more awareness on the provisions of the new Companies Act. The MOI is the “new” constitutional document which regulates matters between a company and shareholders, amongst shareholders, and between directors and shareholders and it comprises of all the “tools” necessary to give a proper structure to a company and for the proper governance thereof. We had several enquiries regarding the drafting of a MOI, and we have drafted several simple and complex MOIs notwithstanding the – 2 year window period. In this regard, it is still advisable to deal with confidential arrangements regarding contributions in a shareholders agreement in addition to the MOI. Continue reading “The Memorandum of Incorporation (“MOI”)” »

The new Companies Act: Inter group loans – the saga continues

There has been a lot of debate on the application of the Companies Act on inter company loans. Section 45 is the section which, inter alia, deals with inter company loans. We must admit that the title of section 45 “Loans or other financial assistance to directors” is misleading as no reference is made to inter company loans in the title.   A firm of attorneys approached the Companies and Intellectual Property commission (“CIPC”) for an non binding opinion on the application of Section 45 of the Act on inter company loans (please see the link below). Continue reading “The new Companies Act: Inter group loans – the saga continues” »