A Conference was held in Rivonia, and attended by Directors, company secretaries, lawyers, in house legal council, auditors, and financial managers on 14 and 15 April 2011. I was a speaker at the conference.
The Deputy commissioner of the Companies and Intellectual Property Commission appointed from the effective date of the Companies Act (“the Act”), Adv Rory Voller did confirm that the Act will become effective on the 1 st of May 2011.
He also confirmed that a consolidated Act together with the amendments incorporated by the Companies Act Amendment Bill will be available at the end of the month.
All the speakers are in agreement that the Act is a leap forward from the current Companies Act of 2011, taking into account the objectives of the Act.
To provide a full scope of the Act is beyond this medium, but I will provide some insights and quotes, which came from the Conference.
Section 11 (1) (a) (ii) regarding the use of symbols to be used as part of company names (eg. “%@&”) is suspended for a period of 3 years from the effective date of the Act to enable the banks to upgrade their systems and auto teller machines to enable to process these symbols as part of company names.
“Business judgment rule”
Directors will have a defense for any liability for taking a bad decision if there is compliance with the “business judgment rule”
Section 76 (4) states that in respect of any particular matter arising in the exercise of the powers or the performance of the functions of a director, a particular director of a company—
(a) will have satisfied the obligations of “acted in the best interest of a company” if
(i) the director has taken reasonably diligent steps to become informed about the matter;
(aa) the director had no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that and related person had a personal financial interest in the matter; or
(bb) the director complied with the requirements of section 75 with respect to any interest contemplated in subparagraph (aa) “declared his interest” ; and
(iii) the director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company…
In short you will comply with the rule if:
- if you ensure that you are properly informed of the matter at hand;
- if you had no conflict of interest; and
- act as a reasonable person.
The concept of enlightened shareholders value
“The concept of enlightened shareholders value” is introduced, the object of companies is no longer limited to shareholder value but also to its contribution to the environment, and society in the broad sense.
Enlightened Shareholders value is an obligation on directors to achieve the success of the company for the benefit of the shareholders by taking proper account of all the relevant considerations for that purpose including a proper balanced view of the short and long term, the need to sustain effective ongoing relationships with employees, customers, suppliers and others; and the need to maintain the company’s reputation and to consider the impact of its operations on the community and the environment (UK Company Law Review Steering Group, 2000)
Disposal of all or the greater part of a companies assets or undertaking (the old section 228)
Governed by section 118 of the Act
Same as section 228 of the 1973 Act in substance, but different procedurally.
Section 112(2) state
“A company may not dispose of all or the greater part of its assets or undertaking unless
(a) the disposal has been approved by a special resolution of the shareholders, in accordance with Section115; and
(b) the company has satisfied all other requirements set out in Section 115, to the extent that those requirements are applicable to such disposal by that company.
Section112(3) is new “a notice to shareholders to consider the special resolution must be delivered within the prescribed time, and in the prescribed manner to each shareholder, subject to Section 62 [notice of shareholder meetings]. It must include a written summary of the precise terms of the transaction or series of transaction and the provisions of Sections 115 and 16 in a manner that satisfies the prescribed standard(to be issued by means of regulation).”
What’s new is that a written summary of the transaction, or rather the written agreement to be provided together with the proposed resolution.
When a company is “financially distressed there is a obligation to file for Business rescue or notify all affected persons giving reasons for not placing the company under business rescue:
”Financially Distressed – in reference to a particular company at any particular time, means that-
it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months, or
it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months.”
Section 6 (1) A court, on application by the Commission or Panel, may declare any agreement, transaction, arrangement, resolution or provision of a company’s Memorandum of Incorporation or rules
(a)to be primarily or substantially intended to defeat or reduce the effect of a prohibition or requirement established by or in terms of an unalterable provision of this Act; and
(b) void to the extent that it defeats or reduces the effect of a prohibition or requirement established by or in terms of an unalterable provision of this Act.
“The next King code will focus extensively on Information Technology governance” Michael Judin (Goldman Judin Inc)
“Ensure that there is proper sign off of information to auditing firms to ensure that there is proper record of the information provide for audits in the case of liability considerations” Nicolaas van Wyk ((CA (SA) Coordinator for the DTI working group on company formation)
“Employees moved up the chain, employment contracts cannot be cancelled in Business Rescue proceedings and employees can also apply for the company to be put in Business Rescue” Eric Levenstein (Werksmans)
“Solvency and liquidity test to be applied to the relevant individual company in a group, not on the group as a whole” Paul Daly (Head of Corporate Law Advisory Practice KPMG)
“Need more equity contributions to ensure compliance with “solvency and liquidity approvals” Paul Daly (head of Corporate Law Advisory Practice KPMG)
“Reference to “share capital” in section 114 is wrong “rubbish”” Carl Stein (Bowman Gilfillian)
“All companies are now standing alone, no more Groups from a company law perspective” Adv Rory Voller (Deputy commissioner from effective date of the companies and Intellectual Property Commission
“The company codes 07 for Private companies and 06 for Public companies stay” Adv Rory Voller (Deputy commissioner from effective date of the companies and Intellectual Property Commission
“Ensure that your inter group loans comply with the provisions of the Act” Madelein Burger (Webber Wentzel)
“The Act promotes ethical behavior in organizations” myself