LSSA engages with Specialist Committee on Company Law to improve Companies Act

February 1st, 2015
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By Barbara Whittle

The Law Society of South Africa (LSSA) furnished written submissions on amendments to sections in the Companies Act 71 of 2008 and made proposals to the Specialist Committee on Company Law (SCCL) in August 2014. The LSSA also addressed the SCCL on 4 September 2014. The SCCL then requested further supporting information in relation to the LSSA’s submissions and the LSSA’s Company Law Committee provided extensive responses in November last year.

The SCCL asked the LSSA to elaborate on its original view that ‘[m]any of the sections in the Act are not workable for companies which have only a few shareholders. We recommend an amendment to Section 6(3)(b) by inserting a subsection (iii) that in the case of a private company with a public interest score of 100 or less or a wholly owned subsidiary, it should not be necessary to comply with unnecessary requirements, including, without limitation, administrative requirements.’

The LSSA has suggested that wholly owned subsidiaries should be exempted from a number of provisions including, but not limited to, those in ss 6(9), 40(1), 44, 45, 48(8)(b), 57(2) 66(4)(b) and 68.

Also in s 57(3) in respect of a wholly owned subsidiary, which has the same directors as the holding company (identical boards) it should not be necessary to have separate meetings and the companies should be entitled to combine the meetings. A sub-section 3(bis) should be added to provide for this.

As regards s 66(2)(b), the LSSA considered that the number of directors should not be prescribed since no company should be obliged to have at least three directors. The LSSA said this provision should be deleted in toto. However, should the SCCL not be in favour of its removal, the following should be added at the end of the sub-section: ‘or one director if it is a wholly owned subsidiary’.

The LSSA noted that, for purposes of chap 5, a wholly owned subsidiary should not constitute a regulated company.

The LSSA was asked by the SCCL to spell out the directors’ duties as to the circular to shareholders seeking approval. The LSSA suggests the following new ss (1)(d):

‘(d) approved in writing by all shareholders entitled to exercise voting rights in relation to that transaction, which approval is given after receipt by all such shareholders of a written notice prepared by the directors of the company: (i) giving details of the transaction sufficient to enable each such shareholder to make a considered decision whether to give the approval sought or not; (ii) to which a copy of the provisions of Sections 112 and 115 is attached.’

As regards amendments to Memorandum of Incorporation (MOI), the LSSA pointed out that the date on which amendments to an MOI come into effect is unclear under the Act. The LSSA understands that the Companies and Intellectual Property Commission (CIPC) is of the view that, CIPC is more than an office of record of MOI’s, but also has a checking function by virtue of ss 14(1), 13(3) and 13(4) and that, until such time as it has approved amendments to an MOI, such amendments cannot take effect.

The LSSA submitted that if CIPC should have a checking function, it must be a very limited one. The LSSA suggested that there should be a closed list of items which CIPC must check in respect of MOI’s. In the view of the LSSA this should only comprise the following:

• The name and registration number are correct.

• Whether the company has provided for share capital in its MOI and that there is no patent error in the provision, that is whether the company purported to create par value shares and that the arithmetic is correct.

• In the case of an RF company that the appropriate notice recording in which clauses the restrictive conditions are contained has been filed.

• That the filing notice was signed by the company secretary, a director or someone who files a document authorising him or her to file the amendment.

If an MOI otherwise contravenes the Act, it is the directors of the company that must be held responsible. According to the LSSA, it is not, nor should it be, the duty of CIPC to scrutinise the entire MOI in case some conflict with the Act is contained in the MOI. If needs be, CIPC may send out compliance notices.

Furthermore, the LSSA noted that the Act should provide that if the amendment is not rejected by CIPC within 14 days from time of lodgement, it will be deemed to be accepted. Provision should also be made that should the company consider the amendments to be urgent, detailed reasons for urgency should be provided, which if accepted by CIPC as being genuine grounds for urgency, will result in CIPC considering the amendment within one business day.

• The full submissions by the LSSA can be accessed on the LSSA website www.LSSA.org.za under ‘Legal practitioners’ then ‘LSSA comments on legislation’.

Compiled by Barbara Whittle, communication manager, Law Society of South Africa, barbara@lssa.org.za

This article was first published in De Rebus in 2015 (Jan/Feb) DR 24.

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