Companies Amendment Bill [B40-2010]: deliberations

Meeting report

Procedure for including additional amendments to the published Companies Amendment Bill
The Committee had sought advice from the Parliamentary Legal Services department on the correct procedure that had to be followed for including additional amendments to the Bill that were not included in the published Bill.  In many instances, the additional amendments arose out of the submissions received during the public participation process.

The Committee Secretary, referred to the opinion of the Parliamentary Legal Adviser dated 28 February 2011 (see attached document).  Rule 249 of the National Assembly Rules implied that the Committee might seek the approval of Parliament for including additional amendments to the Bill.  Paragraphs 5, 6, 7 and 8 of the opinion were read out.  The Committee concluded that the Committee’s decision had to be tabled and included in the Committee report for submission to Parliament.

Mr X Mabaso (ANC) proposed that the Committee proceeded according to the recommendations made by the Parliamentary Legal Adviser.

Mr M Oriani-Ambrosini (IFP) disagreed with the opinion of the Parliamentary Legal Adviser.  The scope and subject matter of the Bill had to be considered.  The Bill amended the principal Act, which dealt with a number of important legal principles.  The proposed amendments could result in additional consequential amendments.  He felt that there had not been sufficient opportunity to debate the proposed amendments and to consider the effect on other clauses.

The Chairperson pointed out that the Committee had discussed the proposed amendments during earlier informal deliberations on the Bill.  The Committee had not yet adopted any of the proposals and did not intend to exclude any of the additional amendments at this stage of the proceedings.  The Committee had considered the substance and motivation of the proposed amendments.  As the Chairperson of the Committee, she had taken the decision to request a legal opinion on the process that had to be followed by the Committee and had shared all the information with the Members.  Certain additional amendments were not consequential but the Committee was entitled to include amendments in addition to the clauses in the published Bill.

Mr N Gcwabaza (ANC) pointed out that the Bill did not introduce new legislation but amended the existing Act.  New amendments arose out of the submissions made by the public.  If the Committee considered it to be necessary that the additional amendments should be included, it should proceed to do so.  However, the Committee should avoid the inclusion of amendments that did not arise out of the public hearings or that were not consequential amendments.  He agreed with the action taken by the Chairperson.

The Chairperson asked for the motion tabled by Mr Mabaso to be seconded.

Mr J Selau (ANC) seconded the motion.

Mr Oriani-Ambrosini asked for his objection to be noted.

The Chairperson read the formal Committee report and request to proceed in accordance with National Assembly Rule 249 (3) (b).

The Committee Secretary advised that the Committee report would be submitted to the House.  The request would be included in the order paper for the following sitting of the House on 8 March 2011.  The House would consider the Committee’s request and reach a decision.

The Chairperson reiterated that the Committee was seeking the formal permission of the House to include additional amendments in the Bill.  She considered the matter to be a formality.

Discussion on flagged issues within the ambit of the Bill
The Committee proceeded to discuss a number of issues that were flagged for further discussion during earlier deliberations on the Bill.

Clause 6
Information was required on the impact of symbols on the SWIFT system.

Mr Rory Voller, Director: Legal Services, CIPRO advised that all attempts to contact the SWIFT offices in South Africa by telephone were unsuccessful.  He had sent an e-mail to the international office of SWIFT and awaited a reply.  He explained that the SWIFT system was used to transfer funds between banks.  The inclusion of a symbol in the name of a bank was not relevant as each bank had a unique identifier in the SWIFT system.

Mr Mabaso suggested that the Committee proceeded with the information available and that the Department of Trade and Industry (DTI) advised the Committee if anything changed.

Mr Oriani-Ambrosini felt that the discussion on the clause should not be closed if additional information was required.

Mr J Smalle (DA) agreed with Mr Oriani-Ambrosini.  The inclusion of symbols in company names had further ramifications that had to be taken into account.  He would prefer to await the outcome of the enquiry made to SWIFT.  Alternatively, the matter could be dealt with in the regulations.

The Chairperson said that the SWIFT issue was the only outstanding matter.  The symbols would be covered in the regulations, which could be changed if necessary.  The processing of the Bill should not be delayed.

Clause 16
Insert “right to copy” on page 38, line 37.  The wording of the clause was changed accordingly.

Clause 37
Make provision for summarised or full financial statements.  Summarised financial statements were not mandatory.

Clause 41
Make provision for a minimum number of directors.  The issue was discussed at length and the Committee had received much input on the desired minimum number of directors.  Further details of the Committee’s decision were provided in Document 17 (see attached).

Clause 43
The issues concerning the disqualification of directors were discussed at length.  Further details of the Committee’s decision were provided in Document 17.

Clause 44
The clause made provision for the establishment of a social and ethics committee.

Mr Smalle supported a provision that made the existence of a social and ethics committee applicable to larger companies.  Such a committee was not appropriate for smaller organisations.

Clause 47
The clause dealt with the payment of fines and the acceptance of responsibility for offences committed by directors.  Provision for the imposition of fines was included in both provincial and national legislation.

Ms Kathy Idensohn, Legal Adviser to the Committee, University of Cape Town, suggested that the provisions were applicable to all common law or statutory offences.  The reference to national legislation should be deleted.

Mr Smalle suggested that the provisions were linked to Sections 218 and 78 of the Act.  The issue was the accountability of directors, regardless of whether or not they had left the company.

Mr Voller supported Ms Idensohn’s suggestion.

The Chairperson proposed that the clause was amended to refer to “an offence” and that the phrase “in terms of any national legislation” was deleted.

Mr Oriani-Ambrosini asked if minor offences (e.g. traffic violations) would be excluded.  Certain environmental protection legislation held directors personally accountable for violations but did not hold the company liable for the payment of the fine.

Mr A Alberts (FF+) agreed with Mr Oriani-Ambrosini on the principle of strict liability.  Although directors were held accountable for environmental violations, the company was responsible for the payment of the fine.

Mr Selau agreed that directors could not always be held responsible, for example, when a vehicle transporting pollutants was involved in an accident.  The intention of the legislation was not to impose an obligation on a company to pay the fine imposed for an offence committed by a director.

Ms Idensohn suggested that the clause was changed to cover the intention rather than listing the types and sources of specific offences.

Mr Mabaso pointed out that companies would have their own rules to deal with the payment of fines imposed for offences committed by directors.

Mr Oriani-Ambrosini said that such matters were covered in the Memorandum of Incorporation of a company.

Mr Smalle was concerned that the provisions in Section 78 were covered as well.

The Chairperson suggested that the Members gave the issue some thought and that the clause was flagged for further debate.

Clause 54
The clause dealt with audit committees.  The Committee had discussed the proposed changes to the clause.

Clause 55
The issue was the definition of “employee share scheme”.  The Committee had discussed the proposed changes to the clause.

Clause 68
The clause included provision for the consent of certain authorities.  The DTI was of the opinion that all the required consent was covered.

Ms S Van der Merwe (ANC) asked for clarity on the DTI’s response to the comments made on the clause.

Ms Idensohn felt that the entities required to give approval should be specified.  She suggested that the wording proposed by the Financial Services Board (FSB) was considered.

Mr Flip Dwinger, Director: Corporate Law, CIPRO referred to Section 116 (4) of the Act.  In his opinion, the Act made adequate provision and covered the necessary approval required.

Ms Idensohn agreed that the Act covered the necessary approval but recommended that the entities that had to consent were specified.

The Chairperson referred to the DTI’s comment with regard to Section116.  The issue was that the Companies Act failed to specify that the approval of the regulatory authority was required.  More clarity would be achieved if Section 116 was amended to specify which authority had to consent.

Mr Mabaso suggested that the DTI considered the suggestions made and drafted a proposal.

Mr Oriani-Ambrosini felt that the existing provisions were adequate.  If a list of entities were included in the legislation, the Act would need further amendments to accommodate any changes.

Mr Alberts agreed with Mr Oriani-Ambrosini.  He cautioned against including a list of the entities and a vague provision for “any other” authority.  It would be better to explain elsewhere what approvals were required.

Mr Smalle pointed out that Section 5 (b) (i) of the Act dealt with interpretation and should resolve the matter.

The Chairperson said that legislation should be considered in context and in a holistic manner.  In general, the legal profession was satisfied with the simpler legislation introduced after 1996.  She suggested that the Department considered improving the provisions of Clause 68.

Clause 84
The Committee agreed to the inclusion of advocates as practitioners.

Clause 87
The clause dealt with the remuneration of the business rescue practitioner when the company was liquidated.  The suggestions made by the Members were detailed in Document 17.

Mr Johan Strydom, Law Adviser, DTI, advised that Section 143 of the Act made provision for the business rescue practitioner to be granted a preferential claim for his fee if the company was placed in liquidation.

Mr Smalle suggested that the word “entitlement” was inserted.

The Chairperson recalled that the issue of whether or not the practitioner should be entitled to a preferential claim was discussed in detail.  The better practitioners would be reluctant to offer their services if there was doubt on whether or not their fees would be paid.

Mr Selau felt that the Act made adequate provision even though it had not been implemented.  Any further amendments were unnecessary.

The Chairperson pointed out that the Companies Act of 2008 was adopted but was not implemented.  The Department had requested that the Act was amended before it was implemented to ensure that it would pass muster in the Constitutional Court.  The Committee needed to proceed with caution in amending the 2008 legislation.

Mr Alberts was concerned that the practitioner was able to “write his own cheque” as the fees were not covered in the regulations and he was first in line to be paid.  The Minister had to make provision in the regulations and set guidelines to prevent any unreasonable fee claims that would result in shareholders having to go to court.

Mr Mabaso agreed that business rescue practitioners should not have carte blanche to determine their fees.  The Minister should only be involved if there was a dispute.

Mr Gcwabaza agreed that measures should be in place to prevent unreasonable fees from being charged.  The provisions in sub-sections (5) and (6) needed to be re-considered.

The Chairperson pointed out that Section 143 (1) of the Act made provision for the Minister to prescribe a tariff.  The Committee was concerned over the suggestion made that the practitioner was allowed a bonus for successfully turning around a business in addition to being paid a fee for the service.

Mr Strydom confirmed that the Chairperson was correct with regard to Section 143.

Mr Oriani-Ambrosini pointed out that charges were based on the tariff as well as the number of hours that were worked.  He asked if any provision was made for the regulatory authority to decide whether or not the number of hours was reasonable.

The Chairperson agreed that the provisions should include the number of hours worked.  She understood that the regulations were currently open for public comment.

Mr Voller confirmed that the Committee’s suggestions would be considered in addition to the public comments received on the regulations.

Additional amendments outside the scope of the Bill
Mr Orian-Ambrosini suggested that the word “must” was replaced with “shall” throughout the Bill.

Mr Mabaso disagreed that the Committee should debate legal terminology and that the interpretation of the provisions was considered when each clause was deliberated on.

The Chairperson understood that the matter was dealt with in an Interpretation Act.

Mr Theo Hercules, State Law Adviser, advised that the use of “must”, “shall”, “may” etc. had been discontinued since 1994.

The Committee proceeded to discuss the additional amendments to the published Bill (see attached Document 19).

The Chairperson advised that the additional amendments listed in Document 19 should be read in conjunction with the Act.  Certain amendments were proposed by the DTI but others required further discussion.  The amendments proposed by the Department were included in Document 7 (distributed during previous deliberations).  The Committee agreed to consider additional amendments that arose from the public hearings on the Bill but would follow the prescribed Parliamentary procedure.

Mr Mabaso suggested that the Committee’s decision was included in Document 19.  (The attached version of Document 19 included the decisions made during the proceedings).

The Committee agreed to accept the proposals made by the DTI that Clauses 1, 2, 10, 13, 17, 19, 41, 44, 52, 65, 67, 77, 78, 81, 82, 87, 88, 97 and 113 remained unchanged.  The suggested changes to Sections 2, 73(8), 80(3), 92(1), 130, 131(4), 145(4), 147(1) and 185 were not agreed to by the Department and the Committee concurred.  The suggestion that a new section was inserted to provide for the appointment of an independent accounting professional to perform the review was rejected by the DTI and the Committee concurred. 

The Committee agreed to the changes made by the DTI to Clauses 16, 18, 28, 50, 68, 80, 86, 99, 105 and 118 and the proposed new clauses to amend Sections 48(1), 99(1), 140(1) and 141(2).

Ms Idensohn agreed with the Department’s decisions on the above amendments.

Section 22(1):
Ms Idensohn felt that the amendment proposed by the DTI would not address the Committee’s concerns regarding the distinction between “reckless trading” and “trading under commercial insolvent circumstances”.  Her suggested wording for the clause was included in Document 19 for consideration.

Ms Van der Merwe asked for comment from the DTI on Ms Idensohn’s suggested wording for the clause.

Mr Dwinger said that there was no penalty for trading under insolvent conditions but the Commission had the power to investigate the company concerned.  The Department preferred a ‘flickering red light’ to imposing sanction on such companies.

Ms Idensohn felt that the absence of sanction was not the issue as the actions that had to be taken were specified in sub-section (1).  A number of companies technically traded under insolvent conditions and she questioned the practicality of the Commission investigating all such companies.

The Chairperson said that the issue had been discussed at length by the Committee.  The suggestions put forward would be deliberated on 9 March 2011 and any objections by Members would be considered.

Mr Smalle proposed that Ms Idensohn’s recommended wording was accepted by the Committee.  The proposal was seconded by Mr Gcwabaza.

Clause 45
Different definitions of “director” were applicable to Sections 69, 76, 77 and 78 of the Act.

Ms Idensohn suggested that a single definition should be applicable, with the exception of Section 78, which required a broader definition that included past directors.

Mr Dwinger disagreed with Ms Idensohn’s opinion.  The DTI suggested that the clause remained unchanged.

The Committee agreed to flag the clause for further discussion.

Section 80
Mr Oriani-Ambrosini and Mr Smalle agreed with the stake holder’s comment that a full audit was required before the auditor could issue a certificate confirming that a company had no debts when it was dissolved.

Mr Dwinger disagreed with the opinion.  The auditor could issue a certificate without having to conduct an audit.  The DTI disagreed that an amendment to the provisions was necessary.

The Clause was flagged for further discussion.

Clause 54
The Department accepted the amendments proposed by Ms Idensohn and suggested that the phrase “oversight functions” was included.

Clause 83
Ms Idensohn submitted an alternative amendment to Section 136 of the Act.  The Committee agreed to accept her proposal.

Clause 91
Ms Idensohn agreed with the stake holder’s comment.  The Department disagreed that it was necessary to amend the entire business rescue process, which was yet to be implemented.  The Committee decided to flag this clause for further discussion.

Clause 92
Ms Idensohn agreed with the stake holder’s comment.  The Committee requested the Department to draft an amendment to Section 159 to include the phrase “a person performing the function of internal audit”.

The Committee Secretary advised that an “A” list of the amendments to the Bill would be made available to the Members on 3 March 2011.

The Chairperson advised that the formal deliberations on the Bill would be held on 9 March 2011.  A second day had been scheduled to continue the deliberations if necessary.

The meeting was adjourned.