Companies Amendment Bill B40B-2010: Further Deliberations, new proposals & adoption

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Trade and Industry

09 March 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met to finalise its deliberations on the Companies Amendment Bill B40B-2010. Working from the document entitled “Committee Amendments proposed to Companies Amendment Bill”, read with the original version of the Bill, the Committee considered each proposed amendment, clause by clause. Another document containing seven amendments had been submitted by the IFP, DA and FF+. The Committee’s independent consultant, Ms Kathy Idensohn of University of Cape Town, had given her comment on those proposals. These were discussed during the clause by clause proposals. Finally, the Department of Trade and Industry, in response to discussions during the meeting, submitted proposed new wording to reflect the concerns of the Committee, in respect of clauses 2 and 118.

The IFP suggested alternative wording around the “aggregate assets” of the company, which was agreed to. At a later stage in the meeting, the revised wording was officially tabled and adopted. Committee Members also agreed to amendments to section 22 of the Companies Act 71 of 2008 (the Act). The Committee had proposed new wording for subsections (1), (2) and (3). The IFP’s proposal to remove phrases from (1) and (2) was rejected. Later, however, FF+ submitted its own amendment to subsection (2), which was accepted, to clarify the references to trading whilst insolvent. The remainder of the Committee’s amendment to section 22 was accepted.

The DA's proposals to amend section 45, relating to the need for special resolutions, was not passed. The DA also proposed an extension to the Committee’s own proposal for amend clause 43, in order to return the position to the 1973 Act, and disqualify those convicted of certain crimes from ever being a director, unless a court directed otherwise. This was not supported by the Committee. However, an amendment noted to change the reference to “registrar” with a reference to the Commission, was accepted.

The IFP proposed two amendments to clause 47. Firstly, the suggestion that “absolute liability” be replaced with a reference to “strict liability” was accepted. However, he second suggestion to delete subsection 72(4) and not to insert the new subsection proposed by the Committee, did not find favour. Some Members wondered if the insistence on ethics committees would achieve the desired result. 

The Committee also adopted new clauses to amend Sections 31(4), 39(4), 99, 140, 141, 169, 218 and 225 of the Act were accepted. In regard to section 225, the DA had submitted an alternative proposal to extend time periods to October 2011, which was not accepted. The Committee rejected clause 113. In regard to clause 118, new wording was suggested by dti, ad accepted, in respect of pending matters, although the IFP raised its concerns around these provisions.

Members adopted the Report, with the DA and IFP recording their abstention.

Meeting report

Companies Amendment Bill B40B-2010: Further deliberations, new proposals, adoption
The Chairperson noted that three new documents had been handed out. During a previous meeting, it was suggested that the drafters should produce another version that incorporated all the changes agreed to date, but, having received an indication on the previous day that more amendments would be brought at this meeting, she had asked that this not be done.

The Chairperson noted that the Committee would go through the document entitled “Portfolio Committee Amendments to Companies Amendment Bill B40A-2010” (numbered as Document [C] at the previous meeting) and the page numbers in this referred to the original version of the Companies Amendment Bill (the Bill).

Mr Andre Hermann, Committee Secretary, indicated how the Committee would proceed. He noted that the Chairperson would put a motion of desirability, followed by clause by clause deliberations. Any counter-amendment must be moved by individuals in writing. Mr Hermann confirmed that there was a quorum.

Dr M Oriani-Ambrosini (IFP) suggested that the proper procedure would be to deal with any new proposed amendments as the clauses were raised.

The Chairperson read out the Motion of Desirability, and it was seconded.

Portfolio Committee Amendments
The Committee then proceeded to go through the Portfolio Committee Amendments document, dealing with each clause.

Clause 1
Members agreed that at page 5, line 38, and again at line 40, the words “fairly valued” would be substituted for “at fair market value”.

On page 5, from line 50, paragraph (d) was omitted. On Page 6, at line 31, paragraph (j) was omitted. On page 7, from line 25, paragraph (t) was omitted. The reference to Schedule 2, item 4, was replaced with a reference to Schedule 1.

A new subparagraph was inserted for the existing paragraph (w) on page 7.

On page 8, the words “notes, bonds” were omitted from line 47, and in line 49 the words “ for the purpose of raising capital” were omitted.

Clause 2
The Chairperson noted that the Committee proposed that on page 9, from line 18, paragraph (a) be omitted.

Dr Oriani-Ambrosini noted that there was an alternative proposal, from the DA, FF+ and IFP.

The Chairperson noted that the letter had been sent in by Dr Oriani-Ambrosini, but the other parties had concurred.

Dr Oriani-Ambrosini said that he had looked at the input from the Committee’s independent consultant, Ms Kathy Idensohn, Commercial Law Department, University of Cape Town. The three parties wished to submit some amendments, and was hoping that the Committee would be prepared to negotiate on the points.

The Chairperson clarified that Clause 2 dealt with section 4 of the Companies Act, No 71 of 2008 (the Act). Subsection 1(a) dealt with the insolvency or liquidity test being applied to assets of a company. The original wording of the Bill had included wording referring to “aggregate” assets and liabilities, if the company was a member of a group of companies. 

Dr Oriani-Ambrosini proposed that the words “or, if the company is a member of a group of companies, the aggregate assets of the company” and “or, if the company is  member of a group of companies, the aggregate liability of the company” must be deleted from section 4(1)(a) of the Act.

Mr T Harris (DA) indicated that this proposal was seconded by the DA.

Mr B Radebe (ANC) noted that section 4 of the Act dealt with aggregate assets, and said that he would agree to the removal of the reference to “aggregate” if it created confusion

The Chairperson summarised that the Committee had some doubts about that wording on the previous day.

Ms S van der Merwe (ANC) noted that Ms Kathy Idensohn had commented on this, saying that the amendment now proposed by Dr Oriani-Ambrosini would remove uncertainty, by reinstating subsection (a) and amending it. She would support the amendment.

Mr Theo Hercules, Principal State Law Advisor, Office of the Chief State Law Advisor, confirmed that there was no problem with the proposal.

The dti later circulated another amendment to the wording of this Clause. This suggested that the wording for paragraph (a) should read: “(a) the assets of the company, as fairly valued, equal or exceed the liabilities of the company, as fairly valued; and..”

Members agreed to this proposal, which reflected the proposal by Dr Oriani-Ambrosini, in place of the Committee’s original amendment.

Clause 3
The Chairperson read out the Committee’s proposed amendment of clause 3, which consisted an insertion on page 9, of new (ff) and (gg) subparagraphs for section 5(4)(b)(i) of the Act in place of the original paragraphs. It was further proposing a new (hh) and (ii) to be inserted into section 5(4)(b)(i). These clauses made reference to other pieces of legislation.

Members agreed to adopt this amended Clause

Clause 6
The Committee agreed to remove paragraph (f) from line 58 of page 11, referring to commonly recognised symbols.

Clause 7
Members agreed to omit lines 17 and 18 of page 12, and to substitute new words. They also agreed to omit lines 20 and 21 on page 12, and its replacement of wording for (c).

Clause 8
Members agreed to substitute the words “body corporate” with the words “juristic person” on page 13, line 61.

Clause 9
Members agreed to the removal of paragraph (c) from page 14, line 18.

They further agreed to omit and replace lines 30 and 31, and to omit and substitute lines 33 and 34 on page 14.

Clause 10
Members agreed to insert new paragraphs (b) and (c) on page 14, after line 41. This would amend section 15(2)(a)(i) and (ii). They also agreed to insert a subparagraph (iii) into section 15(2)(a).

Members also agreed to substitute the wording for section 15(2)(b), referring to “restrictive” instead of “special” conditions.

Members further agreed to add paragraph (e) after line 48 on page 14, substituting section 15(2)(c). and then to add a new 15(2)(d).

New Clause: Amendment of section 22 of the Act
Dr Oriani-Ambrosini noted an alternative to the Committee’s proposed amendment. The new clause 14 proposed by the Committee sought to amend section 22 of the Act by inserting new subsections (1), (2) and (3). The new section 22(1) proposed by the Committee would contain a reference to a company carrying on business “recklessly, with gross negligence…”. The new section 22(2) proposed by the Committee contained wording “or is trading under insolvent circumstances”. Dr Oriani-Ambrosini noted that these concepts had been extensively discussed. He proposed that both phrases that he had highlighted, in the new subsections 22(1) and (2), should be removed. His amendment would, he submitted, foster economic growth and translate into jobs, as it would assist companies in moving out of the sluggish economic environment. He pointed out that all the greatest companies in the world had indulged in risky behaviour, and had probably been trading in insolvent circumstances as part of their risk-taking. If the words remained as proposed by the Committee, the courts would be caught up in deciding what was “reckless” behaviour, and making a judgment on when “risky” became “too risky”. This was a matter more properly to be dealt with between shareholders and directors. The amendment proposed by the Committee was one that would affect small companies, and he believed there was a pressing need to unleash genius and entrepreneurial capabilities, rather than hinder them. He suggested that this was a matter on which some give and take was required.

The Chairperson noted that Ms Idensohn had commented on these two subsections separately. She was not in favour of Dr Oriani-Ambrosini’s proposed alternative to section 22(1), as she believed that companies should be expressly prohibited from trading recklessly or with gross negligence, just as they were prohibited from carrying on business fraudulently. She suggested that the Companies Commission (the Commission) should be entitled to issue a non-compliance notice in relation to any form of improper trading. 

The Chairperson suggested that the Committee should try, as far as possible, to reach consensus. She then asked for seconders to Dr Oriani-Ambrosini’s alternative proposal.

Mr Harris and Adv A Alberts (FF+) seconded the alternative proposal.

Mr Radebe indicated that he could not agree. He pointed out that reckless behaviour in the name of entrepreneurial spirit could not be supported, and cited the situation in China where companies had sold infant formula mixed with other substances that resulted in the death of a number of children. Even a start-up company must have all its books in order and be able to pay its debts, so the necessity for compliance was accepted in other areas.

Mr X Mabaso (ANC) noted that this Committee, in doing its work, must ensure that international investment was attracted, and reckless trading could not be condoned as it would not inspire confidence in investors.

Ms van der Merwe agreed that entrepreneurship could not be equated with acting recklessly or with gross negligence, so she did not agreed that Dr Oriani-Ambrosini’s example was correct.

Mr Harris took a contrary view, and said that anyone starting a business using another person’s capital might be said to be acting “recklessly”, but there was in many cases no doubt that this business would succeed.

The Chairperson put Dr Oriani-Ambrosini’s proposal on the new section 22(1) to the vote. There were three votes in favour (IFP, DA and FF+) six against and one abstention.

The Chairperson then asked the Committee to move to consider Dr Oriani-Ambrosini’s proposal for the new section 22(2). Dr Oriani-Ambrosini had suggested that the phrase “or is trading under insolvent circumstances” should be deleted. Ms Idensohn had indicated that she would be in favour of that amendment, because this phrase had not been defined, could lead to uncertainty and could be interpreted as including companies that were “technically” insolvent.

Mr Harris and Adv Alberts seconded Dr Oriani-Ambrosini’s proposal.

Mr Radebe asked if this phrase could not simply be defined, if there were difficulties.

The Chairperson asked the legal advisors from the Department of Trade and Industry (dti) to comment.

Dr Oriani-Ambrosini raised a point of order, asking whether it was appropriate for anyone who was not a Member of this Committee to express an opinion.

The Chairperson said that no decision was being taken by dti, and there would be no problem in hearing the opinion.

Mr Johan Strydom, Legal Advisor, dti, said that the problem seemed to be that the proposals for subsections 22(2) and (3) were being read in isolation. They should in fact be read together, since the definition of what was ‘trading in insolvent circumstances” effectively was contained in subsection (3), where there was reference to the company not being able to pay its debts as these became due and payable, in the normal course of business. If a company failed to satisfy that test, it was not only technically insolvent, but insolvent in law, because this was an act of insolvency as defined in the Insolvency Act.

The Chairperson stressed that the Department’s advisors and the Committee’s independent advisor had offered their viewpoint, but Members must accept or reject those views, in line with their party principles and the mandate from their constituents.

Ms C Kotsi (COPE) agreed that the proposed new subsection (3) did appear to cover the position.

Adv Alberts asked why different versions of the same concept were contained in subsections (2) and (3). He proposed, as an alternative proposal, that the words “trading under insolvent circumstances” should be removed, but that the wording of subsection (3) should then be incorporated into subsection (2). This would then cover both commercial insolvency and conducting an act of insolvency.

The Chairperson indicated that this was then another proposal

Mr Alberts said his proposal was a compromise. He understood the concerns about insolvent trading, but said there was a need to clarify what type of insolvency was involved.

Ms Kotsi said that it was necessary to specify what should be done about companies trading under insolvent circumstances. Even if the wording was changed, she still thought that this must be addressed.

Mr Harris said that the intention was to have two stages. In the first, a notice would be sent to companies if the Commission reasonably believed that they were trading under insolvent circumstances. However, there was a practical problem, since companies could, at any point in their business day, become technically insolvent, which would meant that in theory hundreds of notices to show cause would need to be issued, at different times of each day. The second stage involved the Commission issuing a compliance notice. Ms Idensohn had proposed that the deletion of the phrase would be a neat solution. He thought that the processes by the Commission should not follow a two-stage approach; a compliance notice could be sent at the stage contemplated under (2).

Mr Radebe said that dti’s explanation had clarified the role of subsection (3). Ms Kotsi had also raised a good point. He suggested that the Bill should be explicit that trading in insolvent circumstances would not be condoned. However, if companies could prove, within the 20 business days referred to in subsection (3), that they had finance, they would not be trading while insolvent. He said that it was important that global and local partners should be able to receive assurances on this.

Dr Oriani-Ambrosini pointed out that there was a separate body of law to deal with insolvency, and interactions between creditors and companies. This was, however, a unique provision in the company law, where the Commission could intervene to assist those who did not want to follow the insolvency law procedures. He repeated his earlier comments on technical insolvency, saying that corporate development had historically been linked with the notion of taking risk, and if it was to be prohibited, it would impact on business. The Insolvency Act already limited the circumstances under which certain risks could be taken, and pointed out that companies at grassroots level had submitted that they would have a problem with this provision.

The Chairperson summarised that there were therefore two proposals for a new section 22(2), the second, by Adv Alberts, being a modification of the proposal by Dr Oriani-Ambrosini. She suggested that Adv Alberts must put his proposal in writing. She asked Dr Oriani-Ambrosini if he wanted to entertain the amendment.

Dr Oriani-Ambrosini thought that this was not procedurally correct, and that Members should vote on his motion.

The Chairperson indicated that she had hoped to avoid this, but called for a vote. Three voted in favour of Dr Oriani-Ambrosini’s motion, with seven against.

Mr Radebe noted that nobody had been asked to second Adv Albert’s proposal.

The Chairperson noted that Adv Alberts had been asked to put his proposal in writing and in the meantime the Committee would proceed to the other clauses. Adv Alberts tabled his proposal in writing at the end of the meeting (see later part of this report).

She referred back to the document entitled “Portfolio Committee Amendments”.

Clause 16
Members accepted two technical amendments to lines 37 and 54 of page 18.

Members agreed to insert a new section 24(5), after line 56 on page 18.

Members also agreed to the changes in the references to subsections in lines 57 and 58.

Clause 18
Members agreed to insert “for public companies” after “standards” in line 21 of page 19.

Clause 19
Members agreed that on page 20, a new subsection (2A) would be substituted in section 30.

They further agreed that section 30(7)(b) would be substituted with new wording.

New Clause: Amendment of section 31 of the Act
Members agreed to the insertion of a new subsection (4) in section 31 of the Act, specifying that it would be an offence for a company to fail to accommodate reasonable requests for access to records or impede the reasonable exercise of rights set out.

Clause 20
Members agreed that the reference to “subsection” in line 24 would be amended by a reference to “subsections”.

Members also agreed to amend the references to the relevant subsections.

Clause 23
Members agreed to substitute section 37(9) with new wording

New Clause: Amendment of section 39 of the Act
Members agreed to the substitution of section 39(4) with new wording.

New Proposal: New Clause amending section 45 of the Act
Mr Harris introduced the proposal to introduce a new clause to amend section 45 of the Act. The proposal was to introduce a new clause, amending page 98 of the Act, by replacing sub-clause (a) with the following “by the deletion of the words ‘subject to subsection (3) and (4)’ in subsection (2), and by the deletion of subsections (3) and (4).

Mr Harris noted that as presently worded, section 45 required a special resolution for the making of internal inter-company loans. Companies were currently making loans without having such resolutions in place. The requirement to have special resolutions was impractical and did not relate to financial assistance. Whilst he agreed that it was necessary to have regulations to deal with companies controlled by directors, there was sufficient protection for this already, and there was no necessity to extend this to all loans.

Mr Harris’ proposal was seconded by Dr Oriani-Ambrosini and Adv Alberts. Ms Kotsi also indicated her support.

The Chairperson noted that Ms Idensohn was not in favour of the deletion of the two subsections, because she thought they provided good safeguards for shareholders and creditors against potential abuse of the power to make loans, or give other financial assistance to directors, to the prejudice of the company shareholders or creditors.

Mr Radebe agreed with the views of Ms Idensohn, saying that safeguards for shareholders were critical.

Dr Oriani-Ambrosini drew attention to the phrase in section 45 : “except to the extent that the memorandum of a company provides otherwise”. He pointed out that company memoranda usually provided for all eventualities, and that subsections (3) and (4) amounted to stopping use, to prevent abuse, when in fact this abuse could be prevented through the memorandum of incorporation, where it was more correctly placed. He thought this was an unnecessary belts-and-braces approach that made the corporate vehicle less suitable for its intended purposes. There was nothing fraudulent about this and there was sufficient protective legislation if there might be a fraudulent purpose behind the loans.

The Chairperson noted that although there were increasing efforts to protect minority shareholders, they could still be voted out if they tried to object, leaving the majority shareholders to act in line with the memorandum.

Dr Oriani-Ambrosini said that there were plenty of other laws to prevent embezzlement by directors. There were derivative actions if the directors used this to divert funds from a company and into their pockets, or take loans in their personal interest, or fraud. He pointed out that the South African Institute of Chartered Accountants had been concerned with this aspect, and that view reflected how businesses were operating on the ground. He stressed again that there was sufficient protection and he thought that there was no need to keep the subsections in.

Mr N Gcwabaza (ANC) did not support Mr Harris’s amendment, saying that it was protecting shareholders, and deletion of subsections (3) and (4) would open the floodgates to fraudulent activity.

Mr Harris pointed out that this was in fact throwing the net too wide, because it included inter-company loans, and pointed out that special resolutions would be required every two years. He though that there should instead be a focus on the problematic loans.

The Chairperson said that there would be an Annual General Meeting where this could be agreed.

Mr Harris said that every single recipient had to be specified, and a special resolution taken on each. This did not take account of the everyday practices of groups of companies.

Members voted on Mr Harris’ new proposal. There were four votes in favour and six against, with no abstentions.

Dr Oriani-Ambrosini asked why the Chairperson was not voting, questioning if she must vote.

The Chairperson said that she had been given advice that she should vote only if it was necessary to exercise a casting vote.

Clause 29
Members agreed to the substitution of section 48(1) (a) and the new wording for 48(1)(b).

Clause 37
Members agreed to the substitution of section 62 (3)(d)(i) with new wording referring to summarised form of financial statements.

Clause 40
Members agreed to amendments suggested for section 65(11) of the Act, as to when a special resolution may be required. They agreed to omit paragraphs (e) to (i) of that subsection and replace them with renumbered (e) to (m).

Clause 41
Members agreed to insert a new subsection (12) into section 66 of the Act.

Clause 43
Mr Harris indicated that there was a proposal from the Committee in respect of section 69 of the principal Act, for insertion of new subsections (11A) and (11B) and for deletion of subsection (12). Mr Harris supported this proposal but would like to see it extended. He therefore proposed that, in addition to what the Committee proposed, subsections (9) and (10) should be deleted and that the words “Save under the authority of the High Court with jurisdiction on the company concerned” should be added before the words “A person is disqualified”. This would return the wording to that of the 1973 legislation, so that a person who committed certain crimes would be permanently disallowed from becoming a company director, unless the Court had ruled otherwise. This differed from the situation where a person committing certain crimes would be disallowed from being a company director for a minimum period, creating a permanent disqualification.

The Chairperson suggested that Members must look at the principal Act. This was not a new issue, but it had now been reduced to writing. A would-be director wishing to challenge the permanent disqualification could approach the court to lift the restriction, rather than the person objecting to removal of restrictions from the would-be director having to object to the lifting of restrictions.  The onus of approaching the court had been changed.

Dr Oriani-Ambrosini and Adv Alberts indicated their support for the proposal.

Mr Radebe understood the spirit in which this suggestion was made. However, he pointed out that, just as the emphasis for those who had committed crimes was no longer on “prisons” but on “correctional facilities”, the focus here should be changed to allow people who had erred to be given the chance to regain their dignity and redeem and prove themselves. He suggested that no change be made to the wording that the Committee had suggested. He suggested that the section should not be changed.

Ms Kotsi agreed that government should not punish people permanently, so a person who had erred should be allowed to take up directorships again. There was adequate provision to punish offenders who erred again.

Dr Oriani-Ambrosini could understand why there were objections, but he urged Members to give due consideration to Mr Harris’ proposal, in the spirit of “give and take” and so that the final product reflected the needs of different constituencies. He asked Mr Radebe to reconsider his approach.

Ms van der Merwe wanted to comment on Dr Oriani-Ambrosini’s remarks, saying that there had already been a lot of “give and take” in the process. Whether or not anyone felt that Mr Harris’ view was deserving of sympathy was not the issue. The ANC considered that there was already reasonable protection and the courts were being given the opportunity to rule on possible extensions to the disqualification period. This was a matter of principle.

Mr Mabaso said that it would be wrong to try to push for “give and take” as the correct course of action must be found.

Mr Radebe reiterated that the spirit of the Constitution required people to forgive, and not to judge anyone. He pleaded that a punitive line should not be followed.

Ms Kotsi reminded Members that there had already been some compromise, as an earlier version had removed the time period altogether, but the five-year period was later inserted.

Mr Harris quipped that he was not asking for sympathy from any Member. However it was significant that Ms Idensohn had indicated that she had no objections. In response to Mr Radebe’s plea that people should not judge others, he pointed out that in fact he was suggesting a more liberal approach. If a person was able to show good cause to the Court that he should not be disqualified, he could do so at any time, even the day after his conviction, in which case no banning period would apply. This, to his mind, struck a balance between fairness and protection of the public. He asked Members if they could name any fraudster under the current Act whom they believed should be allowed to serve as a company director. He thought that his proposal, giving discretion to the court, would protect the public. He pointed out that a person could still, having been banned for five years, still come back and again defraud the public.

Adv Alberts noted that he shared Mr Radebe’s views about forgiveness, and the fact that a person should not be forever punished. However, he pointed out that there was also evil in the world. In Pretoria, in particular, there were scores of people putting money from vulnerable elderly people into schemes that would then close. A few months later, the same people would crop up as directors of another company.  This should be stopped. There was a need to look at the broader community in which directors functioned. Allowing fraudsters to become directors again after five years was effectively offering them a blank cheque to defraud again, instead of taking them out of the system. The courts were in a better position to make a judgment on this, and sift those genuinely wanting to go back into business from those who wished to continue to defraud.

Mr Radebe noted that the five-year ban could be extended, even by the Commissioner. There were good checks and balances in the system already, and he saw no reason to change it.

The Chairperson said the question was how to do this effectively, in a balanced manner. She put the matter to the vote. Three voted for the motion by Mr Harris to amend the Committee’s proposal, and seven voted against.

Mr Theo Hercules drew the attention of the Committee to the fact that the drafters were still “cleaning up” the documents, so although the Committee’s proposed amendment document referred to the Registrar, in respect of the proposed new subsection (11B), the drafters and Members had agreed that it should be the Commission who was to notify the companies.

Members therefore voted in favour of the Committee’s proposed amendment for clause 43, as amended.

Mr Harris noted that the DA agreed with the amendment just noted by Mr Hercules.

Clause 47
Dr Oriani-Ambrosini moved an amendment to the Committee’s proposals for this clause. The Committee had proposed that the words “in terms of any national legislation” be substituted with “unless the conviction was based on absolute liability”. He wished to question that wording later. However, he proposed further amendments. Firstly, clause (a) should be substituted with wording “by the deletion of subsection (4)” (of section 72). Secondly, subparagraph (b), calling for insertion of a new subsection, should be deleted.

Dr Oriani-Ambrosini noted that Ms Idensohn would have no objection to his proposed amendment.

He expanded that the most important elements of creating an environment conducive to doing business were predictability and certainty of legislation.  He felt that the amendments proposed were creating new categories of ethics. He noted that government would have to make laws if it wanted companies to do certain things, and it was not correct that there should be any uncertainty, as it would not foster government’s commitment to economic growth. If necessary, this wording could be inserted later if it was needed.

Mr Harris and Adv Alberts indicated their support for the Dr Oriani-Ambrosini’s proposal.

Mr Radebe pointed out that section 72 related to the power of the Minister to make regulations and the references to social and ethics committees was crucial, as large companies ha social responsibilities and should be regulated. He would not like to see the situation in Democratic Republic of Congo, where mineral wealth was used against the people, applying in South Africa. Any company that was already acting ethically and correctly would have no problem with the amendments proposed by the Committee. He believed that the regulations would be predictable, and urged a focus on social and ethical responsibilities.

Mr Mabaso and Mr Gcwabaza felt the discretion to be exercised by the Minister should be retained.

Adv Alberts wished to raise a practical point, based on his experiences in the corporate world. The presence or otherwise of an ethics committee did not mean that the company would be any more ethical, so he was not sure whether these provisions would work in practice. He noted that force could be applied to a company who might degrade the environment, through the National Environmental Management Act, and other criminal law provisions would apply to other behaviour. Companies would always try to push out the envelope as far as possible.

Mr Harris agreed that there was some question whether the Committee’s proposed clause would achieve its aims. The DA agreed with the spirit of cutting red tape and making it easier to do business, and if there were any doubts, it was necessary to look at what cost would be placed on companies wanting to invest. If two competing countries were under consideration for investment, red tape requirements would be a disincentive. Taken together with all other corporate laws and regulations, he felt that section 72 would add additional cost without much benefit.

Dr Oriani-Ambrosini said that there was nothing that could actually prevent a company from doing anything illegal, let alone unethical. The Minister could identify who was on the committee and could also regulate the nature and extent of its activities, and there was no certainty on the circumstances in which this would be done. He thought that it was incorrect to give the Minister of Trade and Industry the scope of defining social responsibility programmes for larger companies, and both the uncertainty and scope were problematic.

The Chairperson said that when she had considered this issue, she had noted the establishment of similar Parliamentary committees. She personally had never served on a company in a position that attracted board fees, nor in any company that lacked social and ethics committees. Cooperative governance, a fairly new concept overseas, must also be factored in.

Three Members voted in favour of Dr Oriani-Ambrosini’s amended proposal for clause 47, six voted against, and there was one abstention.

The Committee then was asked to vote on the Committee proposal to delete “in terms of national legislation” and substitute it with “unless the conviction was based on absolute liability”.

Dr Oriani-Ambrosini asked whether the wording ”absolute liability” was correct; he thought it should be “strict liability”.

Mr Hercules said that the meaning of the two terms was the same, but the Consumer Protection Act had used the words “strict liability”. It would not be a problem to change this for consistency.

The Committee agree to accept the Committee’s proposals on clause 47, with the necessary amendment of “absolute” to “strict”.

Clause 48
The Committee had proposed and agreed to the substitution of section 82(3)(b) (i).

Clause 50
Members agreed to the insertion of another sentence on page 31, in line 14.

Clause 54
Members agreed to the substitution of a new paragraph (i) into section 94(7)(i)

Committee proposal for New Clause: Amendment of section 99 of the Act
The Committee agreed to the adoption of its new clause 61, substituting section 99(1)(b)

Clause 65
Members noted the spelling correction of “fairly”, and agreed to omit “given its fair market value” from line 31 on page 35.

Clause 73
Members agreed to the omission of paragraph (b) from line 36 of page 38

Clause 75
Members agreed to the typographical amendment.

Clause 80
Members agreed to the substitution of (d) and (e), and insertion of a new paragraph (f) into section 133(1)

Clause 83
Members agreed to some punctuation amendments to section 136, the substitution of the word “agreement to which the company is a party” with “obligation of the company contemplated in paragraph 2(a) in line 21 of page 41, and substitution of a reference, in line 27 to “applied”.

Members also agreed that section 136(2A)(b) would be substituted.

Clause 84
Members agreed to new wording for section 138(1)(a) of the Act.

Committee proposal for new clause: Amendment of section 140 of the Act
Members agreed to the insertion of a new subsection (1A) into section 140 of the Act.

Committee proposal for new clause: Amendment of section 141 of the Act
Members agreed to the substitution of section 141(2)(c)(i) with new wording

Clause 86
Members agreed to substitution of section 142(4) of the Act.

Clause 87
Members agreed to a technical correction in line 43 on page 42.

Clause 92
Members agreed to the substitution of section 159(3)(a)

Committee proposal for new clause: Amendment of section 169 of the Act

Members agreed to the amendment of section 169 of the Act, by substituting section 169(1)(b)

Clause 105
Members agreed to the insertion of a new subsection (7) into section 194 of the Act.

Clause 109
Members agreed to omit paragraph (i) from line 3 on page 49.

Clause 112
Members agreed to substitute the word “company” for “business” in line 24 of page 49

Clause 113
Members recorded that they rejected this clause.

Committee proposal for new clause: Amendment of section 218 of the Act
Members agreed to substitute section 218(1) of the Act.

Committee proposal for new clause: Amendment of section 225 of the Act
Mr Harris noted that he did not agree with the substitution of section 225 of the principal Act by a new section setting out the time when the Act would come into operation. He made a new proposal, that the words “which may not be earlier than one year following the date on which the President assented to this Act” should not be deleted, but retained, subject to the amendment of the reference to one year with the period “thirty months”. He had set this out in detail on the previous day. He was prepared to negotiate around the thirty month period.

The reason for his amendment was that he thought it would be unreasonable to expect businesses to comply with all amendments introduced by the Act by 1 April. The President had signed the Companies Act on 14 April 2009; his proposal would allow it to be implemented by 14 October 2011, which would effectively allow the business sector six months to come to terms with and prepare to implement all amendments whereas they certainly could not do so within the next three weeks. He reiterated that as long as extra time was given, he could consider another period of time.

Adv Alberts and Dr Oriani-Ambrosini seconded Mr Harris’ proposal.

Mr Mabaso objected to the proposal. This Bill had already been discussed for far too long. Inputs had been given and the sooner a decision was made and it was implemented, the better. He thought that it was necessary to ensure compliance within the shortest possible time frame to instil confidence.

Mr Harris agreed that the Committee had spent a lot of time on this Bill. He was not so concerned about decisions made some time ago, but those being made today, and reiterated that he thought it was unreasonable to insist on compliance immediately.

Dr Oriani-Ambrosini took Mr Mabaso’s point that the legislature should act decisively, but wondered if enough time was being given to the President to apply his mind, and assess the Constitutional aspects, within the deadline. What Mr Harris had suggested was fair to the President and the citizens, as he would not like to create the situation where people could not comply. He pointed out that until legislation was actually passed, nobody would begin to adjust processes and structures.

Ms Kotsi asked the Department to comment on readiness to proceed, and suggested that perhaps a compromise could be reached. She agreed that to require businesses to comply in three weeks could present serious problems, although she felt that 30 months was too long.

Mr G Selau (ANC) said it was not correct to undermine the integrity of the President, who had his own powers and could send legislation back for correction. It was not up to the Committee to prescribe the time frames. This Bill was not introducing anything new and there was nothing to suggest that people would necessarily fall foul of the law. He thought too many assumptions about potential problems were being made.

Mr Gcwabaza added that he saw nothing that would render this open to a Court challenge and that the date of 1 April should remain.

Adv Alberts said that once again this raised questions around practicality. He asked if dti had any plans to inform the public about the final changes, prior to 1 April.

Mr Harris said that the very fact that the Committee was sitting for hours showed that the Bill was not complete. Although he conceded that business had known of some of the proposed amendments for some time, there were still issues “in the air”, and they would remain uncertain until passed by the NCOP. He had been magnanimous in indicating that he would consider shorter time frames and was disappointed that no consideration had been paid to this.

Mr Lionel October, Acting Director General, dti, said that it was important to ensure that new regulation did not impact adversely on business, and he assured the Committee that his team had gone through every possible effect, problems with lack of preparedness and extra regulatory burdens. He said that all the possible impacts had been assessed. The amendments relating to the par value of shares would not have an effect as clarity had been given. Three years was being given to implement the recognition of symbols, where companies submitted that they would incur extra costs. Transitional provisions had been made to accommodate those with different year ends in respect of company audits. In every case where amendments were made, there was a transition allowed.  Many of the amendments introduced by the Act were substantial and radical, but they did not impact directly on commercial operations, but to matters such as rescues, fraud by directors and other matters that were not day-to-day occurrences.

Mr October added that dti had issued regulations in June 2010 and these were workshopped with business. Business Unity South Africa had requested a further extension, and this was granted, to allow that the operational date be extended from April to November. The new Companies Commission would be operative from 1 April, was registered with National Treasury as a public entity, appointment processes were complete, and labour relations obligations around secondment had been finalised. Due diligence had been done, and there would be no negative impact on any private sector operation. He thought that postponing the expected date of operation would lead to lack of certainty, especially if no adverse effect had been assessed.

The Chairperson stated that she had checked on the processes, and it was only occasionally that an Act would be passed by Parliament but its implementation withheld. She outlined the position on assent, and stressed that nobody could dictate to the President when an Act must be signed. There were many checks and balances. In South Africa legislation could be turned down even if assented to, but it was undesirable that matters should be referred to the Constitutional Court because of Parliament’s shortcomings. She agreed that many issues, both raised at the public hearings and identified by the committee itself, had been addressed. Although not every suggestion may have been carried, they all received due consideration.

The Chairperson noted that Mr Harris had put his proposal generously, and offered to concede. Three voted in favour of Mr Harris’ proposal and seven against, with no abstentions. The majority of the Committee therefore accepted the Committee’s proposal on the new Clause.

Clause 118
Members accepted the changes to item 2 of Schedule 5, amending subparagraph (7) on page 51.

In respect of page 52, from line 22, Members agreed to substitute paragraphs (a) and (b) and substitute a new sub-item (3) into item 6 of Schedule 5.

A spelling error was corrected in line 30 of page 52.

An additional sub-item (11) was added to item 7 of Schedule 5.

Mr Hercules, later in the meeting, submitted a further amendment to the wording of paragraph (1) of item 3 of Schedule 5, dealing with pending matters. The new wording would read: “Any matter pending before the Registrar under the previous Act, or a provision of the Close Corporations act, amended by this Act, before the effective date and not fully addressed at that tie must be concluded by the Registrar in terms of such Act, despite its repeal or amendment.

Dr Oriani-Ambrosini noted that this was quite complex. Some of the substantive provisions were creating new parameters. He asked what would happen in the case of conduct by companies which might not be compliant under the old Act, but compliant under the new provisions.

Mr Strydom explained that this was a very important provision that would be beneficial to companies. He indicated that the original wording of the Bill said that any pending applications would still need to be considered under the 1973 Act’s provisions. This would mean that the companies who had filed applications would have to bring new applications, resulting in loss. He added that at the time that this was drafted, the dti also failed to take into account that the same principles must apply to the Close Corporations Act, which was to be amended by Schedule 2. He urged the Committee to consider this new amendment to avoid prejudice to companies.

Dr Oriani-Ambrosini said that probably 90% of matters would not be contentious, but he was concerned that the Registrar was placed under an obligation instead of companies being given the option to apply one or the other. He was concerned about the lack of flexibility and the possible unintended consequences.

The Chairperson said that these issues had been raised earlier. It was unfortunate that Dr Oriani-Ambrosini had not been able to attend all meetings.

Mr Mabaso said that the questions of Dr Oriani-Ambrosini were useful in focusing Members’ attention to matters again. However, he did not think this should be further delayed.

Ms van der Merwe proposed that the dti amendment be accepted. Three ANC Members seconded it. Seven votes were recorded in favour of the amendment, with the DA and IFP voting against it and Adv Alberts abstaining.

Long Title
Members agreed to the insertion of a new phrase to the long title, on page 2, at line 7.

(The Chairperson, at this point, tabled a document with proposed further amendments by dti. For convenience, the discussions on these two items, clauses 2 and 118, have been recorded under those clauses in this report).

FF+ new proposal for
Clause 14: Amendment of section 22(2) of the principal Act (page 4 of the Amendment Bill
Adv Alberts read out his proposed new amendment, which related to section 22(2). He proposed that the words “or is trading under insolvent circumstances” should be deleted and substituted with “or is not able to pay its debts as they become due and payable in the normal course of business”. This was bringing the wording of subsection (3) also into subsection (2). Subsection (3) reflected what was in the Insolvency Act.

He summarised that his proposed new subsection (2) would then read: “If the Commission has reasonable grounds to believe a company is engaging in conduct prohibited by subsection (1), or is not able to pay its debts as they become due and payable in the normal course of business, the Commission may issue a notice..”

Mr Strydom indicated that dti would have no problem with this.

Mr Radebe reiterated that the ANC had been concerned about companies trading under insolvent circumstances but was reassured by the dti’s statement.

Members voted unanimously in favour of Adv Albert’s proposed amendments, which would therefore replace the Committee’s proposed amendment to section 22(2).

The Chairperson noted, for the record, that the Committee had now voted on all amendments in B40A.

Committee Report on the Bill: Adoption
The Chairperson read out the draft Report of the Portfolio Committee in relation to the adoption.

Ms van der Merwe enquired if the wording would change because of the “amendments to the amendments”.

The Chairperson said that in this Committee the Report would be adopted “as proposed”, but the Report to the House would reflect “as agreed”. A vote had been taken by Members on each of the proposed amendments. The matter would proceed to a debate. She believed that this was a robust Bill.

The DA and IFP Members wished to record that they were abstaining from the adoption of the Report.

Dr Oriani-Ambrosini expressed gratitude to the Chairperson and noted that he was abstaining because he needed to get the mandate of his party.

Mr Harris also noted that he wished to reserve the right to consult with his party. It was disappointing that only two of the seven amendments proposed by the DA, IFP and FF+ had been accepted, despite Ms Idensohn having indicated that she supported them, which seemed to indicate prejudice in this meeting, which was not in line with the spirit of the debate over the last two weeks. He, however, also wished to convey his thanks to the Chairperson and Department. 
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Mr Radebe thanked the Chairperson on behalf of the ANC and recorded his thanks for the valuable input of opposition Members and the Department officials. He believed that good legislation had resulted.

Ms Kotsi also wished to express her thanks to the Chairperson, and noted overwhelming willingness to accommodate all comment and requests. There had been substantial agreement on many issues.

Adv Alberts echoed the sentiments on the way the Chairperson handled this matter, noting that this was a very important Bill for the future. He reiterated concerns that only two of the seven proposals by the opposition parties were supported, but did have a mandate to vote in favour of the Bill and Report.

The Chairperson said that there had been much input from which stakeholders would benefit. For the most part they were looking forward to seeing the Bill, which had resulted from substantial effort by all Members.

The meeting was adjourned.

 



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