Draft Companies Amendment Bill: briefing

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Trade and Industry

09 June 2004
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Meeting Summary

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Meeting report


9 June 2004

Dr R Davies

Documents handed out:

Presentation on Company Laws Amendment Bill
Draft Company Laws Amendment Bill
Khula Enterprises presentation

Company Laws Amendment Bill
The Department delegation comprised of Mr M Moletsi Chief Director of Policy and Planning, Mr J Strydom Senior Legal Advisor and Mr M Netshitenze. Mr Strydom provided background on the process of the Bill. He noted that since the inception of the Companies Act in 1973 it had been amended 34 times. The Bill had been referred to the State Law Advisers in February 2004. A written response from them was however only received in May. The State Law Advisers had raised many concerns over the Bill. Mr Strydom assured the Committee that all issues had subsequently been thrashed out. The Bill would be ready to be certified in two weeks' time.

Mr Moletsi presented the Committee with a very brief overview of the Bill. It aims to prevent companies having delinquent directors (sequestrated persons) to serve as directors and to have unfit and improper directors to serve in the management of such companies. Further, it aims to protect a bona fide holder of a dematerialized share certificate against a rectification order by a court of law. He said that the Bill had been aligned with the President's State of The Nation address. It addressed problems in the economy, encouraged investment and improved investor confidence (see briefing document).

Mr K Durr (ACDP) asked for assurances that international precedents on company law had been considered in the drafting of the Bill. He felt it to be important given the impact of globalization.

Mr Moletsi replied that much research had gone into comparisons with international company law. He said that twelve researchers had worked on it.

The Chair felt that Clause 2 of the Bill which aimed to amend Section 91A of the Companies Act made it more lenient for persons to deal illegally with uncertificated securities.

Mr Strydom explained that in the old Act if a transfer of uncertificated securities had taken place from one individual to another, the person to whom it was transferred takes ownership regardless of illegality or fraud in the transfer. This was provided the illegality or fraud was committed by company persons doing the transfer and not the persons giving up or receiving ownership. The underlying reason for the legislation at the time was not to question the legal certainty of electronic transfers. Electronic transfers are common practice and uncertainties in its reliability would be disastrous. No provision existed for the reversing of transfers in both the act and the Bill. Mr Strydom said that it might seem that the Bill was being more lenient but he said it was actually more stringent in that it makes specific provision for suing for damages in the event of fraud.

Prof B Turok (ANC) noted that the Department should be encouraged to provide the Committee with information on fraud in the broader context of company law. This was especially important given the intention to overhaul SA's corporate law. Prof Turok was concerned about the reliability of electronic transfers and felt that no system was infallible.

The Chair asked why the rules applying to bank transfers could not be applied to the transfer of uncertificated securities. Why could the transfer simply not be reversed?

Mr Strydom replied that the common law applied to bank transfers. He noted that the aim of the provision was not to prejudice the new holder of the securities. The new owner takes ownership free of any defects. If he were party to the fraud, the law would take its course in court. The new owner could thus be sued for damages.

Mr Netshitenze added that the provision was not new in law in that it was common practice in bills of exchange. The aim was to protect the new buyer as he had taken transfer in good faith.
Mr Moletsi said that it made economic sense to protect the new owner. If it were not the case, electronic transfers would lose their credibility.

The Chair noted that the issues were indeed complex.

Ms F Hajjaj (ANC) asked if international best practices of developed countries had been considered in the drafting of the Bill

Mr Netshitenze noted that the provisions were present in SA's Bills of Exchange legislation. He noted that comparative studies with the USA and UK had been done.

Dr M Sefularo said that the definition of "fit and proper person" was vague.

Mr Strydom replied that the term was commonly used throughout SA law. He conceded that in context it was vague. The Department was looking at ways of revising it in order to make it more exact.

The meeting was adjourned.



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