Companies Amendment Bills: deliberations

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Trade, Industry and Competition

01 November 2023
Chairperson: Ms J Hermans (ANC)
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Meeting Summary

The Committee deliberated on the two Companies Amendment Bills (CAB). The Companies Amendment Bill is a revision of the draft 2021 Bill and retains many of the amendments proposed in that version, although with a few changes. The Second CAB proposes to extend the time bars applicable to applications for director delinquency and proceedings to recover loss due to director liability.

Members of the Committee noted that the public submissions took exception to the proposed amendment to Section 26 of the Companies Act, which provided individuals with an interest in the right to access the financial information of private companies. Members pointed out that transparency had to be weighed against the right to privacy, as there were issues around competitiveness, confidentiality, which should apply to any company, and whether this provision went against the Promotion of Access to Information Act (PAIA).

The Committee also felt that definitions of securities as well as debentures had to be included in the Bill, as these terms were not well known. However, the department felt that these amendments were unnecessary, as it felt that the terms were in fact well known. Nonetheless, it accepted the Committee’s view.

Following the discussions, the Committee resolved that it would go through the two bills clause-by-clause the following Tuesday after all Members had received a mandate from their respective political parties.

Meeting report

The Chairperson asked if the Committee had received any apologies.

The Committee Secretary noted apologies from Mr Bergman, Ms Hlonyana, and Mr Monakedi.

The Chairperson requested a mover for the adoption of the agenda.

Mr S Mbuyane (ANC) moved for the adoption of the agenda.

Ms R Moatshe (ANC) seconded the mover for the adoption of the agenda.

Opening remarks by the Chairperson

The Chairperson mentioned that the Committee heard inputs from the Parliamentary Legal Advisors (PLA) and the DTIC on the submissions received relating to the two Companies Amendment Bills (CABs). Members considered the retrospective application of the clauses and whether they should be retained in the Bill. Both the PLA and the DTIC informed the Committee that clauses introducing retrospectivity, if retained, should be redrafted.

Following deliberations, the Committee resolved that a redraft of these clauses should be presented to it for its consideration. In addition, it resolved that it should be given an opportunity to study both inputs in preparation for the deliberations. As such, the purpose of the meeting was to go through the Bill, clause by clause, she added.

Mr D Macpherson (DA) advised that the Committee first had to discuss the Department’s input relating to the Bills before going through them clause by clause.

Mr Mbuyane agreed with Mr Macpherson’s point.

The Chairperson accepted the Members’ proposed way forward.

Mr Andre Hermans (Committee Secretary) explained that the Committee would have to discuss the inputs made by both the PLA and the department. Only after that process was complete would Members be given the opportunity to go through the Bills clause-by-clause. He further stated that the draft versions of the Bills would only be ready in the following weeks.

The Chairperson asked if there were any other clauses that would have to be drafted besides those relating to retrospectivity.

Mr Hermans indicated that they were not any at this stage. However, there may be following discussions on each clause.

DTIC submission on its responses to the submission made on the two CABs

Clause Two

Mr Macpherson said that there seemed to be a disconnect between what Minister Patel had said in his presentation after the public hearings, wherein he acknowledged that there are issues that need to be dealt with, and what was presented by the department the previous day; much of which he felt ignored the Minister’s pledge. He was concerned by this, as it seemed that the two had contradicted each other.

Touching on the comments related to the Bills, he argued that the department should include definitions in the Bill on securities, to provide greater clarity. He asked why the department did not feel the need to add a definition of securities.

Dr Evelyn Masotja (Deputy Director-General: Consumer and Corporate Regulation Division at the DTIC) clarified that the inputs made by the Minister in his presentation had not differed from the department’s own. Some of the comments made by the public were not relevant or were clarity-seeking questions, she added.

In response to the question related to the definition of securities, she mentioned that the department proposed limiting the definition of securities to the one already contained in the Act. The only amendment made was for the removal of the wording ‘all other instruments’ to ensure that there is clarity, as other laws provide for those instruments.

Mr Macpherson pointed out that debentures were not clarified in the Bill. In its response to why it had not introduced a definition, the department said that it was because its meaning was well understood. He encouraged the department to define it in the Bill.

Ms Fatima Ebrahim (Parliamentary Legal Advisor) explained that the rule in drafting is that if a term is generally understood then there is no need to define the term in the Bill. However, there was nothing preventing the Committee from inserting a definition for the term.

There was a submission that raised that this may possibly affect Section 43 (1)(a) of the Act, which deals with debt instruments, as all debentures qualify as debt instruments but not all debt instruments are necessarily debentures. The Act indicates that the definition is only applicable to that particular section. She asked the department to clarify whether it had proposed an amendment and include debentures in this section, to avoid confusion.

Mr Mbuyane asked for a definition of securities and whether the definition of financial instruments should be widened.

In addition, he asked what the department had proposed in relation to the turnaround time of filing reports.

Ms Ebrahim suggested that the Committee discuss submissions made on each clause one by one.

The Chairperson asked what Members thought of the suggestion.

Mr Macpherson stressed that the Committee first had to discuss the department’s input before going through the bills clause-by-clause, as is usually done.

Mr W Thring (ACDP) agreed with Mr Macpherson’s proposed way forward.

Dr Masotja explained that securities referred to shares or debentures, which are debt instruments.

Section 43 (1)(a) of the Act also includes debentures as debt instruments, so there is a correlation between the definition of securities and debentures, she said.

While the department did not believe that it was necessary to include a definition for debentures, it accepted the Committee’s insistence that it should be, she added.

She agreed with the PLA’s advice that the Committee could include a definition of debentures if it so wished. However, the department felt that debenture was a common word used and did not need to be defined.

Mr Macpherson said that there was merit in including a requirement for directors of a company to be provided with a receipt rather than having to file with the Companies and Intellectual Property Commission (CIPC)

Dr Masotja highlighted that clause two of the Bill provides for a notice of amendment to a memorandum of incorporation (MOI) and when it takes effect. There were several instances where companies would submit a notice without stating when it would come into effect. The provision provides that the notice of amendment will take effect ten business days after receipt of this notice. If the CIPC, after the expiry of the ten business days has not endorsed the notice or failed to deliver a rejection of it (with reasons) then the MOI will be in effect. 

A large number of stakeholders had proposed that instead of using the word ‘receipt; the Bill should rather include the word ‘filing’; and the word ‘endorsed’ be replaced with ‘accepted’. Whilst the department did not oppose these proposals, it noted the CIPC’s concerns that the definition of filing had resulted in filing challenges previously because certain applications filed with the Commission were not received by it. The CIPC argued that receipt was necessary for data purposes and to ensure the effective date is measurable.

Ms Ebrahim said her challenge with this proposed amendment was that it would be difficult for a company to know when a document has been received, and when the ten business day requirement begins. If a company is able to send an MOI and immediately receives a notification that it has been received, such an amendment was plausible, she added. However, if not, she felt that the amendment would be problematic as it would create uncertainty for a company.

Dr Masotja indicated that suggestions were made for the word ‘endorsed’ to be replaced with ‘accepted’. The department disagreed and felt the word should be retained.

Mr Macpherson agreed with the concerns raised by the PLA and felt that the changes should be made.

Amendment to Section 26

Mr Macpherson said there was much interest in Section 26 because it involved any person's right to inspect the financial statements of private companies. The issue of weighing transparency against the right to privacy has to be measured carefully, he continued, as there were issues around competitiveness, and confidentiality, which should apply to any company, and how this related to PAIA. He suggested that the Committee consider the proposed amendment as it may face legal challenges.

Mr Mbuyane highlighted that submissions had raised that the provision enabling rights to access a third party was not mandated and was in conflict with the Protection of Personal Information Act (POPIA). Furthermore, they stressed that it had unintended consequences in broadening the access and that disclosures may not be an accurate reflection of fairness and equity of a company’s remuneration report. He asked for the department’s comment on this.

Dr Masotja mentioned that the department noted all of those concerns, and there were extensive discussions on them in the National Economic Development and Labour Council (NEDLAC), specifically in relation to confidentiality. The Minister’s response in the previous week on the current case laws which promote transparency and disclosure of companies formed part of the policy decision that has been taken.

In terms of global benchmarks, it seemed that more and more countries were moving towards the balance of public interest and ensuring that it is constantly informed of all matters relating to private companies.

Mr Macpherson asked if the department had sourced a legal opinion on the concerns raised by the public relating to the amendment of Section 26. He proposed that the Committee seek a legal opinion of its own, through the PLA.

Ms Ebrahim said that two sections in the Constitution were relevant to the proposed amendment of Section 26. One, is access to information, which allows for the right of access to all information held by the state, however, in the case of private institutions this right is limited, and an individual can only access information if he or she requires it to exercise a right. However, the amendment sought to go beyond that and provide that broader right of access.

Two, is the right to privacy, which will be limited by the amendment. This right has not yet been tested by the Constitutional Court (CC) in relation to company information. The Committee would have to be confident about what the limitation sought to achieve. Alternatively, it could consider why PAIA was not sufficient, as it may be that people were not aware of the limited right of access to certain information from a private institution which would help them exercise a right.

Mr Mbuyane recommended that the Committee engage further on the concerns raised regarding confidentiality.

The Chairperson supported the proposal for the Committee to seek a legal opinion on the proposed amendment.

Dr Masotja clarified that the number of days given for one to access information in the Act is currently fourteen days, but the department recommended reducing it to five days to quicken turnaround times. However, due to opposition, it settled on ten business days.

Another one was around a reasonable period during business hours; the department felt that this matter could be looked at by the Committee and possibly removed from the Act.

Clause Five: Amendment to Section 30

Dr Masotja told Members that the amendment provides for where remuneration and benefits are received by a director or prescribed officer of a company, that individual must be named. It also provides that a remuneration policy and background statement of the report not be made subject to an audit.

In this section, there was a comment on whom it applies to: the director or prescribed officer. The department recommended that the word ‘or’ be replaced by ‘and’, so that it applies to all.

Clause Six: Amendment to Section 30A

Dr Masotja explained that this clause imposes the duty to prepare and present a company’s remuneration policy and remuneration report, as well as the manner in which the latter should be compiled by private and public companies. It also touches on the implementation report that is to be presented in an annual general meeting (AGM), and the consequences where there is failure to approve the report.

Mr Mbuyane asked for clarity on what the department meant when it said there was a risk of irrevocable change between the shareholder and directors.

Dr Masotja elaborated that this clause took into consideration the recommendations made by the public. Under this provision, both private and state-owned enterprises are expected to prepare and present a remuneration policy for ordinary resolution at an AGM. This report must consist of a background statement, an implementation report, and a remuneration policy. Once approved a remuneration policy is in force for three years.

There was concern from submissions on whether the department had given too much power to the shareholders over board members, by requiring the latter to step down if a remuneration policy is not adopted at an AGM. Other submissions went further and said that this provision put companies at risk of losing directors or being unable to attract them.

Many stakeholders recommended that voting for a remuneration report be non-binding. To address these concerns, the Minister proposed that if a remuneration report does not pass at an AGM, the board be given another opportunity to do so in another meeting. Moreover, instead of having to step down for three years, the Minister reduced this number to two.

The disclosure is meant to assist in creating more transparency on a company’s remuneration policy and address the increasing wage gaps in the country.

Mr Macpherson asked if this clause was related to the remuneration committee.

The Chairperson confirmed that this was the case.

Mr Macpherson said the main concern was around the time period set aside by the department, which may see individuals only serving one year on a remuneration committee. This may cause instability in companies and prevent fair remuneration policies from emerging. While he agreed with the department’s desire to create fairer remuneration policies in companies, he felt that this could be done differently. As such, he suggested that the Committee consider whether the one-strike approach was advisable.

Ms Ebrahim outlined that the Minister proposed some alternatives to the clause. For instance, the time periods, and the one-strike approach, which has since been changed to two. There had to be clarity on what in fact constitutes remuneration. Some submissions questioned what would occur in the interim where a remuneration policy is not approved.

She advised the Committee to consider whether a redraft of the Bill was required, which included all of the Minister’s newly proposed amendments.

Dr Masotja then read out all of the amendments proposed by the Minister.

Amendment to Section 33

Dr Masotja indicated that this section is related to the filing of annual returns and related documents that comes with that. The department clarified who it applies to, in terms of companies, and how the public’s interest score is affected.

Clause Nine: Amendment to Section 40

Mr Mbuyane indicated that the intention of Clause Nine was to identify a stakeholder and the nature of a stakeholder's agreement. He asked for clarity on both.

Ms Ebrahim said that the PLA pointed out that the stakeholder agreement could conceivably be an oral agreement, but it would be better to be a written one so that there is certainty. That was agreed to by the department, but the problem is the Act currently defines agreement as including an arrangement or understanding.

Dr Masotja mentioned that the department agreed to stakeholder agreements being in written form given the nature of the arrangements.

She clarified that the clause requires partly paid shares to be transferred to a stakeholder and held in terms of stakeholder agreements until fully paid. The department has proposed that the arrangement for holding them be dealt with in terms of stakeholder, and stakeholder agreements. Originally the word ‘trust’ was used in the Act, but this caused confusion. A stakeholder is defined as a trusted third party who has no interest in the company, or a subscribing party who may be in the form of an attorney and escrow agent.

There were suggestions to use the word ‘independent’ rather than ‘trusted’, as this word was subjective.

Clause Ten: Amendment to Section 45

Dr Masotja mentioned that the Clause spoke to the giving of financial assistance by a holding company to its subsidiaries. Certain requirements have been removed from this section to improve the ease of doing business.

Many of the submissions suggested that this section should apply to foreign subsidiaries. However, the challenge with this is that these companies function under different jurisdictions not subject to South Africa’s laws. Another submission proposed that this clause also be added to Section 44, which would remove the liquidity test.

Clause Eleven: Amendment to Section 48

Dr Masotja remarked that this amendment sought to simplify the share buyback process by removing the requirement for a special resolution when a company implements a share buyback by means of an offer pro rata to all shareholders, including where directors, prescribed officers, or related persons to either, holds shares which are the subject of the offer and will not also be required in terms of transactions affected on a recognised stock exchange.

This section had been problematic with there being interpretation issues regarding takeover matters. Many of the comments made were taken into account by the department.

Clause 12: Amendment to Section 61

Dr Masotja said the clause provides for the appointment of a social and ethics committee at an AGM. Furthermore, for the committee to submit its report, as well as the submission of a remuneration report at an AGM.

Clause 13: Amendment to Section 72

Dr Masotja mentioned that the clause inserts provisions for a public company or state-owned entities (SOE) and categories of companies that are required in terms of Section 72 to appoint a social and ethics committee, and who wish to apply for an exemption to have such a committee established. It also provides a procedure to lodge an application for exemption with the Companies Tribunal.

Mr Mbuyane asked how many members were required for an ethics committee to be constituted. In addition, he advised there be an amendment as the shareholders would not be running the day-to-day operations of the company.

Dr Masotja explained that the Bill provides guidance on the composition of an ethics committee, which is that non-executive directors should be in the majority. The non-executive principle applies as well, she added.

Ms Ebrahim said that the PLA had identified minor drafting issues on the wording in the clause and had already notified the department of them.

The Chairperson proposed that the Committee take a break for ten minutes.

The Committee adjourned for a ten-minute break.

Amendment to Section 90

Dr Masotja mentioned that this amendment sought to bring clarity on the appointment of an auditor for companies that hold shareholder meetings. It brings certainty on when the appointment takes place, and the cooling off period for when an auditor is not working with the particular company, as well as reducing the timelines from five to two years.

Clause: 16 Amendment to Section 118

Dr Masotja indicated that this amendment provides for a new definition of a company for the jurisdiction of a takeover regulation panel over private companies. It provides that a private company must have ten or more shareholders with direct or indirect shareholding in the company and meet or exceed the financial threshold of annual turnover or asset value which shall be determined by the Minister in consultation with the panel.

Submissions had raised that indirect shareholding had not been made clear in the clause.

Mr Macpherson felt that the Business Unity of South Africa (BUSA) questioned how far up the chain the provision of indirect shareholders applies. There was a need for an understanding of who exactly qualified for indirect shareholding, he suggested.

Dr Masotja said that the term indirect shareholders was used within the context of takeover regulations and that it was commonly used. However, the department would take any guidance from the Committee on whether a definition for an indirect shareholder should be included.

Mr Mbuyane asked if the department had considered the implications of allowing for indirect shareholders as some may use it as a front for illegal activities.

Dr Masotja stated that this would not have implications for illegalities.

Clause Seventeen: Amendment to Section 135

Dr Masotja outlined that this clause looked at the insertion of subsection one A, which provides that any amounts due by a company under business rescue to the landlord, in terms of a contract, where the latter has paid to any third party public utility services – a company’s share of rates, taxes, electricity, water and sanitation, sewage charges – will be regarded as post-commencement financing. This would ensure that companies are not hindered in executing business rescue due to the costs incurred.

Clause Eighteen: Amendment to Section 160

Dr Masotja mentioned that the clause requires that the Companies Tribunal stipulate a date in the administration order before an applicant can approach the CIPC to change the name. It is related to name disputes between parties.

Clause Nineteen: Amendment to Section 166

Dr Masotja stated the clause provides that if the Tribunal has issued a certificate indicating that the mediation process has failed the affected person may refer the matter for arbitration. The submissions raised concerns about which members of the Tribunal would adjudicate mediation and arbitration processes.

Macpherson agreed with BUSA’s submission on this clause. It was obvious that any person who failed to resolve a matter through mediation could not then be considered a neutral person to lead the arbitration process, as it may give rise to a review application on the basis of procedural fairness. He proposed that Members consider this.

Dr Masotja pointed out that this matter had been addressed in the Bill. Also, the Companies Tribunal informed the department that it employed a practice of recusal, where a member involved in the mediation process has to recuse themselves from the arbitration process.

Clause Twenty-One: Amendment to Section 194

Dr Masotja said that this amendment gave powers to the Chairperson of the Tribunal for the appointment of the Chief Operating Officer. It also addressed governance issues in the Tribunal so as to strengthen its work.

Clause Twenty-Two: Amendment Section 195

Dr Masotja remarked that this clause proposed an amendment to give the Tribunal powers to conciliate, arbitrate, and adjudicate administrative matters affecting companies. It is aimed to empower the Tribunal to adjudicate on matters referred to by the Broad-Based Black Economic Empowerment (BBBEE) Commission.

Clause Twenty-Three: Amendment to Section 204

Dr Masotja outlined that the amendment provides powers to issue financial reporting pronouncements by the financial reporting council, thereby strengthening its mandate.

Mr Thring asked how this amendment assisted in improving the financial reporting of companies.

Dr Masotja mentioned that financial reporting was already taking place and was monitored by the CIPC. Moreover, this function is a joint function with other regulatory bodies.

Closing remarks by the Chairperson

The Chairperson proposed that Members consult their respective caucuses and then meet on the following Tuesday to commence with its deliberations.

Mr Macpherson agreed and proposed that the Committee arrange for the deliberations to be done in-person.

The Chairperson agreed with Mr Macpherson’s proposal.

Mr Macpherson reminded Members that he had previously inquired about when the National Prosecuting Authority (NPA) would be called to appear before the Committee to present on the progress of the investigations into the National Lotteries Commission. He asked if this briefing would take place before the end of the Parliamentary term.

The Committee Secretary indicated that it would take place on 28 November 2023.

The Chairperson said that the Committee had not managed to get permission from the House Chairperson for the AGOA Summit due to austerity measures and a difference in focus areas. Now, the Committee Secretariat was attempting to get accreditation for Members to attend the Summit.

The meeting was adjourned.

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