Companies Amendment Bills: DTIC briefing (with Minister)

Meeting report

Opening Remarks
The Chairperson formally opened the meeting and welcomed Minister Patel. He wished Ms Boshoff a speedy recovery, offered condolences to the family of Prof Harry Seftel who passed away over the weekend and remembered the passing 10 years earlier of the father of South Africa’s democracy, President Nelson Mandela. He was concerned about the time remaining for the two Companies Amendment Bills but was reminded of the words of the late President who had said, “It always seems impossible until it’s done.” 

Presentation on the Companies Amendment Bills
Minister Ebrahim Patel, Minister of Trade, Industry and Competition, made some opening remarks on the Bills before the Committee: the Companies Amendment Bill and the Companies Second Amendment Bill. He intended to provide some information for Members of the Committee on the rationale for the two Bills and to expand on some of the provisions of the Bills.

The Companies Amendment Bill of 2021 addressed three prime categories of policy objectives:
1. The ease of doing business.
2. The achievement of equity between directors and senior management on the one hand, and
shareholders and workers on the other hand as well as addressing public concerns regarding high
levels of inequalities in society.
3. Efforts to counter money laundering and terrorism and promote transparency about share ownership.

The Minister went through each of the amended clauses of the Companies Amendment Bill. (Refer to the PowerPoint attached).                                                                                                                                                                                                                                                                                             The core policy objective of the Companies Second Amendment Bill of 2023 was to amend the Companies Act, 2008 (Act No. 71 of 2008) in response to the recommendations of the Zondo Commission by extending the time bar contained in sections 162(2) and 162(3) of the Act. Section 162 made provision for an application to a Court for an order declaring a person delinquent or under probation. It provided a definition for a delinquent director. Section 162 dealt with the topic of delinquency and stated that a court must declare a director to be delinquent where they have failed to discharge their duties in terms of the Companies Act, provided they were a director at the time, or had been a director in the 24 months preceding the application. The Bill also set out the implications of being declared a delinquent director, including the fact that a Court might grant appropriate relief to companies involved with the now delinquent director by allowing companies to claim damages from a director for losses incurred as a result of their conduct.

In summing up, Minister Patel said that he had taken quite a bit of time to go through each of the Amendments and had also provided some general information and a few technical notes that would assist the Committee in undertaking its review of the two Bills.

(See Presentation)

The Chairperson liked the fact that Minister Patel presented the problem, discussed it and offered a solution.

Ms Fatima Ebrahim, Parliamentary Legal Advisor, Office of Constitutional and Legal Services, stated that she was satisfied with the very thorough explanation of the Bills, as given by the Minister. The National Assembly Portfolio Committee had been involved in an in-depth process of looking at the Bills. There were significant changes from the version originally developed. Those changes had come from the public submissions. Ms Ebrahim’s Office was happy with the content of the Bills.

The Chairperson noted that the Office of the Chief State Law Adviser was not on the platform.

Ms Ebrahim said that the State Law Advisors had been part of the process. In part, the A list was drafted by her Office, together with the Department. The Portfolio Committee also had concerns about the constitutionality of one or two aspects of the Bill. Her Office had given a legal opinion on that. The Department also followed up with a written legal opinion from senior counsel. So there was satisfaction at the end of the process that the Bill was constitutionally sound.

Discussion
Mr J Londt (DA, Western Cape) asked for clarity on the legal opinion. The Chairperson had previously pointed out that the Committee needed to get a proper briefing in the same way as the colleagues in the National Assembly (NA) who had received a legal briefing. Members could not assume that they knew what occurred on the NA side. He also wanted to know the timelines that the Chairperson foresaw because the House was rising the following week and the schedule was quite hectic the following year until May 2024.

Mr M Mmoiemang (ANC, Northern Cape) asked about the social and ethical imperatives. Would it not be important for that committee to report to the shareholders at the Annual General Meeting and to CIPC (Companies and Intellectual Properties Commission)? Secondly, he asked about the issue of the gender pay gap which was also an imperative for transformation. It would be easy to revise the Amendment to include that important matter. The other areas were quite explicit, and he agreed with the remuneration requirements. Regarding the Second Amendment Bill which responded to the Zondo Commission, he asked if the matters that had led to the greylisting were sufficiently covered. 

The Chairperson had a technical question on the public interest score. He asked if the Minister could explain fully how that system worked. Regarding Mr Londt's question on the legal advice, he explained that Ms Ebrahim would be in attendance throughout the process and would advise Members from time to time. Ms Shamara Ally, Procedural Advisor at the NCOP Table, had sent an apology for the day but she would join Members during the process of the lawmaking. He would present a draft programme for the Committee when the Minister had made his responses.

Minister Patel responded to the comments and questions. He assured Mr Londt that the officials from the Department would be available during the processing of the legislation. He responded to Mr Mmoiemang's question on the Social and Ethics Report (SER). The SER would typically be presented at an Annual General Meeting. Previously, there had been some ambiguity about it but that had been clarified. None of the representations made to the Department had proposed that the SEC report be filed with the CIPC. So the Department had not given that any consideration but if the Committee thought that it would be a viable proposition, he would certainly be happy to come back to the Committee to discuss such a proposal. 

Minister Patel explained that he and the Department were particularly supportive of the idea of a gender pay gap being addressed in the legislation. At the moment, the Bill introduced the broad aspect of pay ratios. Gender pay gap ratios had not come up through the very lengthy NEDLAC process and it was important to conclude a Bill that had gone carefully and thoroughly through the NEDLAC process. The Bill was introduced into Parliament with a provision for an aggregate pay gap. In the course of public comment, two very interesting sets of comments were made. The first was that a deficiency potentially was that the Bill did not provide for subcontracted employees, i.e. employees of a company that was legally distinct from the company that had the disclosure requirement but whose employees provided services to that company. That could encourage companies to subcontract. The second observation was about the need to take into account the value of putting a gender pay gap ratio in the reporting requirements. From a policy point, he saw great value in putting a gender ratio disclosure in legislation as it would address another pernicious form of discrimination in the labour market. However, he recognised that the Portfolio Committee would have to advertise the proposal for public comment. Such an amendment would not benefit from consideration by either NEDLAC or the Specialist Committee on Company Law and consideration would have to be given to whether that would make the inclusion of such a proposal vulnerable to poor drafting. He had also indicated to the Portfolio Committee the danger of a legal challenge given the timeframes, and that if it were to be included in the Bill, it would have to go back to the National Assembly. The Select Committee might want to consider that point if Members wished to include the gender pay gap issue.

The Minister had approached the Specialist Committee on Company Law and asked that it investigate an opportunity to use the regulations to require that the report of the social and ethics committee include a requirement to disclose gender pay ratios. That would enable the disclosure of the gender ratios when overall ratios were disclosed. In addition to that, he believed that there was further work for the next phase of Amendments that would need to go through various processes. The process to amend the Companies Law had taken more than six years from 2018. It was a very lengthy process to amend company law because so many interest groups had to be consulted to ensure that the Department had taken all points of view into account. So, on the gender matter, the Committee might want to consider whether it would want a gender pay ratio in the present Bill. If it did, it would have to put that in a public advertisement and, if it is approved, the Bill would have to go back to the National Assembly. If there is insufficient time, the Bill would lapse by the end of the current term of Parliament and would have to be reconsidered in the next Parliament. That was the trade-off.

The Minister suggested that, alternatively, the Committee could take the view that the Bill, in its current form, constituted very significant progress in dealing with pay ratios, wage ratios and inequality in society and that the gender provision, while important, would require a longer process of careful consideration and various legal processes, as well as other processes. The Committee might decide that it wanted to support the continuation of that piece of work which the Department could take to the Specialist Committee on Company Law and to NEDLAC. The Department could come back to Parliament in future with a Bill that could expand on those groundbreaking provisions in the current Bill. Those were the two routes that the Committee could adopt; they had different values and risks. On balance, the Minister was a strong supporter of ensuring that gender disparities were disclosed and addressed in society. At the same time, he was conscious of the limited time to ensure that the Bill was properly considered through discussion at NEDLAC, and by the Specialists Committee. Under those circumstances, it seemed prudent that the Bill be considered in its current form, considering the time challenge in the current term of Parliament.

Minister Patel responded to the Chairperson's question on the public interest score. How did one define what one would colloquially call a larger company? How did they ensure that certain provisions that required a higher level of public disclosure or more detailed compliance requirements were not imposed on small companies? A definition was required. There was a definition of small and medium enterprises but for company law, that definition had been inadequate. In 2008, when the Act was developed and passed by Parliament, the notion of a public interest score was included by Parliament and subsequently, the Minister issued a regulation that spelt out how the public interest code worked. That score set out a series of criteria that were applied to a company and points were allocated for each criterion which were added up to give a sense of whether, for purposes of the Act, a company would need to comply with certain provisions. One criterion was turnover, even though it was quite a significant category as that was the total value that the company generated from its economic activities. However, some companies, such as labour services, had a very large number of employees, but not as large a turnover. The liability of a company publicly was an important consideration if a company were involved in activities where there was an enormous risk to society, it would typically take out significant third-party liability which would be another indication that it was a publicly significant company. If a company had one shareholder or five shareholders, it would be less significant from a public interest point of view than a company that had 1 000 shareholders. That was already in the Act and the regulations but he had provided a little bit more detail to give the committee a background and to show that some of the provisions proposed in the Bill would not apply to smaller companies, but only to what was defined as larger or more publicly significant companies so that the Act did not unnecessarily burden smaller players.

The Chairperson asked for follow-up questions.

Mr Mmoiemang noted the explanation given by the Minister on the gender pay gap ratio, and the constraints of time as outlined, and agreed that it was a matter that the Department could look into to ensure gender equity transformation, but not in the current time available for the processing of the Bill.

The Chairperson thanked the Minister for the presentation on the two Bills. The Committee would proceed to discuss the Committee Programme for the first term in 2024, which would include the legislative process for those two Bills. The presentation had started the process with the two Bills and now the Committee had to facilitate public involvement. Advertisements would be issued, calling for public comments on the two Bills and then the public hearing and other processes would follow.

Committee Programme: First Term 2024
The Committee Secretary informed the Committee that the dates for publishing the advertisements for public input on the two Companies Amendment Bills were not on the Programme as the secretariat was in the process of getting quotations from the supply chain management in Parliament. The intention was to run the advertisements from the 15th to 28 January 2024, but the closing date for the submissions would be 2 February 2024 and the public hearings could take place late in February 2024. The Committee would consider responses to public input on 5 March 2024 and the deliberations would take place on 12 March. On 19 March, the Committee would finalise the matter. On Tuesday 26 March, Members would consider and adopt the Bill.

The Chairperson noted that the programme was also informed by the Parliamentary Framework Programme for 2024. A joint programming committee of both houses had developed the framework for the following year. The week of 5 February was the week of the State of the Nation Address by the President, which would be on 8 February 2024, followed by full-day debates the following week. Other than 6 February 2024, when the Committee had a meeting with the Department of Employment and Labour on issues related to the Compensation Fund and the UIF, including the issue of the forensic report that the DG had said would be available, the programme of the NCOP was very full and Committees would only meet towards the end of February.

Mr Dangor suggested that the Department should be consulted about the dates as it might need more time to prepare.

The Chairperson was adamant that it was a parliamentary process and the Department would have to fit in with the Committee’s schedule. It was no longer a departmental process.

Mr Londt noted that the Chairperson had commented on the advertisement period being a long time; his concern was that it was an incredibly short period considering that the country pretty much closed down over December. The effectiveness of an advertisement over the December period was a concern. Since the public hearings were in late February, it might be wise to have a rather longer period covering that and maybe less over the December period.

The Chairperson was sure that from the 15th of December to 2 February 2024 was sufficiently long.

The Committee Programme for the First Term 2024 was adopted unanimously by the Committee with no amendments.

The Chairperson called on Minister Patel to make closing remarks.

Closing Remarks by the Minister
Minister Patel thanked the Committee for the opportunity to take the Committee through the Bills. He agreed the process had become Parliament's process but committed that the Department would be ready at any stage that the Committee required the Department to respond. He flagged the point, for reflection and thought, that the date for the elections, once known, might truncate the available time. The Committee would no doubt review dates once the date for elections had been announced.

Consideration of the Minutes
The minutes of, firstly, the morning of 28 November 2023 and, secondly, the afternoon of 28 November 2023 were read, considered and approved unanimously with no amendments.

Closing Remarks
The Chairperson, noting that the meeting was the last for the year, thanked everyone for their support, including Members, the Committee staff, parliamentary staff and PMG which attended each meeting and provided valuable information on its website.

The meeting was adjourned.