Corporate Laws Amendment Bill: adoption

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
7 June 2006
PROPOSED AMENDMENTS TO CORPORATE LAWS AMENDMENT BILL [B6-2006]: BRIEFING

Chairperson: Mr B Martins (ANC)

Documents handed out:
Proposed amendments document
Corporate Laws Amendment Bill [B6-2006]
Corporate Laws Amendment Bill [B6A-2006]
Corporate Laws Amendment Bill [B6B-2006]

SUMMARY
The Department of Trade and Industry met with the Committee to present an overview of the proposed amendments to the Corporate Laws Amendment Bill. The proposed amendments arose from public hearings. The Department read through the list of amendments and Members made comments and asked questions on key issues. Members asked questions including the distinction between internal and external auditors, the list of omitted services for auditors, cross-referencing between various pieces of legislation, the role of the auditors code of conduct, the nature of financial reporting standards, the composition of the Council and adherence to accounting standards. The proposed amendments were adopted unanimously.

MINUTES
Mr J Strydom, (Department of Trade and Industry (DTI) Legal Advisor), read through the proposed amendments to the Corporate Laws Amendment Bill. A new clause would be added to the Bill by the deletion of subsection 4 that amended Section 20 of the Companies Act. The distinction between public interest companies and limited interest companies would prevail in terms of financial reporting standards.

Prof B Turok (ANC) asked whether State Owned Enterprises (SOEs) would be included in the Bill.

Mr M Nonkonyane (ANC) sought clarity on the intention of the new clause and the reason for deletion of subsection 4.

Mr Strydom responded that the intention of the new clause was to accommodate the concept of differential accounting standards and would only apply to the distinction between public and limited interest companies. SOEs would not be included in the Bill. The distinction between private and public companies was inconsequential to the objectives of the Bill and thus the reason for deletion of subsection 4.

Clause 24: Insertion of section 270A in Act 61 of 1973
Prof Turok asked whether the legislation would make reference to internal auditors or external auditors that retained a level of independence. He noted the existence of three distinct groups namely internal auditors, the audit committee and the external auditor and asked whether confusion would prevail in the public. The Bill should make the issue clearer.

Mr Strydom replied that the clause referred to external auditors that remained independent of the company.

Mr M Lepaku, (DTI Policy and Legislation), referred to the Auditors Professions Act that made specific reference to external auditors and the Bill did not have to provide further clarity.

Ms F Mahomed (ANC) noted that the clause made clear reference to the external auditor.

Mr L Laubschangne (DA) suggested that the term “external” be added to the heading of the clause to provide clarity.

Mr S Rasmeni (ANC) concurred that the clause should be lucid to avoid the potential for confusion.

Mr Lepaku stated that the Companies Act made clear reference to external auditors only and internal auditors were not regulated by the legislation.

Prof Turok asked whether an explanation in the Bill’s memorandum would clarify the issue.

Clause 29: Insertion of section 275A in Act 61 of 1973
Prof Turok declared that the Bill would render the Independent Regulatory Board of Auditors a more important body. The composition of the Board was a matter of public interest. He proposed that an academic or lay person should be included on the Board.

Ms Mahomed proposed that the omitted services for auditors should be included in the Bill to avoid tedious cross-reference to other pieces of legislation.

Mr M Netshitenzhe, (DTI Director-Commercial Law and Policy), claimed that the proposal had merit.

Mr Strydom stated that the code of conduct for auditors was contained in section 21 of the Auditors Professions Act. Auditors should be aware of the details of the code. The code would specify the functions that an auditor could not engage in.

Mr Laubschangne asserted that cross-referencing between various pieces of legislation could not be avoided at times. All provisions related to auditor’s services should be placed within the code.

Mr S Njikelana (ANC) stated that the Bill should refer to the code to avoid compromising the new legislation if changes occurred to the code in future.

The Chairperson declared that the Bill should cover the broad principles of the proposed legislation and avoid the need for extensive referrals between different pieces of legislation. The public interest element had to be entrenched and the Bill had to be user-friendly.

Mr Netshitenzhe stressed that the cross-reference to the code was necessary as key provisions were contained therein.

Mr Strydom added that the objective should not be to have two Acts of Parliament that contradicted one another. The Bill should not conflict with existing regulatory laws for related professions or be too prescriptive.

Ms X Mdludla (State Law Advisor) asserted that it was impractical at times to include all aspects of legislation in one Bill or Act. Other relevant pieces of legislation should not be ignored and should be referred to. 

Clause 33: Insertion of section 285A in Act 61 of 1973
Prof Turok asked whether limited interest companies would have stringent financial reporting standards imposed upon them.

Mr Sibanda (Chief Director-Policy and Legislation) declared that the Bill intended to lessen the burden on limited interest companies in the interests of small business development and job creation. However, limited interest companies had to comply with a certain standard or framework.

Prof Turok advocated that onerous standards could create an additional burden for limited interest companies and he sought an assurance that no over-regulation of small businesses would occur.

Mr Strydom stated that limited interest companies had to comply with the prescribed accounting standards.

Mr Mutwa (DTI Policy and Legislation) noted that the Council would develop accounting standards in due course and interim or transitional measures were required until then.

Mr Njikelana sought clarity on the distinction between a framework and a standard and asked which was more detailed.

Mr Netshitenzhe replied that a standard was detailed while a framework had a broader impact.

Clause 50: Insertion of Chapter 25B in Act 61 of 1973
Prof Turok asked whether lay persons would be included in the Council.

Mr Sibanda replied that the Bill would not specify the type of person to be included on the Council but would leave the decision to the discretion of the Minister.

Prof Turok asserted that the criteria of knowledge of company law for the two appointees by the Minister were too exclusive and contributed to the notion of a cabal of professionals. Individuals with a human rights background were required to attain a level of balance.

The Chairperson stated that the Council should comprise individuals well versed in matters of company law and related matters. 

Mr Rasmeni concurred that adequate knowledge was required to follow discussions and make constructive contributions.

Mr Laubschagne stated that the Council would deal with financial reporting standards and a specific financial knowledge was required.

Mr Njikelana suggested that an addition be inserted that instructed that the two appointees articulate the public interest while possessing adequate financial knowledge. 

Ms Mahomed proposed that the clause clarify the four users of financial statements referred to. 

Prof Turok suggested that the clause stress that the Minister nominated the two appointees. The Panel would consist of experts whereas the Council had an overarching function and should fulfil a political function in the setting of standards.

Ms Ramodibe stated that the Minister would act in the best interests of the Council and appoint individuals that would be of benefit to its overall function.

Mr Njikelana proposed that the clause should not be amended and the choice should remain at the discretion of the Minister.

Mr Sibanda noted that the Minister’s discretion could be narrowed to include the public interest. He declared that Council meetings would be open to the public.

Mr Laubschagne reiterated that members of the Council should have knowledge of company law.

The Chairperson stated that subsection 3 (e) should remain as is.

Ms Mahomed proposed that as a compromise one of the two appointees had to be knowledgeable in company law.

Dr P Rabie (DA) stated that the requirement for company law knowledge should remain.

Mr Nonkonyane asked whether one appointee could represent the public interest.

Dr Rabie reiterated that two people knowledgeable in company law had to be appointed.

Mr Netshitenzhe proposed that the Committee should monitor the composition of the Council.

Mr Sibanda stated that the Bill contained definitions of the users of financial statements.

Clause 53: Transitional Provisions
Mr Sibanda declared that the limited interest company had to comply with general accounting practices.

The Chairperson asserted that Members had absorbed all pertinent issues and the Department had to furnish the Committee with a clean copy of the Bill to enable deliberation and adoption.

Mr Strydom noted that Members had to first adopt the proposed amendments before the printers would produce a clean copy.

The Chairperson read out the motion of desirability and the amendments were adopted.

Dr Rabie asked when the Bill would be tabled in the National Assembly.

Mr Strydom stated that the Bill was scheduled to be tabled on 14 June 2006.

The meeting was adjourned.