Corporate Laws Amendment Bill [B6B-2006]: Department briefing

ECONOMIC AFFAIRS SELECT COMMITTEE
23 August 2006
CORPORATE LAWS AMENDMENT BILL [B6B-2006]: DEPARTMENT BRIEFING

Chairperson: Ms N Ntwanambi (ANC, Western Cape)

Documents handed out:
Proposed amendments

SUMMARY
The Department of Trade and Industry met with the Committee to present proposed amendments to the Corporate Laws Amendment Bill. The term “public interest company” would be replaced by the term “widely held company” to prevent confusion with regard to the wider company law reform process. Companies would be allowed to issue loans to any party to facilitate the purchase of their own shares. The Bill would seek to introduce electronic commerce into company practice. Public interest companies as currently defined would be compelled to establish audit committees comprising non-executive directors in the interests of independence. The amendments had originated from deliberations within the Portfolio Committee on Trade and Industry. Accounting practices as referred to in the Bill should not be regarded as accounting standards. The latest annual return of a company would be regarded as the latest disclosure of information.

MINUTES
The Chairperson proposed that Members receive a briefing on the proposed amendments and conduct deliberations next week.

Department of Trade and Industry briefing
Mr M Netshitenzhe (Director-Commercial Law and Policy) stated that the definition of “public interest company” would be regarded as the same as the definition for a “widely held company” as defined in the Companies Act. The term ‘public interest company” would be replaced by “widely held company.” The Bill proposed that companies would be able to provide loans to anyone in accordance with certain conditions, namely that the company maintained liquidity, avoided insolvency and that the arrangement was agreed to by the shareholders. Electronic commerce would be introduced by the Bill but not at the expense of traditional hard copies. Each public interest company as presently defined would be instructed to establish an audit committee consisting of non-executive directors in the interests of independence. The audit committee would forward recommendations for the position of company auditor. The Board would approve the appointment of the auditor in accordance with the wishes of the shareholders. The provision would be introduced in the interests of corporate governance.

The Chairperson asked whether the proposed amendments originated from the Department or the Portfolio Committee.

Mr J Strydom (Department Legal Advisor) stated that the amendments before the Committee incorporated amendments as proposed by the Trade and Industry Portfolio Committee. The amendments, if approved by the Select Committee, would be incorporated into a new Bill namely, B6C-2006 following adoption by the Portfolio Committee.

The Chairperson declared that Members had to have adequate time to consider the proposed amendments. Members would meet prior to the arrival of the Department officials at Tuesday’s meeting to finalise the Committee’s position.

Mr Fungai Sibanda (Chief Director-Policy and Legislation) provided a brief overview of reasons for the proposed amendments. Two separate definitions prevailed for companies that issued shares to the public. The provisions of the Bill had to be aligned to the broader reform process in company law. The definition of “widely held company” in the Companies Act was regarded as similar to that of “public interest company” as appeared in the Bill. The term “widely held company” would replace the term “public interest company” as contained in the Bill to avoid public confusion. Accounting practices would be referred to in the Bill as opposed to accounting standards. Accounting standards were seen as an onerous reporting requirement. The South African Institute of Chartered Accountants should educate their members on the issue of practices as opposed to standards. The Department was of the opinion that accounting practices would not be assumed to be accounting standards. The latest annual return of a company would be regarded as the latest disclosed information in respect of the company concerned.

The Chairperson stated that the proposed amendments would be considered by the Committee next week.

The meeting was adjourned.