The Department of Trade and Industry briefed the Committee on the Companies Bill, noting that the Department had held extensive investigations and discussions with stakeholders on the proposed Bill. In general, the comments showed support for the objectives of the Bill, but some structural and substantive changes had been made to the draft. The Department then described the content of the various chapters. Chapter 1 in the Bill focused on interpretation and application while Chapter 2 dealt with company registration, company names, transparency and corporate finance. Chapter 4 would address actions that were not on offer to the public and standards for qualifying employee share schemes. Chapter 5 focused on fundamental transactions, takeovers and offers. The Takeover Registration Panel was introduced and its functions described. Chapter 8 of the Bill dealt with Companies and Intellectual Properties Commission, the Companies Ombud and the Financial Reporting Standards Council. The Bill provided also for amendments to bring the Close Corporations Act in line with this new Bill in terms of the regulations.
Members wanted clarity on the difference between the Takeover Registration Panel and the Competition Commission, and enquired about the composition of the Panel. They further discussed the need for a good regulatory framework and sufficient information to be furnished to the public. The Department was urged to focus on practicalities and consider setting up a forum for information. There was discussion on whether a system similar to that in the USA should be introduced to allow companies to file for bankruptcy, and the distinction between the different types of companies was explained.
It was noted that the public hearings on the Bill would commence the following week.
Companies Bill (the Bill): Department of Trade and Industry (dti) Briefing
Mr Fungai Sibanda, Chief Director: Policy and Legislation: Consumer and Corporate Regulation Division (CCRD) of the Department of Trade and Industry, stated that the Department had conducted meetings, workshops, discussions and conferences across the country to receive comments on the Bill. In general, the public comments had supported the objectives, principles and policies of the project; however, there were certain challenges highlighted, which then prompted the Department to make structural and substantive changes to the Bill.
Mr Sibanda took the Committee through the Bill in broad terms.
Chapter 1 in the Bill aimed to reduce formality and improve flexibility, and to enhance compliance while preventing avoidance.
Chapter 2 of the Bill dealt with company registration and stated that incorporation was a right. The policy would maximise freedom of association and contract. Chapter 2 also addressed company names, focusing on the requirements for names, name reservations, use of names and offices and records of where companies were to maintain a registered office in the republic. In line with principles of transparency, all companies were to maintain accurate accounting records and statements and every company was to file an annual return.
With regard to corporate finance, the Bill would allow the board of directors to increase or decrease the number of authorised shares of any class of shares, permitted both pro rata and non-pro rata share acquisitions if approved by the board, and directors were jointly and severally liable to the company for any distribution in excess of that permitted by law.
Chapter 4 in the Bill addressed actions that were not on offer to the public, standards for qualifying employee share schemes, general restrictions on offers to the public and requirements concerning a prospectus.
Chapter 5 of the Bill dealt with approval for certain fundamental transactions, authority of the Takeover Regulation Panel (TRP) and Takeover Regulations and the regulation of affected transactions and offers. Fundamental transactions were defined as the sale or disposal of all or the greater part of the assets of the company, a merger or amalgamation, and schemes of arrangement. Upon implementation of an amalgamation or merger, each amalgamated or merged company was to satisfy the solvency and liquidity test.
In terms of the authority of the Takeover Regulation Panel, this was given the authority to regulate “affected transactions”. These were defined as a transaction or series of transactions that amounted to the disposal of all or the greater part of the assets or undertaking of a regulated company. The TRP could also regulate other “affected transactions” such as mandatory offers and compulsory acquisitions. The panel’s duty was to regulate any affected transaction or offer, without regard to commercial advantages or disadvantages of any transaction or proposed transaction. This was to ensure the integrity of the marketplace and fairness to the holders of the securities of regulated companies. It was also to ensure the provision of the necessary information to holders of securities of regulated companies, adequate time to obtain and provide advice with respect to offers and to prevent actions by a regulated company designed to impede, frustrate or defeat an offer or the making of fair and informed decisions by holders of that company’s securities.
Chapter 6 of the Bill would replace the current judicial management with a modern rescue regime, largely self-administered by the company, under independent supervision, within constraints set out in the chapter. This was subject to court intervention at any time on application by any of the stakeholders. The idea of “business rescue” was based on a test of the company being “financially distressed”. Chapter 6 would also recognise the interests of shareholders, creditors and employees and it would provide for their participation in the development and approval of a business rescue plan. The interests of workers would also be protected, as they would be recognised as creditors of the company with a voting interest to the extent of any unpaid remuneration.
Chapter 8 of the Bill dealt with Companies and Intellectual Properties Commission, the Companies Ombud and the Financial Reporting Standards Council, which would receive reports from the Commission concerning compliance with financial reporting standards.
The Bill provided for the co-existence of the new Companies Act and the Close Corporations Act. It also set out certain amendments to the Close Corporations Act to harmonise the two laws with respect to regulation.
Mr L Labuschagne (DA) noted that both the Competition Commission and the TRP would deal with mergers and acquisitions. He asked for clarity on the issue.
Ms Zodwa Ntuli, Deputy Director-General: CCRD, stated that there were various regulators in different sectors. She also found that sectors sometimes needed the approval of different regulators. The TRP would not address issues regarding shares or stakeholders but would have other areas of responsibility.
Ms F Mahomed (ANC) wondered if there was a good regulatory framework in place that individuals and companies could look to for guidance on certain issues. She wanted to know how much advocacy was being done to inform the public about the Bill, and the different types of companies.
Ms Ntuli stated that since the last briefing with the Committee, the Department was looking at improving its regulatory framework.
Mr MacDonald Netshitenzhe, Director: Commercial and Policy: CCRD, stated that the Department was involved in educating and making the public aware of the legislation to a certain extent.
Mr Sibanda stated that the Department was trying to simplify the Bill so that it was uncomplicated and easier for the public to understand.
Mr D Diale (ANC) asked what the composition of the TRP was.
Mr Sibanda answered that the TRP would consist of about fifteen members and that the entity would have specific issues to investigate.
Ms Mahomed commented that the Department should look at the benchmark of international standards and compare it to the internal performance of companies within South Africa. There were very few people who knew where to go and what to do in terms of Ombudsmen and the Companies Ombud. The Department should focus on the practicality of the Bill and needed to develop a forum which people could approach for help. She also stated that a regulatory framework was important, as there was a great deal of white-collar crime happening in the country.
Professor E Chang (IFP) stated that the United States used a “Chapter 11”, which allowed businesses to file for bankruptcy if they could not pay their creditors. The Court would then reorganise the business’ debts and this would give companies the opportunity to stay in business. She wondered if the Department had considered including this in the Bill.
Mr Netshitenzhe stated that he did not think that such a chapter would be included in the Bill.
Prof Chang noted that the absence of such a chapter would result in confusion over who could and could not claim back money from businesses that were in financial trouble. Such a provision would protect creditors and saved companies in the long term.
Ms Ntuli stated that Chapter 6 in the Bill would do what was necessary. Businesses would still have to go to court to solve claims issues. However, the Department would go back to its research and look at Prof Chang’s proposal.
Mr Labuschagne asked for clarity on the difference between “personal liability companies” and “private companies”.
Mr Sibanda stated that private companies’ abilities were limited. If the Memorandum stated that a member of a company was personally liable for anything that happened, then that company became a personal liability company.
The Chairperson reminded the Committee that public hearings on the Bill would be commencing later in the week. He asked the Members to check for contradictions in the Bill.
The meeting was adjourned.
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