Companies Bill: adoption

Meeting report

Mr Fungai Sibanda, Chief Director: Policy and Regulations, Consumer & Corporate Regulation Division (CCRD), introduced his colleagues Mr Macdonald Netshitenzhe, Director: Compliance Law and Policy, CCRD, Mr Desmond Ramabulana, Deputy Director: Company Law, CCRD, Adv Rony Voller, Director: Legal & Regulatory services: Companies and Intellectual Property Registration Office (CIPRO), Adv Flip Dwinger Manager: Legal Services: CIPRO, and they were later joined by Adv Mandla Mnyatheli Chief Director: Office of Company and Intellectual Property Enforcement (Consumer and Corporate Regulation Division) and advised that he would submit or answer, assisted where appropriate by members of the team.

Proposed Amendments to the Companies Bill
Mr Sibanda read out the proposed amendments which were either of a technical or substantive nature:

Clause 1, 2, 4
Mr Sibanda read out the proposed amendments to each clause.

Clause 5
Mr Sibanda read out the proposed amendment to the clause. The motivation was that the Companies Bill was a subservient Act and when other Acts had stronger provisions by inference and from interpretation such were to prevail. In reply to Dr Rasmeni seeking clarity as to which Banks Act, Mr Sibanda said the only Banks Act.

Clause 6 & 7
Mr Sibanda read out the proposed amendments to these clauses.

Clause 11
Mr Sibanda read out the proposed amendment to the clause. The motivation was that companies should have the right to reserve alternative names. In addition page 26 line 19 such defensive name would endure for two years, but this period could be extended by application.

In response to a question from Mr L Labuschagne (DA), Mr Dwinger replied that it related to the heading only.

Clauses 12, 20, 21, 23, 24, 26, 29
Mr Sibanda read out the proposed amendments to these clauses.

Clause 30
Mr Sibanda read out the proposed amendments to the clause. Implementation of this clause was to be left to the discretion of the Minister in seeking criteria for the imposition of the requirement for audits.

Clause 31
Mr Sibanda read out the proposed amendment to the clause. This amendment had resulted from representations by trade unions.

Clause 32
Mr Sibanda read out the proposed amendments to the clause.

Mr Labuschagne wished to know whether this was not a technical amendment as the numbering seemed to be out of synchronization.

Mr Sibanda conceded that this was the case, and undertook to have further regard to the numbering.

Clauses 35, 39, 40, 41, 45, 48 and 50
Mr Sibanda read out the proposed amendments to these clauses.

Clause 56
Mr Sibanda highlighted the amendment, which sought to insert the wording “disclose beneficial interests” on Page 55, in line 11.

Mr Rasmeni asked that the practicability thereof be explained, and also the clarity of when it would be used.

Mr Dwinger replied that Section 56 was brought forward from the current Companies Act and that there could be a multitude of reasons for this provision but it centred upon the question of costs.

Mr Rasmeni asked why it was provided for and who would enforce such provisions.

Mr Dwinger said that there were a multitude of reasons and this provision did not require enforcement by a regularity authority because it had been intended to be for the company to force disclosure of who was the ultimate owner of the shares, to force the nominee owners to disclose the actual owners and was very useful in combating a hostile take-over situation.

The Chairperson asked whether this was not an example of piercing the corporate veil

Mr Dwinger replied that it was more likely piercing the securities umbrella.

Mr MacDonald Netshitenzhe, Director DTI, explained it was more like revealing abuse or hiding ownership of shares. He said the piercing of the corporate veil provisions were elsewhere.

The Chair asked whether this was asset stripping.

Clause 61
Mr Sibanda read out the proposed amendment to the clause.

Mr Labuschagne asked whether 10% was not still too high in an effort to encourage shareholder activism and he asked whether 5% would not be more appropriate as a democratic encouragement of shareholder activism.

Mr Rasmeni said that he did not favour any shareholder calling for a meeting on a whim and he thought that 10% as a threshold was too low.

Ms Khunou remarked that hundreds, if not thousands, of shares had been directed to Black Economic Empowerment (BEE) beneficiaries and she felt that if shareholders were able to call for meetings of the shareholders this would be to the disadvantage of the BEE shareholders who would not know what was happening. She wanted to know a mechanism by which the wishes of the people could be established.

Mr Labuschagne said he was willing to compromise by selecting 7.5% as a threshold but he felt that if there were public interests, such as where a company was deleteriously affecting the environment though its activities, the shareholders should be able to call a meeting and hold the directors and management to account and thereby protect their investments.

The Chairperson indicated that he was not in favour of shareholders willy-nilly addressing issues and causing costs. He observed that the Telkom, MTN and other offers to the public of BEE shares had all been oversubscribed and that these companies were doing well. He felt that too much shareholder activism would harm these companies. He felt it was the responsibility of the DTI to educate shareholders regarding their rights and obligations.

Mr Sibanda said that he thought the comments and observations were very valid. The question of shareholder activism was regarded as a high priority by the DTI which was why provision has been made in the Bill and the threshold for calling for shareholder meetings lowered to 10%. This would make it easy for people to attend meetings of the shareholders. However, this threshold was to give an idea of what was required to call a shareholders meeting but the feeling was that if the threshold was too low, any [disaffected] person would be able to call for a shareholders meeting. He conceded that Mr Labuschagne might be correct but at too low a level.
 
Mr Labuschagne in reply said that if the threshold were set too high there would not be shareholder activism. He felt that the requirement of 10% in order to have a meeting of the shareholders of SASOL, which might in practice be 200 000 shareholders, was too high, especially when the desire to call such a meeting arose from an environmental concern which impacted upon hundreds if not thousands of people. In fact it seemed the DTI was advancing the proposal that a company might be free to increase, or set a higher threshold than the 10% threshold in its Memorandum of Incorporation, to the disadvantage of the wider stakeholders other than the shareholders.

Ms Khunou said that she felt that there was a need to involve more people through education and that the reason for setting the threshold at 10% needed to be understood.

Dr Rasmeni pointed out that there was a need for shareholders to understand their voting rights and to be made aware that they must exercise their voting rights properly and this dealt specifically with the rights of shareholders

The Chairperson indicated that he thought 10% was a good choice.

Mr Labuschagne pointed out that what he was calling for was the minimum number of shareholders required to call a meeting of the shareholders, not the minimum number of votes required to have a shareholders motion passed. He remained unconvinced that shareholder activism would be encouraged by the 10% threshold.

On behalf of the DTI, Mr Sibanda replied that he felt that Dr Rasmeni was confusing numbers with percentages of voting rights and that 10% was a low threshold and was a tool for shareholder activism and that the new shareholders in terms of BEE required proper education.  

Mr Dwinger added that this threshold would be a very powerful tool in the hands of the shareholders and that there needed to be no opportunity to misuse or abuse the provision. He reaffirmed the need for the BEE shareholders to be properly educated.

Mr Sibanda then added that the rights of shareholders were critical.

Clause 63
Mr Sibanda read out the proposed amendment to the clause

Mr S Maja asked what this meant.

Mr Dwinger replied that it only set out current practice regarding polling at meetings of the company's shareholders. It was general practice.

Clause 64, 65, 66, 69, 72 and 78
Mr Sibanda read out the proposed amendment to these clauses.

Clauses 82, 84, 86, 87, 88. 89 and 92
Mr Sibanda read out the proposed amendments to these clauses, and indicated that the changes were technical in nature.

Clause 94
Mr Sibanda read out the proposed amendments to the clause. It was explained that this applied to the Audit Committee members and not the employees.

Clause 116
Mr Sibanda read out the proposed amendment to the clause.

Clause 120
Mr Sibanda read out the proposed amendment to the clause. It was explained that this was the mechanism for the takeover panel.

Mr Njikelana asked for examples of the contemplated fees to be provided

Dr Rasmeni added that he felt that these fees and levies would be used as a punishment of companies and wanted to know how long they would take.

Mr Dwinger explained that they contemplated fees and levies related to the investigation of takeover and merger proposals by companies. It was envisaged that CIPRO, the Companies panel or Commission would be self funding through fees and levies but that the Council would be funded by DTI directly.

Mr Netshitenzhe explained that in terms of the current Companies Act, there was provision for fees and levies and this provision was merely being carried forward.

Meeting break

At this point, Mr Theo Hercules, State Law Adviser, stated for the record that if fees and levies were set in a schedule to the Act any change thereof would require parliamentary participation as this would be viewed as a money bill but that if the fees and levies were set out in regulations, then there would be no requirement of parliamentary participation to amend and update these.

The State Law Adviser undertook that the Office of the Chief State Law Advisor would examine every aspect before reverting to the Committee.

Clause 135
Mr Sibanda read out the proposed amendment to the clause. It was pointed out that this was at the behest of the trade unions. 

Clause 144
Mr Sibanda read out the proposed amendments to the clause. It was explained that this had been inserted at the instance of organised labour.

Clause 159
Mr Sibanda read out the proposed amendments to the clause.

Clause 163
Mr Sibanda read out the proposed amendment to the clause. He explained that this provision would ensure that no person could use the company as a shield.

In response to questions, chiefly from Mr Labuschagne, Mr Dwinger gave as examples of what was intended, companies not paying their creditors and their directors relying on the limited liability provision to escape paying the creditors personally.

Mr Netshitenzhe explained that this was in line with a recent court decision regarding a close corporation where the members of the defaulting close corporation had been held personally liable for the debts of the close corporation.

Clause 203
Mr Sibanda read out the proposed amendment to the clause.

Mr Oliphant was concerned with the word 'may' and observed that the Minister did not necessarily have to require the Council to be a member of any such international council. Mr Sibanda agreed that this interpretation was correct.

Clause 204
Mr Sibanda read out the proposed amendments to the clause. Explanations were provided by the DTI officials as to why these were regarded as necessary and important.

Discussion
Mr Labuschagne stated that the provisions for penalties to be imposed upon directors together with the provisions for the lack of indemnification for directors concerned him. He felt that in the light of current practice where public companies make share options available to directors, and such share options were often worth many, if not hundreds of millions, a penalty such as that imposed in terms of the Competitions Act upon the directors was a drop in the ocean and to a large extent meaningless and of no effect. Thus he asked whether it could not be provided for that in the event of a conviction, the directors were also deprived of any share options which they had not as yet taken up.

Dr Rabie added that he felt the Bill was proposing complicated changes in the field of Company Law and wondered whether the DTI had given thought to holding workshops to explain the changes.

Mr Oliphant again expressed concern about the requirements for financial statements and audits and the further required change/alteration in auditors and the non-availability of different auditors for re-appointment as provided in the Bill. He felt that these provisions would impinge too severely upon the rural areas.

Mr Labuschagne, referring to Dr Rabie’s observation that workshops were required to explain the Bill, pointed out that the Bill contained over 200 pages and he wanted to know what was going to happen to the current close corporations, of which there were many thousands registered.

Ms Khunou made a plea that the several official languages be remembered in the proposed workshops which should also cater for the women in the rural areas.

The Chair advised that he had observed the department officials making notes, as they were seeking to formulate the best possible law and to forestall the effect of unintended consequences whilst yet implementing the provisions of the Constitution.

Mr Sibanda said that it was envisaged that the close corporations would be converted as provided for in Schedule 4, pages 198 and 199, which included changes to be made by the Registrar of Deeds. Addressing the question of the rotation of auditors, he reminded the meeting that the intention was that only the large companies listed on the Johannesburg Securities Exchange (JSE), mainly in the urban areas, would be required to produces annual financial statements (AFS) each year, while private companies and NGOs would be exempt, unless specially required by the Minister to produce AFSs, and so such companies would not be require to find auditors and have auditors rotate.

The Chair indicated that he felt the President’s mother would appreciate this dispensation.

Mr Netshitenzhe explained that until the Bill was promulgated, anyone was still entitled to register a close corporation but once the Bill was enacted, it would not be possible to register a close corporation. Existing close corporations had a time period in which to convert in terms of the Bill.

With regard to the question of a court punishing a delinquent director by removing the director’s right to exercise share options, he felt that this suggestion was skating on thin ice. Share options were regarded as property and the Constitution had provisions against the arbitrary removal of property. He felt that this question should be referred to the State Law Advisors.

Mr Hercules, State Law Advisor, said that he felt that there should be caution about removing any rights to share options.

Ms Khunou made a plea that the workshops should be held extensively for she felt that the people needed to know the Bill well, when it became law.

Mr Njikelana said that he still had several concerns. Did the employment contracts which it was envisaged made it compulsory for foreign companies to register in terms of the Bill include contracts whereby consultants were appointed. Secondly, would the R100 envisaged in Clause 26 be recoverable and with regard to Clause 30 would the provision or requirement to produce AFS depend on annual turnover alone or cover the nature and extent of the business and socio economic extents? He did not like the term Supervisor as used in the Business Recovery programme because of the connotation arising from the past. With regard to fines and penalties he wished to know whether a fine of R10 000 was the intended maximum. What would be the position if a court imposed a fine in excess of R10 000, would a director still be disqualified? He thought stiffer sentences should be considered. He wanted to know whether close corporations had 10 years in which to convert in terms of this Bill and he wanted an explanation of the term “best interests of the company” for he did not understand it. He asked if Clause 56 would be imposed and policed. He asked if the proposals about human rights would be implemented and whether it would be compulsory for the Memorandum of Incorporation to refer to human rights provisions in the Constitution and if not, why not? With regard to section 76(3), would this govern a South African’s activities elsewhere in the world and ensure that such did not conflict with the SA Bill of Rights. He was concerned that there was no emphasis on ensuring compliance.

Mr Oliphant explained that while he accepted the Department explanation about auditors and their rotation, he felt that the persons outside the Committee would not.

Mr Sibanda addressing Clause 5 explained that the tenor of Clause 7, read against the provisions in the Constitution, the Supreme Law of the Land, would lead to the imposition inside and outside South Africa of the Bill of Rights on South African companies. Further any South African legislation with more stringent provisions than the Companies Bill, such as the Auditing Professions Act, or the Taxation Laws, or the Labour Relations Act or the Provision of Access to Information Act, would subvert the provisions of the Companies Bill or be stronger. This applied to the Banks Act as well. The Companies Bill was a law of general application and other Acts might have higher standards and also apply. With regard to consultancies forcing foreign companies to register in terms of this Bill, he stated that the consultancy contract would have to be examined to ascertain whether it was a contract of employment.

Mr Dwinger explained that the current Companies Act provided that copies of documents could be received at a token cost which was neither full compensation but merely a token for the provision of information. Addressing Clause 30 and the requirements for AFS, he said this had to be viewed against the broader background, such as Clause 72 and the activities of the company. Addressing the question of whether a fine exceeding R10 000 also disqualified a director, he referred to Sections 203 and 204 of the Magistrates Court Act which provided for punishment after convictions for fraud. There was envisaged co-operation between the National Prosecuting Authority and the DTI regarding the drawing up of the charge sheets and the possible penalties to be imposed after conviction. Addressing “best interests”, he said this was a phrase recognized in jurisprudence and he did not think it needed to be expanded upon.

The State Law Advisor suggested that the intentions of the Bill would be consider by anyone drawing up charges and also by the court in arriving at a decision.

Mr Dwinger said he believed that Clause 30(4) covered the question of auditors and their rotation adequately.

After further questions by members and answers by the Chair, the State Law Advisor reminded the Committee that all laws in South Africa were subject to the Constitution which was the Supreme Law in the Land.

Voting on the Bill
At this point there being no further discussion, the Chair put forward the Motion of Desirability that the Bill be accepted for adoption by National Assembly.

The Committee unanimously voted for the Bill with the proposed amendments.

The meeting adjourned.