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The new Companies Act is slated for inclusion, rather optimistically in certain persons opinions, in July of 2010. In view hereof, and of the impact that this Act will have on the interaction of companies and individual persons, this article serves as an exceptionally broad overview of the new act as it relates to already incorporated companies and to the persons owning and operating these companies.

BACKGROUND

In 2004, the DTI (Department of Trade and Industry) identified the following five “economic growth objectives”, and goals related to each of them, as being necessary to achieve a company law regime that“ would promote the competitiveness and development of the South African economy”

1. SIMPLIFICATION

§ The law should provide for a company structure that reflects the

    characteristics of a close corporation, as one of the available

    options;

§ The law should establish a simple and easily maintained regime

    for non-profit companies;

§ co-operatives and partnerships should not be addressed in the

    reformed company law.

2. FLEXIBILITY

§ company law should provide for an appropriate diversity of

    corporate structures;

§ the distinction between listed and unlisted companies should be

    retained.

3. CORPORATE EFFICIENCY

§ company law should shift from a capital maintenance regime

    based on par value, to one based on solvency and liquidity;

§ there should be clarification of board structures and director

    responsibilities, duties and liabilities;

§ there should be a remedy to avoid locking in minority shareholders

    in inefficient companies;

§ the mergers and takeovers regime should be reformed so that the

    law facilitates the creation of business combinations; and

§ the judicial management system for dealing with failing companies

    should be replaced by a more effective business rescue system.

4. TRANSPARENCY

§ company law should ensure the proper recognition of director

    accountability, and appropriate participation of other

    stakeholders;

§ public announcements, information and prospectuses shoud be

    subject to similar standards for truth and accuracy;

§ the law should protect shareholder rights, advance shareholder

    activism and provide enhanced protections for minority

    shareholders; and

§ minimum accounting standards should be required for annual

    reports.

5. PREDICTABLE REGULATION

§ company law sanctions should be de-criminalised where possible;

§ company law should remove or reduce opportunities for regulatory

    arbitrage;

§ company law should be enforced through appropriate bodies and

    mechanisms, either existing or newly introduced; and

§ company law should strike a careful balance between adequate

    disclosure,in the interests of transparency, and over-regulation.

Each of these 18 goals coupled with its own heading is now manifest in the Act in various ways.

OBJECTS OF THE ACT

§ The act has several objects, most notably:

§ Replaces the Companies Act, 1973 almost in its entirety.

§ The Close Corporations Act, 1984 continues indefinitely, but will be

    phased out on the basis that no new CCs may be formed, normay

    companies be converted into CCs, after the Act becomes

    operative in 2010. The Act does, however, enable companies

    having characteristics very similar to CCs to be formed.

§ The fundamental common law principles (as modified by the

    Companies Act, 1973) remain intact, with some notable

    exceptions.

§ Modernises our company law and brings it inline with best

    practices internationally, especially in relation to public companies,

    communications and corporate governance.

§ Purportedly makes company law simpler – 450 down to 225

    sections-and introduces simpler administrative and other

    procedures.

§ Promotes transparency, high standards of corporate governance

    and accountability, particularly by directors and other officers.

§ Codifies the common law duties and liabilities of directors.

§ Introduces flexibility in the design and organisation of companies.

§ Makes radical amendments to the take-over provisions of the

    Companies Act, 1973.

§ Advances shareholder and stakeholder activism by giving greater

    protection, powers and remedies to minority shareholders and

    other stakeholders (such as employees), including the ability

    to bring class-actions.

§ A new business rescue regime replaces the judicial management

   system, but the provisions in Chapter14 of the Companies Act,

   1973 dealing within solvent companies will remain in force and

    unaltered until uniform insolvency legislation is enacted.

§ Retains almost all the principles introduced by the Corporate Laws

    Amendment Act, 2006 (which became operative on 14 December

    2007).

§ Brings the Companies Act into harmony with overlapping

    legislation, in particular the Securities Services Act, 2004 and the

    Auditing Profession Act, 2005.

§ Decriminalises most of the Companies Act, 1973–over 120 criminal

    offences are replaced by a system of administrative fines and / or

    personal financial liability of the offender.

§ The capital maintenance regime is changed from one based on a

    minimum amount of share capital to one based on solvency and

    liquidity.

§ The Memorandum of Incorporation (which replaces the

    memorandum and articles of association) becomes far more

    relevant.

§ Directors may be given far greater powers, at the expense of

    shareholders.

It is within this particular framework that one now finds the particular application of the act to persons operating / owning a company (and related persons thereto) as well as the application of the act to already incorporated entities.

This article continues in our next edition. Read more about Related and

Inter-Related persons.

This article was written

by BRIAN WILKEN