14 December 2021
“I understand there are amendments being proposed to the Companies Act? Will this help make life easier or harder for our company? It feels as if there is always just more red tape whenever the law changes.”
Yes, there are new changes being proposed to the Companies Act. On 1 October 2021 the Companies Amendment Bill, 2021 (“Bill”) was published for comment. It is explained that the Bill aims to address some of the administrative bottlenecks identified since the advent of the Companies Act. As such the Bill can be said to have the following main outcomes:
- Improve the ease of doing business; and
- Provide for greater transparency, to in particular also help address money laundering issues.
In the explanatory memorandum to the Bill, it is highlighted that company legislation should be clear, user-friendly and not unduly burdensome on the conduct of business. This in turn also helps attract overseas investment and facilitates the local economy.
The Bill aims to help with this by providing more legal certainty in particular areas as well as greater flexibility for companies in certain circumstances, and hopes to clarify ambiguity through the inclusion of more defined terms and more concise drafting. To highlight a few of these proposed changes:
- More certainty in Section 16 of the Companies Act in relation to the effective date of an amendment to a company’s memorandum of incorporation.
- Providing in Section 38A of the Companies Act for the rectifying and ratifying of any invalid creation, allotment or issue of shares where previously some of these actions were not capable of being remedied.
- Greater clarity in Section 40 of the Companies Act to issue partly paid shares which should assist also with the financing of certain BEE transactions.
- Clarity in terms of Section 90 of the Companies Act as to when a company which is required to have annual financial statements audited is also required to appoint an auditor.
- Amending Section 118 of the Companies Act to limit the Takeover Regulation Panel jurisdiction in respect of private companies to only those private companies where a ‘public interest’ is prevalent.
- The deletion of the financial assistance requirements in section 45 of the Companies Act in respect of financial assistance by a company to or on behalf of its own subsidiary company, a removal that will be welomed by many.
- Removal of the compliance requirements with Sections 114 and 115 in respect of an independent expert report in the case of company share buy-backs in terms of Section 48(8).
The above items will certainly assist in easing some of the compliance burdens related to the Companies Act. A more contentious amendment however, is the proposed amendment to Section 26 which will allow access to company records (except companies such as a private company where annual financial statements are prepared internally and the company has a public interest score of less 100) to members of the public to inspect, among other things, the company’s memorandum of incorporation, securities register and financial statements. This will enable any member of the public to potentially access to the financial information of the company. Although the intention behind this may be applauded as an effort to combat money laundering and provide for greater transparency, the effect thereof may be the granting of access to confidential information to the public and even competitors. Time will tell as to exactly how these provisions will play out.
Although only a Bill, it is worthwhile that companies take note of the direction of the proposed changes and where necessary prepare for such. It may be prudent to touch base regularly with your corporate advisor to ensure that you are ready once the Bill is passed.