THE COMPANIES ACT OVERVIEW · in short all companies should comply with the king code and if the do...
Transcript of THE COMPANIES ACT OVERVIEW · in short all companies should comply with the king code and if the do...
THE COMPANIES
ACT
OVERVIEW
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CHARTERED ACCOUNTANTS (SA)
MISSION
SIMPLIFICATION
• THE LAW SHOULD PROVIDE FOR A COMPANY STRUCTURE THAT REFLECTS THE CHARACTERISTICS OF CLOSE CORPORATIONS 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.
FLEXIBILITY
• COMPANY LAW SHOULD PROVIDE FOR 'AN APPROPRIATE DIVERSITY OF CORPORATE STRUCTURES'.
• THE DISTINCTION BETWEEN LISTED AND UNLISTED COMPANIES SHOULD BE RETAINED.
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CHARTERED ACCOUNTANTS (SA)
CORPORATE EFFICIENCY
• THERE SHOULD BE CLARIFICATION OF BOARD STRUCTURES DIRECTORS DUTIES AND RESPONSIBILITIES
• MINORITY SHAREHOLDERS SHOULD NOT BE LOCKED INTO COMPANIES
• JUDICAIL MANAGEMENT SYSTEM SHOULD BE REPLACED WITH A MORE EFFECTIVE AND EFFICIENT SYSTEM
TRANSPARENCY
• COMPANY LAW SHOULD ENSURE PROPER RECOGNITION OF DIRECTOR ACCOUNTABILITY AND APPROPRIATE PARTICIPATION OF OTHER STAEHOLDERS
• THE LAW SHOULD PROTEFCT SHRAREHOLDERS RIGHTS AND PROVIDE FOR ENHANCED MINORITY PROTECTIONS
• MINIMUM ACCOUNTING STANDARDS SHOULD BE REQUIRED
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PREDICTABLE REGULATION
• COMPANY LAW SANCTIONS SHOULD BE DECRIMINALISED WHERE POSSIBLE.
• COMPANY LAW SHOULD BE ENFORCED THROUGH APPROPRIATE BODIES AND MECHANISMS EITHER EXISTING OR NEWLY INTRODUCED.
• COMPANY LAW SHOULD STRIKE A CAREFUL BALANCE BETWEEN ADEQUATE DISCLOSURE I INTERESTS OF TRANSPARENCY AND OVER-REGULATION
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PURPOSE OF THE ACT
• PROMOTE COMPLIANCE WITH THE BILL OF RIGHTS AS PROVIDED FOR IN THE CONSTITUTION THE APPLICATION OF COMPANY LAW;
• PROMOTE THE DEVELOPMENT OF THE SOUTH AFRICAN ECONOMY BY –
• ENCOURAGING ENTREPRENEURSHIP AND ENTERPRISE EFFICIENCY;
◦ CREATING FLEXIBILITY AND SIMPLICITY IN THE FORMATION AND
MAINTENANCE OF COMPANIES;
◦ ENCOURAGING TRANSPARENCY AND HIGH STANDARS OF
CORPORATE GOVERNANCE A· PROPRIATE,GIVEN THE SIGNIFICANT
ROLE OF ENTERPRISES WITHIN THE SOCIAL AND ECOR LIFE OF THE
NATION;
◦ PROMOTING INNOVATION AND INVESTMENT IN THE SOUTH
AFRICAN MARKETS;
◦ RE-AFFIRM THE CONCEPT OF THE COMPANY AS A MEANS OF
ACHIEVING ECONOMIC SOCIAL BENEFITS;
◦ CONTINUE TO PROVIDE FOR THE CREATION AND USE OF
COMPANIES IN A MANNER ENHANCES THE ECONOMIC WELFARE OF
SOUTH AFRICA AS A PARTNER WITHIN THE ECONOMY;
◦ BALANCING OF THE RIGHTS OF SHAREHOLDERS AND DIRECTORS
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LEGAL PERSONALITY /
JURISTIC PERSON
• COMPANY IS REGARDED AS A SEPARATE LEGAL PERSON
• IT IS SEEN AS A PERSON IN ITS OWN RIGHT AND CAN SUE AND BE SUED.
• THIS REMAINS UNAFFECTED .
• DADOO V KRUGERDORP MUNICIPALITY
• SALOMON V SALOMON
• COMPANY MANAGED ON A DAY TO DAY TO BASIS BY ITS DIRECTORS.
• ACT STATES THAT “ THE BUSINESS AND AFFAIRS OF THE COMPANY MUST BE MANAGED BY OR UNDER THE DIRECTION OF ITS BOARD OF DIRECTORS.”
• SHAREHOLDERS OWN THE SHARES IN THE COMPANY THEY DO NOT OWN THE ASSETS OF THE COMPANY.
• SO HOW DOES IT WORK IN RELATION TO DIRECTORS AND SHAREHOLDERS?
• JEALOUSLY GUARDED
• LIMITED LIABILITY
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WHO IS A DIRECTOR
THE ACT DEFINES A DIRECTOR AS-
• “ A MEMBER OF THE BOARD OF THE COMPANY CONTEMPLATED IN SECTION 66, OR AN ALTERNATE DIRECTOR OF A COMPANY AND INCLUDES ANY PERSON OCCUPYING THE POSITION OF A DIRECTOR OR ALTERNATE DIRECTOR, BY WHATEVER NAME DESIGNATED”
• THE USE OF THE WORD “INCLUDES “ IN THE ABOVE DEFINITION IS INCLUSIVE AND NOT EXHAUSTIVE. THE PRACTICAL EFFECT OF THIS IS THAT FORMALITIES ARE NOT THE ALL IMPORTANT FACTOR IN DETERMINING WHO IS A DIRECTOR OF A PARTICULAR COMPANY.
• THE DEFINITION THEREFORE APPLIES TO ALL PERSONS WHO ARE FORMALLY APPOINTED AS DIRECTORS AND ALL PERSONS WHO ACT AS DIRECTORS EVEN IF THEY ARE NOT FORMALLY APPOINTED.
• IT IS WHAT YOU DO THAT WILL DETERMINES AS TO WHETHER OR NOT YOU WILL ULTIMATELY BE REGARDED AS A DIRECTOR. THE USAGE OF THE WORDS “…BY WHATEVER NAME DESIGNATED…” IS A CLEAR INDICATION THAT IT DOES NOT MATTER WHAT YOUR DESIGNATION MAY BE IT IS WHAT YOU DO THAT DETERMINES WHETHER YOU ARE OR WILL BE REGARDED AS A DIRECTOR.
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CHARTERED ACCOUNTANTS (SA)
DIRECTORS CONTINUED…
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IN TERMS OF SECTION 66 DIRECTORS MAY BE:-
• APPOINTED BY ANY PERSON NAMED IN THE
MEMORANDUM OF INCORPORATION;
• APPOINTED EX OFFICIO, THIS WOULD MEAN THAT
IF IN THE MEMORANDUM OF INCORPORATION IT
WAS SPECIFIED THAT A SPECIFIC DESIGNATION
WITHIN THE COMPANY WERE TO BE OCCUPIED
THAT PERSON WOULD BE A DIRECTOR;
• A DIRECTOR ELECTED BY THE SHAREHOLDERS;
• ALTERNATE DIRECTORS;
• A DIRECTOR APPOINTED BY THE SHAREHOLDERS.
AT LEAST 50% OF THE DIRECTORS MUST BE
APPOINTED BY THE SHAREHOLDERS.
• WHO ELSE CAN APPOINT DIRECTORS
• OTHER TYPES OF DIRECTORS:-
• NOMINEE DIRECTORS;
• PUPPET DIRECTORS;
• SHADOW DIRECTOR
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CHARTERED ACCOUNTANTS (SA)
PRESCRIBED OFFICERS
• A PRESECRIBED OFFICER IS DEFINED AS THE HOLDER
OF AN OFFICE, WITHIN A COMPANY, THAT HAS BEEN
DESIGNATED BY THE MINISTERIN TERMS OF SECTION
66 (10) OF THE ACT.
• SECTION 66 (10) THEN REFERS YOU TO THE
REGULATIONS. REGULATION 38 STATES THAT A
PRESCRIBED OFFICER INCLUDES EVERY PERSON, BY
WHATEVER TITLE THE OFFICE IS DESIGNATED, THAT:
• HAS GENERAL EXECUTIVE AUTHORITY OVER THE
WHOLE OR A SIGNIFICANT PORTION OF THE
BUSINESS AND ACTIVITIES OF THE COMPANY; OR
• REGULARLY PARTICIPATES TO A MATERIAL DEGREE IN
THE EXERCISE OF GENERAL EXECUTIVE CONTROL
OVER THE MANAGEMENT OF THE WHOLE OR A
SIGNICANT PORTION OF THE BUSINESS AND
ACTIVITIES OF THE COMPANY.
• IT DOES NOT MATTER WHAT DESIGNATION IS GIVEN
TO THAT PERSON.
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PRESCIBED OFFICER
CONTINUED • EXAMPLES OF PRESCRIBED OFFICERS :-
• PERSON RESPONSIBLE FOR THE MANAGEMENT OF
THE LEGAL AFFAIRS;
• CHIEF FINANCIAL OFFICER.
IT WOULD SEEM THAT A WIDE GROUP OF PEOPLE CAN
AND WILL FALL INTO THE CATERGORY OF PRESCRIBED
OFFICER.
THE SIGNIFICANE OF THE ABOVE CAN NOT BE
OVEREMPHASISED IN THAT PRESCRIBED OFFICERS ARE
SUBJECT TO CERTAIN STRICT DUTIES AND LEVELS OF
ACCOUNTABILITY ASSOCIATED WITH DIRTECTORS.
THE CURRENT DEFINITIONS OF PRESCRIBED OFFICER
SHOULD BE COMPARED WITH PREVIOUS DEFINITIONS.
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CHARTERED ACCOUNTANTS (SA)
SOME MORE INTERESTING
FACTS ABOUT DIRECTORS
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MANAGING DIRECTOR/CEO
o THESE ARE BY FAR THE CLEVEREST PEOPLE IN ANY
ORGANIZATION.
o CEO IS SEEN AS BEING THE DIRECT REPRESENTATIVE OF
THE BOARD OF DIRECTORS.
o CEO IS ABLE TO BIND THE COMPANY.
EXECUTIVE/NON EXECUTIVE DIRECTORS
o NO DISTINTION IN TERMS OF THE ACT.
COMPANY SECRETARY
o NO LONGER A HUMBLKE ROLE OF TAKING MINUTES.
BECOME A VERY IMPORTANT AND VERY RESPONSIBLE ROLE.
o NOT REQUIRED IN A PRIVATE COMPANY.
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CHARTERED ACCOUNTANTS (SA)
INELIGIBILITY AND
DISQUALIFICATION OF
PERSONS TO BE DIRECTOR
OR PRESCRIBED OFFICER
IN THIS SECTION, ‘‘DIRECTOR’’ INCLUDES AN ALTERNATE
DIRECTOR, AND—
(A) A PRESCRIBED OFFICER; OR
(B) A PERSON WHO IS A MEMBER OF A COMMITTEE OF A
BOARD OF A COMPANY, OR OF THE AUDIT
COMMITTEE OF A COMPANY,
IRRESPECTIVE OF WHETHER OR NOT THE PERSON IS ALSO A
MEMBER OF THE COMPANY’S BOARD.
A PERSON WHO IS INELIGIBLE OR DISQUALIFIED, AS SET OUT
IN THIS SECTION, MUST NOT ACT AS A DIRECTOR OF A
COMPANY.
A PERSON IS INELIGIBLE TO BE A DIRECTOR OF A COMPANY IF
THE PERSON—
(A) IS A JURISTIC PERSON;
(B) IS AN UNEMANCIPATED MINOR, OR IS UNDER A
SIMILAR LEGAL DISABILITY; OR
(C) DOES NOT SATISFY ANY QUALIFICATION SET OUT IN
THE COMPANY’S MEMORANDUM OF
INCORPORATION.
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DISQUALIFIED TO ACT AS
DIRECTOR/PRESECRIBED
OFFICER
A PERSON IS DISQUALIFIED TO BE A DIRECTOR OF A COMPANY IF—
A COURT HAS PROHIBITED THAT PERSON TO BE A DIRECTOR, OR
DECLARED THE PERSON TO BE DELINQUENT IN TERMS OF SECTION
162,
IS AN UNREHABILITATED INSOLVENT;
HAS BEEN REMOVED FROM AN OFFICE OF TRUST, ON THE GROUNDS
OF MISCONDUCT INVOLVING DISHONESTY;
OR
HAS BEEN CONVICTED, IN THE REPUBLIC OR ELSEWHERE, AND
IMPRISONED WITHOUT THE OPTION OF A FINE, OR FINED MORE
THAN THE PRESCRIBED AMOUNT, FOR THEFT, FRAUD, FORGERY,
PERJURY OR AN OFFENCE INVOLVING FRAUD, MISREPRESENTATION
OR DISHONESTY;
FIVE YEARS AFTER THE DATE OF REMOVAL FROM OFFICE, OR THE
COMPLETION OF THE SENTENCE IMPOSED FOR THE RELEVANT
OFFENCE, AS THE CASE MAY BE;
OR
THE COMMISSION MUST ESTABLISH AND MAINTAIN IN THE
PRESCRIBED MANNER A PUBLIC REGISTER OF PERSONS WHO ARE
DISQUALIFIED FROM SERVING AS A DIRECTOR,
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CHARTERED ACCOUNTANTS (SA)
REMOVAL OF DIRECTORS
◦ DIRECTORS MAY BE REMOVED B Y THOSE WHO APPOINTED
THEM
◦ IF A COMPANY HAS MORE THAN TWO DIRECTORS, AND A SHAREHOLDER OR DIRECTOR HAS ALLEGED THAT A DIRECTOR OF THE COMPANY HAS BECOME:
INELIGIBLE OR DISQUALIFIED
INCAPACITATED TO THE EXTENT THAT THE DIRECTOR IS UNABLE TO PERFORM THE FUNCTIONS OF A DIRECTOR, AND IS UNLIKELY TO REGAIN THAT CAPACITY WITHIN A REASONABLE TIME;
OR
HAS NEGLECTED, OR BEEN DERELICT IN THE PERFORMANCE OF, THE FUNCTIONS OF DIRECTOR.
◦ THEN THE BOARD MUST DETERMINE THE MATTER ON RESOLUTION.
◦ DIRECTOR CAN REVIEW THE DECSION OF THE BOARD.
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CHARTERED ACCOUNTANTS (SA)
BOARD COMMITTEES AND LOADED VOTING RIGHTS
o THESE MAY BE FORMED BUT ARE NOT REQUIRED FOR
PRIVATE COMPANIES.
o ONCE FORMED THE COMMITTEE MAY PERFORM SUCH ROLE AND FUNCTION AS MAY BE DELEGATED TO IT.
o SECTION 73 (5) ( C) POVIDES FOR THE FACT THAT A DIRECTOR MAY EXCERISE MORE THAN A SINGLE VOTE AT A BOARD MEETING.
o NO PRESCRIBED NUMBER OF BOARD MEETINGS IS PROVIDED FOR IN THE ACT.
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CHARTERED ACCOUNTANTS (SA)
CORPORATE GOVERNANCE/KING REPORT
◦ THE KING CODE IS NOW APPLICABLE TO ALL COMPANIES.
◦ OPERATES ON APPLY OR EXPLAIN BASIS. IN SHORT ALL COMPANIES SHOULD COMPLY WITH THE KING CODE AND IF THE DO NOT THEN THEY SHOULD EXPLAIN WHY THEY DO NOT COMPLY.
◦ NO PENALTY FOR NOT COMPLYING
◦ KING CODE PROVIDES GUIDANCE IN RELATION TO A NUMBER OF ISSUES SUCH AS:
ETHICAL LEADEERSHIP;
GOVERNANACE OF INFORMATION TECHNOLOGY;
STAKEHOLDER RELATIONS
◦ SUPPORTS THE VIEW OF CORPORATE
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CHARTERED ACCOUNTANTS (SA)
THE TEETH BEHIND CORPORATE GOVERNANCE
FIDUCIARY DUTIES IN TERMS OF THE OLD ACT WERE THE FIDUCIARY DUTIES OWED BY THE DIRECTORS OF THE COMPANY TO THE COMPANY AND TO ALL OF THE SHAREHOLDERS.
THESE DUTIES OF WERE SET OUT IN OUR COMMON LAW.
REQUIRED DIRECTORS ALWAYS TO ACT IN BEST INTEREST OF THE COMPANY.
REQUIRED DIRECTORS TO ACT WITH CARE AND SKILL.
EXAMPLES:-
NOT COMPETE WITH THE COMPANY;
NOT MAKE SECRET PROFITS;
ACT IN BEST INTEREST OF THE COMPNY;
USE POWERS FOR A PROPER PURPOSE;
DO NOT EXCEEED POWERS
CORPORATE OPPURTUNITIES;
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CHARTERED ACCOUNTANTS (SA)
THE NEW ACT
THE FIDUCIARY DUTIES ARE NOW TO A LARGE EXTENT CODIFIED AND SPECIFICALLY SATED THAT THEY APPLY TO PRESCRIBED OFFICERS
S 75 OF THE ACT: PERSONAL FINANCIAL INTEREST
◦ A DIRECTOR WHO HAS A PERSONAL FINANCIAL INTEREST IN A MATTER TO BE CONSIDERED AT A MEETING OF THE BOARD (OR KNOWS THAT A RELATED PERSON HAS A PERSONAL FINANCIAL INTEREST):
MUST DISCLOSE THIS INTEREST AT THE MEETING;
MUST DISCLOSE MATERIAL INFORMATION KNOWN TO THE DIRECTOR AND MAY DISCLOSE ANY OBSERVATIONS OR INSIGHTS IF SO REQUESTED BY OTHER DIRECTORS;
MUST IMMEDIATELY LEAVE THE MEETING AFTER MAKING THE DISCLOSURES CONTEMPLATED ABOVE;
MUST NOT TAKE PART IN THE CONSIDERATION OF THE MATTER; AND
MUST NOT EXECUTE ANY DOCUMENT IN RELATION TO THE MATTER UNLESS SO DIRECTED BY THE BOARD.
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RELATED PERSON
FOR ALL PURPOSES OF THIS ACT AN INDIVIDUAL IS RELATED TO
ANOTHER INDIVIDUAL IF THEY—
(I) ARE MARRIED, OR LIVE TOGETHER IN A RELATIONSHIP SIMILAR
TO A MARRIAGE; OR
(II) ARE SEPARATED BY NO MORE THAN TWO DEGREES OF
NATURAL OR ADOPTED CONSANGUINITY OR AFFINITY;
AN INDIVIDUAL IS RELATED TO A JURISTIC PERSON IF THE
INDIVIDUAL DIRECTLY OR INDIRECTLY CONTROLS THE JURISTIC
PERSON.
A JURISTIC PERSON IS RELATED TO ANOTHER JURISTIC PERSON IF:
(i) EITHER OF THEM DIRECTLY OR INDIRECTLY CONTROLS THE
OTHER, OR THE BUSINESS OF THE OTHER,
(II) EITHER IS A SUBSIDIARY OF THE OTHER; OR
(III) A PERSON DIRECTLY OR INDIRECTLY CONTROLS EACH OF
THEM, OR THE BUSINESS OF EACH OF THEM.
PRACTICAL IMPLICATION: A POLICY ON THE DISCLOSURE OF
PERSONAL FINANCIAL INTEREST, BASED ON THE RELEVANT
PROVISIONS OF THE ACT, NEED TO BE ADOPTED BY THE BOARD TO
AVOID ANY UNCERTAINTY, MISUNDERSTANDINGS OR POTENTIAL
DISPUTES.
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CHARTERED ACCOUNTANTS (SA)
STANDARDS OF DIRECTORS
CONDUCT
OF PARTICULAR IMPORTANCE IN THIS ACT IS SECTION 76 (STANDARDS OF DIRECTORS CONDUCT). SECTION 76 SETS THE FOLLOWING STANDARDS FOR DIRECTORS’ AND OFFICERS’ CONDUCT:
NOT TO USE THE POSITION OR INFORMATION OBTAINED IN THAT CAPACITY FOR PERSONAL (OR THIRD PARTY) GAIN OR TO HARM THE COMPANY;
TO DISCLOSE ANY MATERIAL INFORMATION TO THE BOARD, UNLESS IT IS IN THE PUBLIC DOMAIN OR THE INDIVIDUAL IS PREVENTED FROM DISCLOSURE BASED ON A CONTRACTUAL OR ETHICAL OBLIGATION;
TO AT ALL TIMES ACT:
IN THE BEST INTEREST OF THE COMPANY; AND
IN GOOD FAITH AND FOR A PROPER PURPOSE;
WITH DUE CARE, SKILL AND DILIGENCE.
THE ABOVE IS A CODIFICATION OF THE FIDUCIARY DUTIES OF ALL THOSE APPOINTED IN A POSITION OF TRUST, INCLUDING DIRECTORS AND OFFICERS, AS FOUND IN OUR COMMON LAW. THESE DUTIES HAVE ALWAYS BEEN THERE BUT THE INCLUSION THEREOF IN THE ACT MEANS THAT A FAILURE IN THESE DUTIES MAY NOW ALSO CONSTITUTE A CRIMINAL OFFENCE WITH THE RELEVANT SANCTIONS AS SET OUT IN THE ACT.
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BUSINESS JUDGEMENT RULE
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• THE US BUSINESS JUDGEMENT RULE HAS BEEN INCLUDED
IN SECTION 76(4) OF THE ACT WHICH STATES THAT A DIRECTOR
WILL HAVE SATISFIED THE ABOVE OBLIGATIONS (DUTIES) IF:
• THE PERSON HAS TAKEN REASONABLY DILIGENT STEPS
TO BECOME INFORMED ABOUT THE SUBJECT
MATTER/S; AND
• DOES NOT HAVE A PERSONAL FINANCIAL INTEREST IN
THE SUBJECT MATTER OF THE DECISION AND NO
REASONABLE BASIS TO KNOW OF A RELATED
PERSON’S INTEREST; OR
• THE PERSON HAS DISCLOSED THE INTEREST IN TERMS
OF SECTION 75; AND
• THE PERSON HAD A RATIONAL BASIS FOR BELIEVING,
AND DID BELIEVE, THAT THE DECISION/S WAS IN THE
BEST INTEREST OF THE COMPANY.
• COMBINATION OF AN OBJECTIVE AND SUBJECTIVE TEST.
• IT SHOULD ALSO BE NOTED THAT “KNOWINGLY” IS DEFINED IN
THE ACT TO NOT ONLY INCLUDE A SITUATION WHERE AN
INDIVIDUAL DID IN FACT HAVE KNOWLEDGE OF A CERTAIN
MATTER, BUT ALSO WHERE THE INDIVIDUAL OUGHT TO HAVE
KNOWN BY FULFILLING HIS DUTIES TO THE COMPANY.
• SHAREHOLDERS NO FIDUCIARY DUTIES.
LIABILITY OF DIRECTORS
AND PRESCRIBED OFFICERS
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• SECTION 77 PROVIDES FOR DIRECTORS AND OFFICERS TO
BE PERSONALLY LIABLE FOR ALL LOSS OR DAMAGES
SUFFERED BY THE COMPANY IN THE EVENT OF SUCH A
PERSON:
• FAILING TO COMPLY WITH THE PROVISIONS OF S75
(DISCLOSURE OF PERSONAL FINANCIAL INTERESTS) AND
S76 (STANDARD OF CONDUCT);
• A DIRECTOR OF A COMPANY IS LIABLE FOR ANY LOSS,
DAMAGES OR COSTS SUSTAINED BY THE 30 COMPANY AS
A DIRECT OR INDIRECT CONSEQUENCE OF THE
DIRECTOR HAVING;
o ACTED IN THE NAME OF THE COMPANY,
SIGNED ANYTHING ON BEHALF OF THE
COMPANY, OR PURPORTED TO BIND THE
COMPANY OR AUTHORISE THE TAKING OF
ANY ACTION BY OR ON BEHALF OF THE
COMPANY, DESPITE KNOWING THAT THE
DIRECTOR LACKED THE AUTHORITY TO DO
o ACQUIESCED IN THE CARRYING ON OF THE
COMPANY’S BUSINESS DESPITE KNOWING
THAT IT WAS BEING CONDUCTED IN A
MANNER PROHIBITED BY SECTION
22(1); ( SECTION 22 A COMPANY MUST NOT
CARRY ON ITS BUSINESS RECKLESSLY, WITH
GROSS NEGLIGENCE, WITH INTENT TO
DEFRAUD ANY PERSON OR FOR ANY
FRAUDULENT PURPOSE)
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o BEEN A PARTY TO AN ACT OR OMISSION BY THE
COMPANY DESPITE KNOWING THAT THE ACT OR
OMISSION WAS CALCULATED TO DEFRAUD A
CREDITOR, EMPLOYEE OR SHAREHOLDER OF THE
COMPANY, OR HAD ANOTHER FRAUDULENT
PURPOSE;
o SIGNED, CONSENTED TO, OR AUTHORISED, THE
PUBLICATION OF ANY FINANCIAL STATEMENTS
THAT WERE FALSE OR MISLEADING IN A MATERIAL
RESPECT;
o A RESOLUTION APPROVING A DISTRIBUTION,
DESPITE KNOWING THAT THE DISTRIBUTION WAS
CONTRARY TO SECTION 46;
o THE ACQUISITION BY THE COMPANY OF ANY OF
ITS SHARES, OR THE SHARES OF ITS HOLDING
COMPANY, DESPITE KNOWING THAT THE
ACQUISITION WAS CONTRARY TO THE ACT.
• ABSTAINING IS SEEN AS A YES VOTE.
• LIABILITY IS JOINT AND SEVERAL.
• IN ADDITION TO THE POSSIBLE PERSONAL FINANCIAL
LIABILITY AS REFERRED TO ABOVE, CERTAIN
CONTRAVENTIONS SUCH AS BEING PARTY TO THE
FALSIFICATION OF ANY ACCOUNTING RECORDS OF A
COMPANY COULD POTENTIALLY RESULT IN A CRIMINAL
OFFENCE, PUNISHABLE BY A FINE AND/OR IMPRISONMENT
OF A MAXIMUM OF 10 YEARS (SEE S214 AND S216). OTHER
CONTRAVENTIONS OF THE ACT COULD BE PUNISHABLE
BY A FINE AND/OR IMPRISONMENT OF UP TO 12 MONTHS.
INDEMNIFICATION OF
DIRECTORS AND
PRESCRIBED OFFICERS
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• AS A GENERAL RULE, THE AFOREMENTIONED
INDIVIDUALS MAY NOTBE RELIEVED OF A DUTY
CONTEMPLATED IN S75 OR S76 OR OF LIABILITY AS
PROVIDED FOR IN S77.
• IN ADDITION, THE LEGAL CONSEQUENCES ARISING
FROM AN ACT OR OMISSION MAY NOT BE
NEGATED, LIMITED OR RESTRICTED IF THE SAID ACT OR
OMISSION CONSTITUTES WILFUL MISCONDUCT OR
WILFUL BREACH OF TRUST.
• COMPANIES ARE ALSO NOT ALLOWED UNDER ANY
CIRCUMSTANCES, WHETHER DIRECTLY OR INDIRECTLY,
TO PAY A FINE IMPOSED ON A DIRECTOR WHO HAS
BEEN CONVICTED OF ANY OFFENCE IN TERMS OF ANY
NATIONAL LEGISLATION.
• SPECIFICALLY NO INDEMNITY MAY BE GIVEN IN
RESPECT OF IN TERMS OF SECTION 77(3)
(A) (ACTING WITHOUT AUTHORITY),
(B) (RECKLESS TRADING) OR
(C) (INTENT TO DEFRAUD); OR
• FROM WILLFUL MISCONDUCT OR WILLFUL BREACH OF
TRUST;
• ANY FINE.
SECTION 162 AND ITS
IMPLICATIONS
A COMPANY, A SHAREHOLDER, DIRECTOR, COMPANY SECRETARY OR
PRESCRIBED OFFICER OF A COMPANY, A REGISTERED TRADE UNION
THAT REPRESENTS EMPLOYEES OF THE COMPANY OR ANOTHER
REPRESENTATIVE OF THE EMPLOYEES OF A COMPANY MAY APPLY TO A
COURT FOR A ORDER DECLARING A PERSON WHO IS A DIRECTOR
DELINQUENT OR UNDER PROBATION
THE COURT MAY MAKE AN ORDER IN RELATION TO THE ABOVE IF
WHILE A DIRECTOR, THE DIRECTOR:
(I) GROSSLY ABUSED THE POSITION OF DIRECTOR;
(ii) TOOK PERSONAL ADVANTAGE OF INFORMATION
OR AN OPPORTUNITY,
(iii) INTENTIONALLY, OR BY GROSS NEGLIGENCE,
INFLICTED HARM UPON THE COMPANY OR A
SUBSIDIARY OF THE COMPANY,
(iv) ACTED IN A MANNER
(v) THAT AMOUNTED TO GROSS NEGLIGENCE, WILFUL
MISCONDUCT OR BREACH OF TRUST IN RELATION
TO THE PERFORMANCE OF THE DIRECTOR’S
FUNCTIONS WITHIN, AND DUTIES TO, THE
COMPANY.
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DELINQUENCY
A DECLARATION OF DELINQUENCY MAY BE UNCONDITIONAL, AND
SUBSIST FOR THE LIFETIME OF THE PERSON DECLARED DELINQUENT
OF MAY BE MADE SUBJECT TO ANY CONDITIONS THE COURT
CONSIDERS APPROPRIATE.
THESE MAY INCLUDE CONDITIONS LIMITING THE APPLICATION OF
THE DECLARATION TO ONE OR MORE PARTICULAR CATEGORIES OF
COMPANIES AS WELL AS TIME LIMITATIONS.
THE DECLARATION CAN OBVIOUSLY BE CHALLENGED BY THE
DIRECTOR.
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CHARTERED ACCOUNTANTS (SA)
RELIEF FROM OPPRESSIVE
CONDUCT
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A SHAREHOLDER OR A DIRECTOR OF A COMPANY MAY APPLY TO A
COURT FOR RELIEF IF:
• (a) ANY ACT OR OMISSION OF THE COMPANY, OR A
RELATED PERSON, HAS HAD A RESULT THAT IS
OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO, OR THAT
UNFAIRLY DISREGARDS THE INTERESTS OF, THE
APPLICANT;
• (b) THE BUSINESS OF THE COMPANY, OR A RELATED
PERSON, IS BEING OR HAS BEEN CARRIED ON OR
CONDUCTED IN A MANNER THAT IS OPPRESSIVE OR
UNFAIRLY PREJUDICIAL TO, OR THAT UNFAIRLY
DISREGARDS THE INTERESTS OF, THE APPLICANT;
OR
• (c) THE POWERS OF A DIRECTOR OR PRESCRIBED OFFICER
OF THE COMPANY, OR A PERSON RELATED TO THE
COMPANY, ARE BEING OR HAVE BEEN EXERCISED IN A
MANNER THAT IS OPPRESSIVE OR UNFAIRLY PREJUDICIAL
TO, OR THAT UNFAIRLY DISREGARDS THE INTERESTS OF,
THE APPLICANT.
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CHARTERED ACCOUNTANTS (SA)
COURT CAN ORDER
AN ORDER RESTRAINING THE CONDUCT COMPLAINED OF;
AN ORDER APPOINTING A LIQUIDATOR, IF THE COMPANY
APPEARS TO BE INSOLVENT;
AN ORDER PLACING THE COMPANY UNDER SUPERVISION AND
COMMENCING BUSINESS RESCUE PROCEEDINGS;
AN ORDER TO REGULATE THE COMPANY’S AFFAIRS BY
DIRECTING THE COMPANY TO AMEND ITS MEMORANDUM OF
INCORPORATION;
AN ORDER DIRECTING AN ISSUE OR EXCHANGE OF SHARES;
AN ORDER—
(I) APPOINTING DIRECTORS IN PLACE OF OR IN ADDITION
TO ALL OR ANY OF THE DIRECTORS THEN IN OFFICE;
OR
(II) DECLARING ANY PERSON DELINQUENT OR UNDER
PROBATION,
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CHARTERED ACCOUNTANTS (SA)
AN ORDER VARYING OR SETTING ASIDE A TRANSACTION OR AN
AGREEMENT TO WHICH THE COMPANY IS A PARTY AND
COMPENSATING THE COMPANY OR ANY OTHER PARTY TO THE
TRANSACTION OR AGREEMENT;
AN ORDER REQUIRING THE COMPANY, WITHIN A TIME SPECIFIED
BY THE COURT, TO PRODUCE TO THE COURT OR AN INTERESTED
PERSON, FINANCIAL STATEMENTS IN A FORM REQUIRED BY THIS
ACT, OR AN ACCOUNTING IN ANY OTHER FORM THE COURT MAY
DETERMINE;
AN ORDER TO PAY COMPENSATION TO AN AGGRIEVED PERSON,
SUBJECT TO ANY OTHER LAW ENTITLING THAT PERSON TO
COMPENSATION.
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CHARTERED ACCOUNTANTS (SA)
… AND STILL MORE RIGHTS
IN TERMS OF SECTIONS 165
AND 164
A PERSON MAY SERVE A DEMAND UPON A COMPANY TO
COMMENCE OR CONTINUE LEGAL PROCEEDINGS, OR TAKE RELATED STEPS, TO PROTECT THE LEGAL INTERESTS OF THE COMPANY IF THE PERSON:
(a) IS A SHAREHOLDER OR A PERSON ENTITLED TO BE REGISTERED AS A SHAREHOLDER, OF THE COMPANY OR OF A RELATED COMPANY;
(b) IS A DIRECTOR OR PRESCRIBED OFFICER OF THE COMPANY OR OF A RELATED COMPANY;
(c) IS A REGISTERED TRADE UNION THAT REPRESENTS EMPLOYEES OF THE COMPANY, OR ANOTHER REPRESENTATIVE OF EMPLOYEES OF THE COMPANY;
OR
(d) HAS BEEN GRANTED LEAVE OF THE COURT TO DO SO, WHICH MAY BE GRANTED ONLY IF THE COURT IS SATISFIED THAT IT IS NECESSARY OR EXPEDIENT TO DO SO TO PROTECT A LEGAL RIGHT OF THAT OTHER PERSON.
.
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CHARTERED ACCOUNTANTS (SA)
A COMPANY THAT HAS BEEN SERVED WITH A DEMAND IN TERMS OF
SUBSECTION (2) MAY APPLY WITHIN 15 BUSINESS DAYS TO A COURT
TO SET ASIDE THE DEMAND ONLY ON THE GROUNDS THAT IT IS
FRIVOLOUS, VEXATIOUS OR WITHOUT MERIT.
IF A COMPANY DOES NOT MAKE AN APPLICATION CONTEMPLATED
IN SUBSECTION (3), OR THE COURT DOES NOT SET ASIDE THE
DEMAND IN TERMS OF THAT SUBSECTION, THE COMPANY MUST
APPOINT AN INDEPENDENT AND IMPARTIAL PERSON OR COMMITTEE
TO INVESTIGATE THE DEMAND, AND REPORT TO THE BOARD ON
ANY FACTS OR CIRCUMSTANCES THAT MAY GAVE RISE TO A CAUSE
OF ACTION CONTEMPLATED IN THE DEMAND.
A PERSON WHO HAS MADE A DEMAND IN TERMS OF THIS SECTION
MAY APPLY TO A COURT FOR LEAVE TO BRING OR CONTINUE
PROCEEDINGS IN THE NAME AND ON BEHALF OF THE COMPANY
SECTION 164 PROVIDES FOR THE APPRAISAL RIGHTS OF MINORITY
SHAREHOLDERS. IN SHORT MINORITY SHAREHOLDERS CAN NOW IN
CERTAIN CIRCUMSTANCES FORCE THE MAJORITY TO ACQUIRE THEIR
SHARES.
31
Orkin Brown
&: Associates
CHARTERED ACCOUNTANTS (SA)
WHAT TO WATCH OUT FOR
32
SECTION 20 OF THE ACT
• COMPANY CAN DO ANYTHING
• NOT LIMITED INSOFAR AS THIRD PARTIES;
• PIERCE THE CORPORATE VEIL;
• WATCH OUT FOR “RF” COMPANIES;
• WHAT IS MEMORANDUM OF ASSOCIATION;
• RULES OF THE COMPANY
• SHAREHOLDERS AGREEMENT
• TYPES OF COMPANIES
• SHARES PAR VALUE AND NO PAR VALUE
• CORPORATE RESCUE
Orkin Brown
&: Associates
CHARTERED ACCOUNTANTS (SA)