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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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… 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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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.

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WHAT TO WATCH OUT FOR

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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


THE COMPANIES ACT OVERVIEW · in short all companies should comply with the king code and if the do...

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Transcript of THE COMPANIES ACT OVERVIEW · in short all companies should comply with the king code and if the do...