Companies Act Regulations, 2011

BRIEFING TO PORTFOLIO COMMITEEMr Lionel October – DG (Trade and Industry)Mr MacDonald Netshitenzhe – Chief Director: Policy and Legislation (CCRD)Mr Desmond Ramabulana – DD: Commercial Law & Policy (CCRD)

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Purpose

• The purpose of this presentation is to provide the Portfolio Committee with outline on details on the Companies Regulations, 2011, their purpose, rationale and scope.

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Introduction

• The Companies Act (Act) 2008 has been signed into law by the President on 9 April 2009. For the Act to come into legal force Regulations had to be drafted and relevant institutions and structures created respectively.

• Drafting of the Companies Regulations, 2011 (Regulations) commenced in August 2009 and an invite for initial stakeholder comments was done and published in December 2009. After the revision arising from public comment, they were published in the website for final round of comment in December 2010

• Further, the drafting of the Regulations simultaneously took place with the drafting of the fee structure of the services to be offered by the Companies and Intellectual Property Commission (Commission).

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Introduction - Continued

The process followed during consultations with stakeholders was reduced to bilateral interviews with each stakeholder. This culminated into two workshops respectively in August 2009 and November 2009 respectively.

Furthermore, the Minister launched an Education campaign on the Regulations in September, extending the implementation date of the Companies Act to 1st April 2011. Various workshops, seminars, publication materials in various media took place.

Introduction

• The drafting team read the provisions of the Act that require implementation through Regulations. During these interviews and the two workshops described above, stakeholders contributed constructively. Some of the commentators alerted the team of provisions that needed to be amended before the Act is implemented whilst others were of the view that the Act should be implemented without being amended as there will be no negative impact.

• Issues raised were among others, errors relating to inconsistencies of provisions with other provisions, provisions that are incomplete, provisions that are not clear whether or not they will be implemented by Regulations, grammar, spelling, punctuation, formatting and referencing.

Introduction

• Still on this matter above, certain stakeholders like Judge Dennis Davis (Judge) and his team were of the view that these errors had to be rectified before the Act is implemented. Initially, the Judge was of the view that the amendment process should take precedent over Regulations and therefore the drafting and publication of the Regulations should be in abeyance.

• The Minister and the dti concluded that since issues for amendment are technical in nature as described above, there was no need to suspend the Regulation process. In passing the amendment process was attended to simultaneously with the processing of Regulations and published for comment in December 2009 until March 2010. The Amendment Bill was finalised by Parliament on 25 March 2011 and referred to the President for assent

Outline

Regulations have been drafted for effecting Chapters dealing with:

• Company Accounting Records • Financial Reporting Standards • Companies to be audited, • Independent Reviews (lesser standard to auditing standard), • Annual Returns, • Discretionary Audit, • Business Rescue• Social and Ethics Committee,• Par Value Shares• Licensing or accrediting of persons to act as business rescue

practitioners and independent reviewers.• Forms

Accounting Records

This is to encourage transparency and integrity of companies

• The regulation outlines registration formalities for external companies and forms to be filled

• Company to inform Commission on its registered office and records kept at that office as well as information pertaining to directors

• the regulation outlines steps to be followed by any person who needs to access information in terms of the Protection of Access to Information Act. The Companies Amendment Act (CAA) also improved the Regulations in this regard

Financial Reporting Standards

• Financial statements can be compiled independently or internally

• The following are the standards(a) Listed public companies –IFRS adopted by FSC and advises Minister to issue them as Regulations(b) Non listed public companies-IFRS(c) State owned companies-IFRS or PFMA(d) Profit companies exceeding the public interest score-IFRS or IFRS to be adopted by GAAP for SMME’s(e) Profit companies below the public interest score-No prescribed standard(f) Profit companies below the public interest score and

whose statements are internally compiled- No standard

Companies to be Audited

• Companies that in the ordinary course of business hold assets in fiduciary capacity

• Organs of state, state owned company, international entity, foreign state entity

• Non profit company performing regulatory or carrying public function at direct and indirect initiation by organ of state, state owned company, international entity or foreign entity

• Companies exceeding the public interest score

Independent Reviews

• Review must be in accordance to ISRE 2400• To be conducted by auditor or person accredited in

terms of APA if score is 100 or above• To be conducted by accounting officer qualified by

Close Corporation Act if score is below 100• Must not be conducted by person who prepared

the statement• Irregularities must be reported to the Commission

and SARS

Annual returns

• Company must file annual returns within 30 business days after anniversary of registration or date of incorporation

• Audited company to file its audited statements• Independently reviewed or audited company that is

not required to audit may file statement or financial accountability supplement

• Commission to establish system to select and review supplements and statements filed

• External companies to file and pay a prescribed fee

Business rescue

• Notice of appointment of Business rescue practitioner to be in prescribed form and delivered to each affected person

• Notice by applicant person to be done in accordance with regulation 7 and must be delivered to each affected person known to applicant.

• Practitioner to report progress of business rescue proceedings in prescribed form and inform court, company and deliver to affected persons

• BPR to publish proposed business rescue plan in a prescribed form

Business Rescue

• Notice of termination of business rescue proceedings as well as Notice for substantial Implementation must be displayed at registered office, any website, any electronic system maintained by the exchange and delivered to affected persons

Business Rescue

• Persons may apply for accreditation in terms of section 138• Commission may issue license, conditional license or refuse

or revoke an issued license• Senior practitioner being a person involved in business

rescue for 10 years can be appointed for any company• Experienced practitioner who has been involved for a period

of at least five years can be appointed for small and medium company

• Junior practitioner who has no experience or less than five years after appointment can be appointed for a small company

Social and Ethics Committee

• Applies to state owned and listed companies• A board must appoint within 12 months after

effective date, incorporation, or after it became a listed company

• Comprised of not less that 3 directors of which one of them is not involved in day to day management within the previous three years

Social and Ethics Committee

• To monitor companies activities in regard to any relevant legislation or other legal requirements of code of good practicee.g Social economic development in terms of international and national codes, good corporate citizenship, environmental health and public safety, consumer relations, labour and employment.

• Draw matters within its mandate to the attention of the Board

• Report through one of its members to shareholders meeting on matters within its mandate (corporate activism)

Par Value Shares

• Dti consulted with National Treasury• A pre-existing company may not authorise new par

value shares after the effective date• A preexisting company may not increase its par

value share and may by way of amendment in its MOI effect a conversion and must not be designed to evade tax

• Must be approved by special resolution

Par value shares

• Board must draft a report in respect of such proposed special resolution

• Company must publish resolution together with report before meeting

• Company may apply to court for a declaratory order in that the provisions of the Act has been fulfilled

• Shareholders, Commission, and SARS can apply to court to object to the proposal

General

• As indicated issues covered in the Companies Amendment Act (CAA) address some of the issues that were raised in the Regulations process

• Awareness and education campaigns in form of workshops and seminars will continue to be held with stakeholders like business chambers, formations of small businesses and general public after implementation. In this regard one of the biggest mandates of the Commission is to conduct education and awareness campaign on the Companies Acts and its Regulations

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Consultation On Regulations

DEPARTMENTS AND PARTIES CONSULTEDNational Treasury (NT), Public Enterprises (DPE), Business Unity of South Africa (BUSA), Business Leadership of South Africa (BLSA), Independent Regulatory Board for Auditors (IRBA), Banking Association of South Africa (BASA), Statutory Advisory Committee on Companies Law (SACCL), Insolvency Association of South Africa (IASA), Deloitte and Touche, Webber Wentzel Inc, University of Cape Town – Law Faculty, University of Stellenbosch – Law faculty, Cape Chamber of Commerce, Law Society, King Committee on Governance, Congress of South African Trade Unions (COSATU)

THANK YOU