COMPANIES ACT 71 of 2008 Piet Delport firstname.lastname@example.org
STATUS Companies Act 71 of 2008 (as amended by Companies Amendment Act 3 of 2011) wef from 1 (actually 3) May 2011 EXISTING COMPANIES • Transitional arrangements • Schedule 5 • Memorandum and Articles • Shareholders’ agreement • - 2 year conflict provision • Effective immediately (Item 7 of Sch 5) • Shareholders’ rights/ meetings • Directors’ duties • Fundamental transactions and take-over regulation • Remedies under new Act apply to conduct under old “Act”! • Chapter 14 of 1973 remains • CCs remain – in effect private companies • S 47
NEW COMPANIES Memorandum of Incorporation • standard form 16.1(A) (unaltered) or 16.1(B) – altered (reg 15) • any other form unique to the company and • may deal with anything not addressed by the Act and also • alter an alterable provision (approx 53)(ss 13 and 15) • alter an unalterable provision – more onerous • Added provisions (not part of alterable or unalterable) • 9 most important words in company law…. Names Sections 79-81 of Consumer Protection Act 68 of 2008 wef 1 April 2011 • Individual – full name as in ID • Company – registered company name • or • Registered as business name under s 80 of CPA
Good news and bad news • No doctrine of constructive notice • “RF” company and personal liability company • No “boilerplate company” • E.g. sections 65 and 68. OTHER (Watch out for the ambush in debt restructuring/ JVs / SPVs) Related and inter-related persons, and control (Section 2) A person controls a juristic person, or its business, if- (a) in the case of a juristic person that is a company- (i) that juristic person is a subsidiary of that first person; (ii) that first person together with any related or inter-related person, is- (aa) directly or indirectly able to exercise or control the exercise of a majority of the voting rights whether pursuant to a shareholder agreement or otherwise; or (bb) has the right to appoint or elect, or control the appointment or election of, directors of that company who control a majority of the votes at a meeting of the board;
(b) in the case of a juristic person that is a close corporation, that person owns the majority or controls directly, or has the right to control , the majority of members' votes in the close corporation; (c) in the case of a juristic person that is a trust, that first person has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees, or to appoint or change the majority of the beneficiaries of the trust; or (d) that first person has the ability to materially influence the policy of the juristic person in a manner comparable to a person who, in ordinary commercial practice, would be able to exercise an element of control referred to in paragraph (a), (b) or (c).
SUBSIDIARY RELATIONSHIPS (Section 3) A company is a subsidiary of another juristic person if that juristic person, one or more other subsidiaries of that juristic person, or one or more nominees of that juristic person or any of its subsidiaries, alone or in any combination— • is or are directly or indirectly able to exercise, or control the exercise of, a majority of the general voting rights associated with issued securities of that company, whether pursuant to a shareholder agreement or otherwise; or • has or have the right to appoint or elect, or control the appointment or election of, directors of that company who control a majority of the votes at a meeting of the board;. Juristic person includes a • foreign company • trust (established within or outside SA) (Section 1)
CAPITAL? “SHARES” and “SECURITIES” “STANDARD” SHARES PAR VALUE / NO PAR VALUE SHARES CONSIDERATION FOR SHARES (S 40) The board of a company may issue shares only- • for adequate consideration to the company, as determined by the board or • in terms of conversion rights ; or as a capitalisation share. '‘Consideration'' is anything of value given and accepted … including- • any money, property, negotiable instrument, securities, investment credit facility, token or ticket; • any labour, barter or similar exchange of one thing for another; or • any other thing, undertaking, promise, agreement or assurance, irrespective of its apparent or intrinsic value, or whether it is transferred directly or indirectly (s 1).
If the consideration for any shares is • such that the value cannot be realized until a later date , or • an agreement for future services, future benefits or future payment: the company must- • issue the shares immediately ; and • cause the issued shares to be transferred to a third party, to be held in trust and later transferred to the subscribing party in accordance with the conditions of a trust agreement • to the extent that the value has been realized or the services are rendered. “Trust shares” – • no voting or appraisal rights; • no pre-emptive rights; • distributions may be credited to the shares. (but subject to the trust deed) Control of “trust”?
MINIMUM CAPITAL? (or - future of R100 share capital companies) RECKLESS TRADING (S 22; reg 20 & 21) A company must not- • carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose (s 22(1)(a)) ADMINISTRATIVE ACTION If the CIPC has reasonable grounds to believe that the company is • carrying on business as in 22(1)(a) or • unable to pay its debts as they become due and payable in the normal course of business CIPC can issue “show cause” notice and • if company cannot prove opposite within 20 days • issue a compliance notice that the company must cease doing business (s 22(2) & reg 20) S 424 of the Companies Act 61 of 1973?
CIVIL LIABILITY A “director” (prescribed officers) is liable • to the company • for any loss, damage or costs • by the company arising • as a direct or indirect consequence of that director • agreeing to carrying on the business of the company • while knowing that is prohibited under section 22 (s 77(3)(b)) 3rd Party (all provisions) Section 218(2) • Any person • who contravenes any provision of this Act • is liable to any other person • for any loss or damage • suffered by that person as a result of that contravention.
WHAT CAN IT DO WITH ITS CAPITAL FINANCIAL ASSISTANCE (S 44) Unless MOI provides otherwise the board a company may authorise the company to give direct or indirect financial assistance to a person for the purpose of or in connection with the purchase or subscription of securities or option issued or to be issued by the company or a related or inter-related company, if • pursuant to a special resolution of the shareholders (or employee share scheme (s 97)) and The board is satisfied that • immediately after giving the financial assistance, the company would comply with the solvency and liquidity test, and • the terms under which the assistance is proposed to be given are fair and reasonable to the company. Void if inconsistent with s 44.
LOANS TO DIRECTORS (AND COMPANIES WITHIN A “GROUP”) (S 45) Except if the MoI provides otherwise the board may authorise the company to provide direct or indirect financial assistance to a: • director or prescribed officer of the company or of a related or inter-related company, or • related or inter-related company or corporation, or • member of a related or inter-related corporation, or • person related to any such company, corporation, director, prescribed officer or member If approved by • a special resolution of the shareholders adopted within previous 2 years approving specific recipient or specific category of recipients and The board is satisfied that • immediately after giving the financial assistance, the company would comply with the solvency and liquidity test, and • the terms under which the assistance is proposed to be given are fair and reasonable to the company. Void if inconsistent with s 45.
Written notice of resolution must be given to all shareholders (unless every shareholder is also a director of the company) and to any trade union representing its employees- • within 10 business days after the board adopts the resolution, if the total value of all loans, debts, obligations or assistance contemplated in that resolution, together with any previous such resolution during the financial year, exceeds one-tenth of 1% of the company's net worth at the time of the resolution or • within 30 business days after the end of the financial year, in any other case.
DISTRIBUTIONS (s 46) (Board resolution) Distributions must be • in terms of a Court order/existing legal obligation or authorised by a board resolution • it reasonably appears that the company will satisfy the solvency and liquidity test after the distribution and • the board takes a resolution that it has applied the solvency and liquidity test and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the distribution.
“Distribution” is a direct or indirect • transfer by a company of money or other property of the company to holders of any of the shares of that company or of another company within the same group of companies • whether in the form of a dividend, • a payment in lieu of a capitalization share (s 47) • as consideration for the acquisition • of any of its shares (s 48) or • by any company within the same group of companies of any shares of a company within that group of companies or • otherwise of another company within the same group of companies subject to s 164(19) - acquisition ito dissenting shareholder appraisal right is not a “distribution” – only liquidity must be complied with; • incurrence or forgiveness of a debt by a company to or for the benefit of one or more holders of any of its shares or of another company within the same group of companies.
ACQUISITION OF OWN SHARES (s 48) = DISTRIBUTION (S 46) • Own shares (subject to s 46 – board resolution) • Status of shares – s 35(5). • More than 5% of class - fundamental transaction • From director/prescribed officer or related party - special resolution. • Subsidiaries (10% total (aggregate) – by implication also subject to s 46) • No voting rights • Who must comply with s 46 – subsidiary.
SOLVENCY AND LIQUIDITY TEST (s 4(1)) Considering all reasonably foreseeable financial circumstances of the company, • the assets of the company as fairly valued, equal or exceed the liabilities of the company as fairly valued; and • it appears that the company will be able to pay its debts as they become due in the course of business for a period of 12 months after the date on which the test is considered. Tests based on: • compliant financial statements and accounting records • reasonable foreseeable contingent assets and liabilities • all reasonably foreseeable circumstances • Solvency and liquidity test must be based on • fair valuation and • other valuation may be considered that is reasonable under the circumstances.
WORD OF WARNING “Dragons live there…”