Companies Amendment Bill: Ministerial briefing; Trade and Industry Budgetary Review & Recommendation Report (BRRR)

Meeting report

Department of Trade and Industry (DTI) presentation
Ms Zodwa Ntuli, Deputy Director-General, Department of Trade and Industry, explained that the Companies Act was passed by Parliament in late 2008, and assented to by the President in April 2009. During process of drafting the regulations, it was discovered that several sections of the Act contained errors which necessitated rectification. On 22 December 2009, the Minister of Trade and Industry published a Notice in the Government Gazette soliciting public submissions on matters that may need to be corrected.
The correction process was only confined to apparent errors and did not extend to a review of policy matters already endorsed by Cabinet in 2007, which were currently contained in the Act. The scope of the correction was therefore limited to identifying items inadvertently omitted from the Act, including errors pertaining to inconsistencies, incomplete sentences, misalignment, and similar technical concerns with the text of the Act. The purpose of this Bill was therefore to settle the Act by more perfectly representing its policy in coherent and consistent provisions of the text. The Bill contained a number of amendments correcting syntax, spelling, grammar, numbering, punctuation, alignment, reference, typographical and similar patent technical errors in the text. It also entailed correction of text to address inconsistencies and disharmony among provisions of the Act, as well as addressing possible conflict with other regulations.

Mr MacDonald Netshitenzhe, Director: Commercial Law and Policy, Consumer and Corporate Regulation

▪ Domestication of Foreign Companies
The Bill proposes to re-enact the domestication of companies in order to simplify registration of companies and ease the burden of doing business. Section 49(b) and (c) of the Bill were introduced to ensure that the arrangements for domestication are reciprocal.

▪ Powers of Business Rescue Practitioners
The concern was raised that the phrasing of the provision seems to give unfettered powers to the Business Rescue Practitioner (BRP) to cancel contracts during a business the application of the Business Rescue Chapter. This unfortunate reading is clearly unintended and is inconsistent with the policy on business rescue scheme, and section 136(2) is revised in the Bill to clarify the powers of BRP. BRP powers are now expressly subject to a court process which will address the concern.

▪ Registration of External Companies
The phrasing of section 23 imposes obligation on such companies to register even for activities that in terms of policy were not intended to be considered doing business. The impact is that the current formulation could place at risk the country's ability to attract debt financing for both public and private enterprises. The Bill has revised section 23 to deal with the defect which renders the policy rationale ineffective by rearranging the factors that would trigger the requirements by external companies to register in South Africa.

▪ Independent Review of Financial Statements
There is an amendment to definitions such as "audit" to clarify that it does not have the same meaning as the one contained in the Auditing Profession Act of 2004. In this Bill it has to be clarified that an "independent review" in terms of the Companies Amendment Bill does not have the same meaning as that contained in the Auditing Profession Act (APA) - In terms of APA an "audit" also includes an "independent review". The policy behind the Act is to reduce regulatory burden and cost to business, and the above interpretation was not intended. Regulations will regulate the scheme of independent review.

▪ Registration of external companies
The formulation of Section 138(1) and (2) was inconsistent with each other in that, the expression "regulated authority" as used in subsection (1) has a defined meaning, and does not extend to the type of entity contemplated as being "designated" by Minister in terms of subsection (2). The current formulation makes it impractical for this section to be implemented because there was currently no entity that satisfied the criteria in both subsections. The amendment seeks to ensure that the scheme adopted will allow for appointment of business rescue practitioners with minimum prescribed qualifications who may fall outside the regulated professions. The Companies and IP Commission will license those persons who were not subject to a regulated authority, and ensure a simple and efficient process subject to vetting and approval was followed

• Conversion of Par Value Shares
The Act was intended to do away with Par Value Shares have them converted within certain period to phase them out completely. The Act intended the phasing out mechanism to be a subject to be discussed and agreed upon by the Minister of Trade and Industry and Minister of Finance and expressed through regulations. There was a concern that the conversion process might attract tax implication and loss of voting rights - it was proposed that the Act merely abolish the system and not allow further issuing of par value shares. The Bill proposes the amendment to Schedule 5, Item 6 of the Act to remove paragraphs that may attract the implication mentioned above from a tax perspective. Regulations should therefore be in accordance with the amendment

• Empowering Minister to regulate Public Offerings
Section 95 of the Act seeks to regulate Public Offerings of company securities. In this regard there was no provision giving the power to the Minister to issue regulations to regulate this regime and this might result in uncertainty and different interpretation by courts. The Bill amends the provision to empower the Minister to issue Regulations to regulate the scheme accordingly

• Void and Voidable resolutions provisions
Section 218 of the Act provides that nothing in the Act renders an agreement, resolution, or provision thereof that was prohibited void or voidable unless a court declares it void. The phrasing of this provision makes it unclear which contracts were void or voidable as the terms mean different things. The Bill amends the provision to provide clarity in terms of contracts that were voidable after the court of law has so ordered.

▪ Legislation taking precedent over the Companies Act
Section 5 of the Act provides for certain legislation such as Banks Act and Public Finance Management Act (PFMA), to take precedence over the Companies Act in the event of conflict between them. There was an omission that occurred in that the Municipal Finance Management Act (MFMA), which was a provincial version of the PFMA had not been included. The Bill amends the provision to provide for the inclusion of the MFMA. Recommendations for a general exemption for all laws relating to financial or tax without a proper assessment being undertaken on their implications was not agreed to.

Discussion
Mr M Oriani-Ambrosini (IFP) said that public hearings should be held on this Bill.

Minister of Trade and Industry, Rob Davies, replied that public hearings were necessary though issues around policy should not be engaged in within them.

Mr T Harris (DA) asked if the burdens on the legal system had been taken into consideration in relation to Business Rescue Practitioners. Was the issue of the conflict between the Act and shareholders' agreements covered in the amendment? Was the amendment around foreign companies not discriminatory against South African companies?

Mr Netshitenzhe replied that the Business Rescue Practitioners were judicial officers in terms of statutory provision and therefore the ones who would have to apply to the courts. Costs would be borne by the statutory-created body. There was a transitional period of two years during which shareholder agreements were valid. Beyond this period there needed to be compliance with the Act.

Mr Alberts (DA) asked how the par value issue would be dealt with when such a company was to be sold. How would void contracts be dealt with?

A DTI representative said the par values were merely nominal values attached to shares while the real value was determined by adding a premium to the par value.

Mr Netshitenzhe answered that the Act intended to differentiate between void and voidable contracts.

Mr S Njikelana (ANC) asked who would be conducting the independent reviews. What role would the South African National Accreditation System (SANAS) play in relation to the licensing of Business Rescue Practitioners?

Mr Netshitenzhe answered that the Bill aimed to give the Commission the power to decide, on a merit basis, who could conduct such reviews. He would not like to comment, as yet, on the role of SANAS.

Department of Trade and Industry Budgetary Review and Recommendation Report (BRRR)
The Chairperson asked if there were any issues the members wished to raise.

Mr Oriani-Ambrosini asked if the Chairperson would allow for dissenting views to be registered.

Mr D Turok (ANC), with the agreement of others, said that it was a tradition in all Committees to not include minority reports.

The Chairperson replied that, as this request was rejected by the entire Committee, she would not allow this.

Mr Harris said that the list of key issues raised by the Committee (p.12) did not reflect the answers provided by the Ministry in response to the matter of co-ordination with the Economic Development Department.

This proposal was noted.

Ms C September (ANC) asked if the Minister's introductory remarks were included in the Report's introduction.

The Chairperson answered that this was incorporated in the body of the Report and not in its introduction.

Mr B Radebe (ANC) said that the number of job losses listed was not accurate and should be rectified.

The Chairperson replied that the job-loss figures listed were only reflective of those lost in those sectors.

Mr Radebe said that there was an omission about steel beneficiation and the increasing price of steel and that this should be added. A recommendation to this end should be added and made to read as follows: 'The Department of Trade and Industry should conclude the work of the inter-Departmental Task Team which had been set up to deal with the uncompetitive behaviour of the steel industry. The Committee further recommends that commodities be beneficiated and that small steel mills be supported.'

The proposal was noted.

Mr Alberts proposed that a recommendation about the Department providing holistic support to cooperatives and SMMEs, should be added.

This proposal was noted.

Mr Harris said that a recommendation reading 'The DTI must provide the Committee with a schedule of updates on the implementation of the IPAP 2 and table these updates in line with the schedule' be added, plus a further recommendation about the incentive schemes being linked to the accelerated implantation of the IPAP 2.

These proposals were noted.

Mr Radebe proposed that a recommendation on the Department needing to continue the work of the inter-Departmental Task Team dealing with uncompetitive behaviour of the steel industry be added.

The proposal was noted.

Mr N Gcwabaza (ANC) moved for the adoption of the Committee Report.

Mr Harris seconded this.

Mr Oriani-Ambrosini noted his objection.

The Report was adopted with the objection of Mr Oriani-Ambrosini noted.

Report on the visit to the World Trade Organisation

The Committee considered and adopted the report on its visit to the World Trade Organisation.

The meeting was adjourned.