The Institute of Directors in South Africa (IoDSA) and Cosatu have welcomed the tabling of the Companies’ Amendment Bills tabled in Parliament this week intended to keep corporate SA Inc on its toes.
“These are progressive and long overdue Bills. They will be powerful weapons in the fight against corporate sector corruption and help begin nudging the private sector towards a more equitable and just wage structure for South Africa,” the union said this week.
On Tuesday Minister of Trade, Industry and Competition, Ebrahim Patel, outlining the key elements of the two bills, said, “Company law should be clear, user friendly, consistent with well-established principles and not be over-burdensome on business. This is important to attract investors and for the efficient and effective conduct of the domestic economy and job creation.”
He said a number of amendments sought to advance this objective, through providing legal certainty where these did not currently apply, providing greater flexibility to companies in certain circumstances, or removing unnecessary provisions in the Act.
The first bill, titled the ‘Companies Amendment Bill, 2023’ addresses these and other administrative matters. The bill covers, among others, the period within which a notice of amendment of a company’s Memorandum of Incorporation takes effect, empowering the courts to regularise an allotment or issuing of shares that is technically invalid, where good reason exists, as well as provisions dealing with share buy-backs, financial assistance from a holding company to its subsidiary, appointment of auditors and reducing the types of companies subject to the mandate of the Takeover Regulation Panel’s jurisdiction.
It provides for a number of changes that would remove administrative burdens from smaller and medium businesses, such as the requirement to file annual financial statements with the Companies and Intellectual Property Commission (CIPC) and filings with the Takeover Regulation Panel.
The second bill, named as the ‘Companies Second Amendment Bill’, 2023, provides for action that can be taken to declare directors delinquent, with a proposal to extend the current time bar of two years to five years, or such longer period that a competent court may decide.
The time bar proposal emanates from the Zondo Commission’s recommendations relating to directors of companies implicated in state capture. It also provides for courts to increase the time bar in relation to claims for damages applicable to directors for breaching their fiduciary duties and duties of care, skill and diligence as well as certain statutory duties.
Professor Parmi Natesan, the CEO of the IoDSA, said IoDSA welcomed the proposed amendment to section 162 of the Companies Act.
She said this related to the extension of the time limit within which a director might be declared delinquent by the courts, extending from two years to give years, with potential for further extension beyond this period under justifiable circumstances.
“This revision opens up the opportunity for potential liability and sanction, even where a director’s misconduct is not promptly evident, and only comes to light at a later stage. The allowance for an extended time frame upholds the principles of justice and accountability,” Natesan said.
Having said that, it was worth also noting that proceedings involving director delinquency claims were complex, time-consuming and costly; hence “we do not see near as many delinquency rulings as we should”.
“Therefore, as noted in the IoDSA’s 2021 comment letter to the Department of Trade and Industry on Companies Act amendments, further additions could have been addressed in the amendments to bolster directorial accountability within the legal framework.
“These include the professionalisation of directorship through a license to practice, the enhancement of nomination processes for director appointments, and the stipulation of prerequisite criteria for individuals seeking director positions,” she said.
The IoDSA took note of the amendments pertaining to Remuneration Committees and Social and Ethics Committees, and intended to provide insights on these matters in due course, Natesan said.
Meanwhile, the Congress of South African Trade Unions (Cosatu) said it welcomed the tabling of the Bill.
It said the Bills, once enacted, would bring greater transparency to companies, helping to prevent the kind of shameful scandals seen in Tongaat Hulett, EOH and Steinhoff and to fight corruption and state capture. They would also assist in the country’s efforts to deal with extreme inequality.
The Bills had the added benefit of bringing South African company law in line with best practice and established norms, as prescribed in the King IV Report on Corporate Governance and that was found in other countries, including the European Union, the US, Australia and the UK.
“Once it becomes law, the amended Companies Act will see large businesses having to publish more information about its remuneration, for instance, setting out the ratio between the highest paid executives and the lowest paid workers and the actual wages received by these lowest paid workers. This will allow workers and the public to compare companies’ wage gaps and help shareholders determine whether executive pay is justified. The Bills will strengthen shareholders’ ability to reject executive remuneration where it is regarded as excessive and unjustified,” Cosatu said.
It said these provisions were critical if South Africa was to overcome its “shameful apartheid wage gap”.
Some of the most offensive examples include the banking sector where the CEOs made on average R150 000 daily while their bank tellers would not make that in a single year, it added.
Cosatu said it was encouraged that these Bills would further help to fight corruption, money laundering and state capture by concluding the process started last year when the law was amended by Parliament to compel businesses to disclose the actual persons owning them and not merely obscure trusts or shelf companies.
“The fact that the beneficial ownership of companies has stayed hidden has allowed fraud and corruption to thrive. The changes proposed in these Bills will shine an even brighter light on ownership and provide for greater access to company records. Our outdated legislation is why South Africa after repeated warnings was grey-listed last year. This has a real and painful consequence to attracting investment, stimulating the economy and create jobs,” it added.
Furthermore, the Bills will also improve transparency around companies’ finances and governance, bringing South Africa on par with what was happening in other countries.
“This will allow workers to understand more about their employers and will strengthen and improve wage bargaining and consultation around retrenchments, as well as boost labour market stability,” it said.