Creditors and the public would have less protection under the new Companies Act because as many as 90 percent of companies in South Africa would not be required to provide audited accounts, the portfolio committee on trade and industry heard this week.
The committee, which was receiving submissions on the Companies Amendment Bill, also heard that the public’s protection would be further diminished by the fact that the new act allows a convicted criminal to be a director of an owner-managed company.
These were some of the concerns raised by representatives of small and medium enterprises (SMEs), who were invited by the committee to make submissions on the proposed amendments.
Joanmarie Fubbs, the chair of the committee, said she had requested interested parties from the SME sector to make submissions because one of the purposes of the bill was to create an enabling environment for small businesses. “But we never seem to receive input from the SME sector.”
Colin Wolfsohn of audit firm Wolfsohn & Associates told the committee that although other legislation such as the Income Tax Act, the Insolvency Act and the Consumer Protection Act did require companies to keep some accounts, the fundamental requirement had always stemmed from the Companies Act.
“Most of these other acts have relied on the requirements of the Companies Act,” said Wolfsohn. He said that while audited accounts were not always necessary, it was important that companies be required to keep “credible accounting records”.
Peter Meredith of Meredith Harrington told the committee that in exchange for the benefits of being granted limited liability status, companies must demonstrate a matching level of accountability.
Wolfsohn warned the committee that although the new legislation intended to make it easier and cheaper to administer companies, some sections of the act created obstacles that would make administration more difficult and more expensive. He noted that the requirement that all company forms had to be renumbered would result in huge costs and added that the requirement that the memorandum of incorporation for all companies be filed with the Companies and Intellectual Property Registration Office was not practical.
When Fubbs asked how Wolfsohn would address the issue of criminals who deserved another chance, he replied that the nature and timing of the criminal offence should be a consideration in the individual being allowed to be a director.
Meredith urged the committee to ensure that companies were provided with details about what interim arrangements should be made between now and the actual implementation of the act.
He said the vast majority of companies had a February year end and did not know whether they were required to complete an audit in terms of the old Companies Act or whether an independent review in terms of the new act was required
. - Business Report