New compliance checklist is a challenge
The requirement came into force last month and requires companies to submit their compliance checklist before they can file their annual returns.
The checklist has 24 questions that a company is required to answer “yes”, “no” or “not applicable”.
A company is required to consider each question in relation to its business activities during the preceding calendar year.
But the questions do not provide any detail about the relevant sections of the act, and merely state the number of the sections.
Companies are also not afforded the opportunity to provide commentary or an explanation for their answers.This would arguably hinder a company from answering a question in the negative.
It is also unclear how the CIPC would assess answers from companies, without the provision of any background information.
The usefulness of the checklist in its current format for purposes of monitoring compliance with the act is questionable.
The new requirement applies to all personal liability, private, public, state-owned and non-profit companies.
Companies will be required to complete and submit their compliance checklist before they can file their annual returns. Companies will therefore need to check when their annual return is due, and put processes in place to ensure that their compliance checklist is submitted before this date.
The timing for filing of the compliance checklist also gives rise to some practical challenges.
Annual returns must be filed within 30 business days after the anniversary date of the company’s date of incorporation, together with a copy of the company’s annual financial statements or financial accountability statements, as the case may be.
The financial statements submitted with the annual return normally represent the financial position of the previous financial year (as a company’s financial year-end does not necessarily coincide with the date for the filing of its annual return). This could lead to a mismatch in financial and compliance reporting periods, and requires clarification from the CIPC.
What are the consequences of not submitting the compliance checklist?
The CIPC intends to use the compliance checklist to monitor and regulate proper compliance with the act and has stated that if it identifies trends of non-compliance, it will “act accordingly”. It is unclear what “act accordingly” would entail.
The CIPC had originally indicated that if a company fails to complete the compliance checklist, it will not be able to submit its annual returns.
Failure by a company to file its annual returns results in the company incurring penalties, and eventual de-registration (if annual returns have not been completed for two consecutive years).
However, the compliance checklist e-service available on the CIPC website has not (yet) been linked to the e-service for filing of annual returns. Companies are therefore still able to file their annual returns without filing their compliance checklist first.
Accordingly, it is unclear how the CIPC will stop companies from filing their annual returns without filing their compliance checklist first.
A person might be held liable for negligently or accidentally completing the compliance checklist incorrectly.
Ensuring accurate completion of the checklist could prove to be challenging when one considers that the checklist covers an extensive portion of the act, and the regulations of the act. The proposed format of the compliance checklist issued by the CIPC is also vague, and requires further clarification from the CIPC.
In the meantime, companies must apply their mind carefully when completing the checklist to avoid sanctions for non-compliance.
Madelein Burger, Elodie Maume, Cindy Leibowitz, and Marina Hodgkinson are attorneys at Webber Wentzel.