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A comparison between the repealed Companies Act and the Companies Act 71 of 2008

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A comparison between the repealed Companies Act and the Companies Act 71 of 2008

10th November 2014

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In order to understand the rationale behind the requirement as set out in Section 11(3) (b) of the Companies Act 71 of 2008, a comparison has to be drawn between the repealed Companies Act and the Companies Act 71 of 2008 in respect of the powers of a company.

Under the repealed Act a company’s powers and capacity was determined by the main object which was stated in that company’s Memorandum of Association (‘MOA’). This allowed for the powers and capacity to be restricted in a sense that it was limited by what was contained in the MOA. The doctrine of constructive notice applied to all party’s in a sense that anyone who dealt with the company was presumed to be aware of the contents of the company documents as filed, as they were open to inspection by the public. In terms of the said doctrine, a party was presumed to have knowledge of any limitations on the powers and capacity of the company1.

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However in terms of the Companies Act, 2008, Section 19(1) (b) states that a company has the legal powers and capacity of an individual except to the extent that a juristic person is incapable of exercising any such power, or having such capacity. In terms of section 19(4) of the Act it excludes the operation of the doctrine of constructive notice under the Act. In this instance a party who deals with a company can accept that the company has the necessary power as well as capacity to participate in the said activity and to bind both the company and themselves. However if the company’s capacity or powers are restricted, the party would in terms of section 19(5) (a) only be bound if the company’s name includes ‘RF’ and the company’s Notice of Incorporation has stipulated this2.

It may therefore be seen that the New Act abolishes the doctrine of constructive notice except in cases where attention is drawn to special conditions. These provisions are known as "Ring Fenced" provisions and in order to draw attention to such provisions a company will be marked "RF". In this instance it appears that the doctrine of constructive notice is abolished to a certain degree.

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It is against this background that one should consider the circumstances in which the requirement to use ‘RF’ in the company name would be applicable or not. Below these requirements are set out in detail as well as a consideration of when it becomes applicable.
 
A ring-fenced (‘RF’) company is a company whose Memorandum of Incorporation (MOI) contains special conditions or prohibitions which prohibit the amendment of any particular provision of the MOI. Section 15(2) (b) and (c) of the Companies Act (‘The Act’) allows for a company’s powers to be restricted by informing the public that the company’s powers are either limited or restricted. This occurs in instances where a company’s name is followed by the acronym ‘RF’. Accordingly ‘RF’ should only be used in circumstances where it is evident that3:

1. the purpose or objectives of the company are restricted or limited in the MOI of the company;

2. the powers of the company are restricted or limited in its MOI;

3. there are other restricting conditions which is contained in the MOI of the company; or

4. the MOI of a company contains a prohibition on the amendment of any particular provision of the MOI.


Section 11 (3) (b) requires every company to use ‘RF’ as part of its name  “if the company’s MOI includes any provision contemplated in Section 15(2)(b) and (c) restricting or prohibiting the amendment of any particular provision in the Memorandum”.

In terms of Section 13 (3) of the Act it states that5 “ in the event of a company’s MOI including any provision contemplated in Section 15(2)(b) and (c) of the Act, the Notice of Incorporation filed by the company has to include a prominent statement drawing attention to each such provision, and its location in the MOI”. In this instance once a company’s MOI states that the company is an ‘RF’ company, every person is deemed to have knowledge of that company’s restrictions and limitations and is therefore prohibited from raising a defence that they were unaware of these restrictions and limitations, in their dealings with the said company.

An interesting consequence of the partial abolition of the doctrine of constructive notice is shown in the Turquant Rule. In the case of 6Royal British Bank v Turquant “the rule that third parties dealing in good faith with the company are entitled to rely on the fact that all internal acts of management have been complied with was really designed to ameliorate the harshness of the doctrine of constructive notice. Therefore the basis for the statutory enactment of the turquant rule is that notwithstanding the abolishment of the doctrine of constructive notice, there is a particular re-enactment of that doctrine arising from the fact that it is possible in terms of the Act to impose a special condition in the MOI, with a prominent statement drawing attention to it in the notice of incorporation and by including the name of the company with the expression of “RF”.

Written by Meegan Henkeman, Schoeman Tshaka Attorneys (Cape Town)

Tel: +27 (0) 21 425 5604
Email : enquiries@schoemanlaw.co.za
Website: http://www.schoemanlaw.co.za
Facebook: https://www.facebook.com/schoemanattorneysCT
Twitter: @MeeganHenkeman and Schoeman_Tshaka

Notes:

1 GN 203 of 15 March 2013: Practice Notice (4/2012): Interpretation of Section 11 (3)(b) read with Section 15  92)(b) and (c) of the Act, in relation to the use of ‘(RF)’ in the name of a company (Government Gazette No. 36225)
2 GN 203 of 15 March 2013: Practice Notice (4/2012): Interpretation of Section 11 (3)(b) read with Section 15  92)(b) and (c) of the Act, in relation to the use of ‘(RF)’ in the name of a company (Government Gazette No. 36225)
3 GN 203 of 15 March 2013: Practice Notice (4/2012): Interpretation of Section 11 (3)(b) read with Section 15  92)(b) and (c) of the Act, in relation to the use of ‘(RF)’ in the name of a company (Government Gazette No. 36225), see also Farouk HI Cassim, Contemporary Company Law (Juta: 2012) and section 15(2)  (b) and (c) of the Act.
4 Section 11 (3) (b) of the Act
5 Section 13 (3) of the Act
6 Royal British Bank v Turquand (1856) 6 E&B 327


 

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