Date: 24/08/2004
Source: Department of Trade and Industry
Title: L Hendricks: Companies Amendment Bill debate
SECOND READING DEBATE, COMPANIES AMENDMENT BILL BY DEPUTY MINISTER OF TRADE AND INDUSTRY, LINDIWE HENDRICKS, 24 August 2004
Madam Speaker
Honourable Members
Ladies and Gentlemen
It needs to be stated at the outset that the Companies Act was initially enacted in 1973. A mere reference to the cover page of the principal Act will reflect that it has, over a period of 31 years, been amended on approximately 35 occasions. By and large most of these amendments have been specific in the sense that they were aimed at addressing certain practical or legal technical situations if and when they arose.
This partly explains why the DTI is currently engaged in a holistic review of company law, which will ultimately result in substantial changes to the Companies Act, 1973 (Act No. 61 of 1973)("The Act") and related legislation. However, even though this extended review is expected to be finalised by the turn of the year, the ultimate law reform may take even longer. It is therefore still necessary to effect certain amendments to the existing legislation so as to ensure that certain specific issues, in the main, pertaining to corporate governance are properly addressed.
In essence, the proposed amendments relate to three issues:
1. The insertion of a provision to enhance the protection offered to bona fide purchasers of un-certificated securities and participants in STRATE
2. The insertion of various provisions pertaining to disqualified or delinquent directors of companies
3. Obsolete provisions.
The provision embodied in Clause 2 of the Bill is in a sense an amplification of the principle that is found in section 91A of the principal Act. Section 91A(4)(c) provides that transfer of ownership in un-certificated securities shall occur irrespective of any fraud or illegality underlying such transaction, provided that a transferee who was party to or had knowledge of the fraud of illegality may not rely on this principle. Legal opinion furnished in this respect is to the effect that notwithstanding the provision of section 91A (4)(c) it may in law still be possible for an aggrieved party to approach a court of law for a rectification order. Such rectification order would then result in the reversal of the transaction concerned. If we keep in mind that the marketplace demands legal certainty and investor confidence, such legal possibility should be excluded. This is what is provided for in clause 2 of the Bill.
The current provisions contained in the Act, relating to delinquent directors are inadequate, in that they do not expressly state that a disqualified person may not participate in the management of a company. In addition, section 219 requires a court ordered exclusion to be obtained so as to prevent disqualified persons from acting as directors of companies or from being involved in the management of companies.
Section 218 of the Act currently precludes certain persons from being appointed or acting as director of a company. However, this prohibition is restrictive in the sense that it does not preclude them from being concerned or taking part, directly or indirectly, in the management of a company. Clause 3(b) of the Bill seeks to achieve exactly that without embarking on lengthy litigation processes as provided for in section 219.
Clause 3(c) of the Bill contains a provision extending the grounds for disqualification to persons removed from positions of trust as a consequence to theft, fraud, forgery, uttering a forged document, corruption, or any other act involving dishonesty.
I need not inform Honourable Members on the global phenomenon of companies collapsing as a result of improper or poor governance. This unfortunately results in the undermining of investor confidence and a deteriorating perception of the manner in which companies are conducting their business.
Clause 3(d) and (e) as well as clause 4(a) and (b) should be considered against this perspective. Collectively, they would require the registrar of a court to notify the registrar of companies of the issue of sequestration orders, the issue of orders for the removal of a person from an office of trust on account of misconduct or of a conviction on certain offences. They furthermore, place a statutory duty on the registrar of companies to notify each company, which has as a director the person to whom the order or conviction relates. The relevant company is then in turn required to notify all its shareholders of such notification. In addition, it provides for directors or officers of a company to be held liable, jointly and severally, for all debts incurred by a company for the period during which such persons knew or could reasonably be expected to know of any disqualification or contravention.
I want to make specific reference to the amendments agreed upon by the Portfolio Committee on Trade and Industry in the National Assembly, as they are reflected in B10A-2004. These amendments have brought about important changes to the position of body corporate, the principle of investor notification in the event of irregularities and the legal liability attached to those guilty of such irregularities. I want to thank the Committee for their valuable contribution in this respect.
May I in conclusion refer to the issue of obsolete words or expressions. Very briefly, and in the same vein, I refer to Clauses 1 and 5 of the Bill. They simply deal with terminology and expressions found in the principal Act that have become obsolete and need to be substituted.
I thank you.
Issued by: Department of Trade and Industry
24 August 2004
Source: Department of Trade and Industry
Title: L Hendricks: Companies Amendment Bill debate
SECOND READING DEBATE, COMPANIES AMENDMENT BILL BY DEPUTY MINISTER OF TRADE AND INDUSTRY, LINDIWE HENDRICKS, 24 August 2004
Madam Speaker
Honourable Members
Ladies and Gentlemen
It needs to be stated at the outset that the Companies Act was initially enacted in 1973. A mere reference to the cover page of the principal Act will reflect that it has, over a period of 31 years, been amended on approximately 35 occasions. By and large most of these amendments have been specific in the sense that they were aimed at addressing certain practical or legal technical situations if and when they arose.
This partly explains why the DTI is currently engaged in a holistic review of company law, which will ultimately result in substantial changes to the Companies Act, 1973 (Act No. 61 of 1973)("The Act") and related legislation. However, even though this extended review is expected to be finalised by the turn of the year, the ultimate law reform may take even longer. It is therefore still necessary to effect certain amendments to the existing legislation so as to ensure that certain specific issues, in the main, pertaining to corporate governance are properly addressed.
In essence, the proposed amendments relate to three issues:
1. The insertion of a provision to enhance the protection offered to bona fide purchasers of un-certificated securities and participants in STRATE
2. The insertion of various provisions pertaining to disqualified or delinquent directors of companies
3. Obsolete provisions.
The provision embodied in Clause 2 of the Bill is in a sense an amplification of the principle that is found in section 91A of the principal Act. Section 91A(4)(c) provides that transfer of ownership in un-certificated securities shall occur irrespective of any fraud or illegality underlying such transaction, provided that a transferee who was party to or had knowledge of the fraud of illegality may not rely on this principle. Legal opinion furnished in this respect is to the effect that notwithstanding the provision of section 91A (4)(c) it may in law still be possible for an aggrieved party to approach a court of law for a rectification order. Such rectification order would then result in the reversal of the transaction concerned. If we keep in mind that the marketplace demands legal certainty and investor confidence, such legal possibility should be excluded. This is what is provided for in clause 2 of the Bill.
The current provisions contained in the Act, relating to delinquent directors are inadequate, in that they do not expressly state that a disqualified person may not participate in the management of a company. In addition, section 219 requires a court ordered exclusion to be obtained so as to prevent disqualified persons from acting as directors of companies or from being involved in the management of companies.
Section 218 of the Act currently precludes certain persons from being appointed or acting as director of a company. However, this prohibition is restrictive in the sense that it does not preclude them from being concerned or taking part, directly or indirectly, in the management of a company. Clause 3(b) of the Bill seeks to achieve exactly that without embarking on lengthy litigation processes as provided for in section 219.
Clause 3(c) of the Bill contains a provision extending the grounds for disqualification to persons removed from positions of trust as a consequence to theft, fraud, forgery, uttering a forged document, corruption, or any other act involving dishonesty.
I need not inform Honourable Members on the global phenomenon of companies collapsing as a result of improper or poor governance. This unfortunately results in the undermining of investor confidence and a deteriorating perception of the manner in which companies are conducting their business.
Clause 3(d) and (e) as well as clause 4(a) and (b) should be considered against this perspective. Collectively, they would require the registrar of a court to notify the registrar of companies of the issue of sequestration orders, the issue of orders for the removal of a person from an office of trust on account of misconduct or of a conviction on certain offences. They furthermore, place a statutory duty on the registrar of companies to notify each company, which has as a director the person to whom the order or conviction relates. The relevant company is then in turn required to notify all its shareholders of such notification. In addition, it provides for directors or officers of a company to be held liable, jointly and severally, for all debts incurred by a company for the period during which such persons knew or could reasonably be expected to know of any disqualification or contravention.
I want to make specific reference to the amendments agreed upon by the Portfolio Committee on Trade and Industry in the National Assembly, as they are reflected in B10A-2004. These amendments have brought about important changes to the position of body corporate, the principle of investor notification in the event of irregularities and the legal liability attached to those guilty of such irregularities. I want to thank the Committee for their valuable contribution in this respect.
May I in conclusion refer to the issue of obsolete words or expressions. Very briefly, and in the same vein, I refer to Clauses 1 and 5 of the Bill. They simply deal with terminology and expressions found in the principal Act that have become obsolete and need to be substituted.
I thank you.
Issued by: Department of Trade and Industry
24 August 2004
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