The new Companies Act No. 71 of 2008 ushers in a whole new era in South African company law. While the planned deadline for implementation was 1 April 2011, this is likely to be delayed. Sources close to the process believe that the implementation may be closer to 1 May than 1 April.

According to Yaniv Kleitman, Senior Associate in the Corporate and Commercial Practice at Cliffe Dekker Hofmeyr business law firm, "The centerpiece of the new Act is arguably its provisions on directors, "prescribed officers" (senior managers and executives) and their responsibilities and personal liability for non-compliance with the Act.

Kleitman says it is critical that directors and managers become au fait with these provisions sooner rather than later. The Act is largely decriminalised (the smaller offences created under the old Act were rarely if ever prosecuted in any event) and instead uses personal liability of directors as a "stick". The business rescue provisions are also a major innovative aspect, as well as the statutory merger and amalgamation mechanisms adopted from US law.

"An aspect of the act that requires swift action from directors includes considering amendments to companies' constitutional documents. Apart from the question of harmonizing a company's articles and shareholders agreement with the new Act, it must be noted that the new Act gives directors much wider powers with regard to, for instance, alteration and issuing of share capital (this previously required shareholder approval) and they are now vested with a new power to make so-called governance "rules" of a company which will be binding on shareholders. Also, certain transactions such as share-buy-backs will, with some exceptions, no longer require shareholder approval. If companies don't want their directors to have these new powers, these must be curbed in the constitutional documents of the company.

Kleitman notes that certain companies must appoint mandatory committees in terms of the new Act. The mandatory committees for certain companies are the audit committee and the social & ethics committee. The latter is something new in our law (although many larger companies already have similar committees in place). State-owned companies and listed companies, as well as large private and unlisted public companies that obtain a certain "public interest score" in terms of the regulations, must appoint social & ethics committees within the next year. The social & ethics committee is tasked with monitoring the company's relationships with various stakeholders such as the community in which it operates and its employees, and the environment.

"Companies might consider reviewing the "D&O" (directors and officers) insurance and indemnities they have in place, if any. With the increase of the potential liability of directors under the new Act, a welcome provision
now allows companies to indemnify or insure their directors in respect of liability to the company for breach of duty or negligence (which was not permitted under the previous Companies Act), except for certain serious or willful derelictions of duty. Companies may want to consider the desirability of contracting to indemnify or insure their directors within the confines of the new law.

"Companies must assess whether they require their financials to be audited under the new Act. Unlike the position under the previous Companies Act, not all companies are required to have their annual financial statements audited," explains Kleitman.

He says that insofar as company groups are concerned, their intra-group financing and security arrangements must be assessed and reconsidered in light of the financial assistance provisions of the new Act, which now require shareholder approval and compliance with solvency and liquidity.

"The applicability of the "Takeover Regulations" to private companies is vastly extended. There may now be numerous provisions in the new Act and regulations which will have to be complied with where control is to be obtained over a private company. Any private equity investor will have to bear this in mind," Kleitman adds.

Notes to editors:

* Cliffe Dekker Hofmeyr is one of the largest commercial law firms in
South Africa with some 115 directors/partners and 250 qualified lawyers
located at offices in Johannesburg and Cape Town.

* Cliffe Dekker Hofmeyr lawyers specialise in services covering the
complete spectrum of business legal needs in 11 core areas of practice. The
firm also has dedicated sector-led teams consisting of lawyers with
experience in a wide range of industries and the public sector.

* Cliffe Dekker Hofmeyr is the South African member firm of DLA Piper
Group, an alliance of legal practices, which includes firms with offices
around the globe that are affiliated to members of the DLA Piper Practice
but are not themselves members of it.

* Cliffe Dekker Hofmeyr's Africa practice, in conjunction with DLA
Piper Africa Group, is unrivalled in terms of pan-African legal services and
geographical coverage.

* DLA Piper is an international legal practice with over 3,500 lawyers
located in 30 countries and 69 offices throughout Asia, Europe, the Middle
East and the US.

* For further information, please visit www.cliffedekkerhofmeyr.com

Written by Yaniv Kleitman, Senior Associate, Corporate and Commercial Practice, Cliffe Dekker Hofmeyr