PSNews

A company‟s Articles and Memorandum of Association were automatically converted to a Memorandum of Incorporation (“MOI”) when the Companies Act came into operation on 1 May 2011, from which date a company has two years to amend its MOI.

The time is ripe to amend the MOI and to bring it in line with the Companies Act. At the same time, revisit the company’s shareholders’ agreement. Remember, after the two years and in the event of an inconsistency between the MOI, the shareholders’ agreement and the Companies Act, the provisions of the Companies Act will prevail. This is a major change from the old position.

This may be more complicated than it appears, and entities are urged to get specific advice regarding audit requirements. One of the factors to consider is a company‟s public interest score.

The public interest score is determined in terms of Regulation 26(2) of the Companies Regulations.

(The public interest score is also relevant to determine whether a „Social & Ethics Committee‟ is compulsory – see our discussion below).
SAICA has issued a circular (based on legal opinion) that even if a formal audit were not required in terms of the Companies Act, but a company‟s MOI still stipulates that the financial statements should be audited, the MOI has to be amended before it becomes unnecessary to do a formal audit.

The Minister of Finance has delivered his budget speech, and in the information age, there is not much to add to what has already been published.

A major shock, however, was that dividends tax (which replaces STC on 1 April 2012) will be payable at a rate of 15%.

When a company declares a dividend, remember to do a solvency and liquidity test (Section 4 read with Section 46, and in particular 46(1)(c) of the Companies Act, 2008) (“Companies Act”).

If the distribution (dividend) has not been completed within 120 business days, the board must reconsider the solvency and liquidity test (Section 46(3)(a) of the Companies Act).

We predict that a lot of emphasis will be placed on Black Economic Empowerment during 2012.

Why do we say this?

• It is evident from press and other statements made by government spokespersons.
• The amended Preferential Procure-ment Policy Framework: Regulations, commenced on 7 December 2011 and will apply in respect of government tenders.
• The draft Broad-Based Black Economic Empowerment Amendment Bill 2011 has been published for comments.  Significant proposals are:
• A new definition of ‘fronting practises’.
• A contract may be cancelled at the sole discretion of an organ of state or public entity if false information were furnished by or on behalf of an enterprise in respect of its BEE status. Comment:  The right to cancel in its ‘sole discretion’ goes too far.
• The establishment of a BEE commission with wide powers to investigate BEE transactions, which exceeds a value to be determined by the Minister, either on its own initiative or on receipt of a complaint. Comment:  If enacted, unsuccessful or disgruntled tenderers may make use of this provision in an attempt to set aside the tender award.It is intended to make ‘fronting’ a criminal offence and up to 10 years imprisonment is proposed for ‘knowingly misrepresenting’ or ‘attempting to misrepresent’ the BEE status of an enterprise.  ‘Knowingly’ has now also been defined (to be in line with the definition in the new Companies Act) and goes further than actual knowledge.

Great care should be taken in the structuring of BEE transactions or any aspect which may impact on an enterprises’ BEE status.

A case study

The State Attorney gives notice to an enterprise following an investigation into allegations of ‘fronting’.

Subsequent to an initial investigation, a forensic report was prepared and the State Attorney, on behalf of its client (a state department), makes allegations of misrepresentation and fronting.

The State Attorney gives the entity 14 days to provide reasons why the enterprise and all associated parties, such as members, directors and shareholders (as the case may be), should not be restricted from doing business with any organ of state for a period of 10 years.  In other words, the intention is to blacklist the enterprise and its associated parties.

In addition, the State Attorney gives notice of its intention to claim damages and informs the enterprise that the matter has been handed to the SAPS for criminal investigation.

In terms of the new Companies Act, it is possible to take a directors’ decision on a round robin basis without the consent of all the directors. In terms of Section 74 of the Companies Act, 2008 (the Act), a round robin decision may be adopted by the written consent of a majority of the directors, on condition that each director has received notice of the matter to be decided. Please note that in terms of the Act, the MOI of a company may provide otherwise. In addition, the shareholders’ agreement may have different provisions, for instance, that directors’ votes will be weighted in accordance with the shareholding of the shareholder which the director represents. The shareholders’ agreement must, however, be consistent with the Act and the MOI, and any inconsistent provision is void to the extent of the inconsistency.

A company should align its MOI and shareholders’ agreement with the Act, bearing in mind that the Act contains so-called ‘alterable’ and ‘unalterable’ provisions.

It is always good to start a New Year with good news. PMR Africa announced that PSN has, for the fourth year in succession, been voted the top legal firm in the Sedibeng area.  PMR conducts an independent and comprehensive survey, and we thank our clients (and the community in which we practice) for yet another vote of confidence.

The Consumer Protection Act 68 of 2008 (CPA) will become fully effective on 1 April 2011. The principal aim of the CPA is to protect consumers. The CPA will apply to every transaction concluded in the Republic, including (amongst others) agreements between people acting in the ordinary course of business for the supply of goods or services to consumers in exchange for consideration, unless expressly exempted.

The Consumer Protection Act 68 of 2008 (CPA) will become fully effective on 1 April 2011. The principal aim of the CPA is to protect consumers. The CPA will apply to every transaction concluded in the Republic, including (amongst others) agreements between people acting in the ordinary course of business for the supply of goods or services to consumers in exchange for consideration, unless expressly exempted.Suppliers (which include landlords and property developers) will have to revisit their standard terms and conditions of lease and sale and other contracts that all subject to the provisions of the CPA.

PSN welcomes its readers to the first edition of PSNews for 2011. As always, we are committed to render exceptional legal services. We are proud to announce that PSN has yet again received the PMR award for top legal firm in the Sedibeng area. Our year has indeed started on a positive note and we would like to thank our clients for their continued support.We foresee that 2011 will bring about fundamental changes to the South African legal landscape. A lot of media attention has been focused on the long awaited Consumer Protection Act and the new Companies Act that are expected to come into full operation in 2011. This legislation will undoubtedly affect all businesses in material respects.Apart from the new legislation, it has also recently been reported that the South African labour law faces dramatic changes with the publication by the Department of Labour of four new labour law bills.