Companies Bill, 2008

1. RESPONSES TO STAKEHOLDER ORAL & WRITTEN SUBMISSIONS DATE: 25 August 2008 Zodwa Ntuli – DDG: Consumer & Corporate Regulation Division (CCRD) Fungai Sibanda – CD: Policy & Legislation (CCRD) MacDonald Netshitenzhe – D: Commercial Law & Policy (CCRD) Desmond Ramabulana – DD: Commercial Law & Policy (CCRD) Rory Voller – D: Legal and Regulatory Services (CIPRO) Flip Dwinger – Legal Consultant (CIPRO) Companies Bill, 2008

2. Purpose • The purpose of this presentation is to provide the committee with the Department of Trade & Industry’s (dti) initial responses to issues raised by stakeholders during public hearings

3. Financial Statements • Who should prepare AFS? • Initially exempted personal liability companies, owner managed companies, and those where all executive directors are shareholders of the company (effectively small companies) • Need for small companies to prepare AFS: • To encourage sound financial management • To ensure sustainability of companies of all sizes • To comply with other regulatory requirements • However reduce regulatory burden by • Exempting these companies from having AFS audited or reviewed • Differential reporting standards: small companies will comply with less onerous standards; s29(5)

4. Financial standards • Role of the Financial Reporting Standards Council (FRSC) • Determine form and content of financial reporting for simplicity and accessibility • FRSC will hold membership of the International Accounting Standards Board • Role of FRSC in Corporate Laws Amendment Act of being advisory to Minister in issuance of financial reporting standards upheld in this Bill • Council will consider International Financial Reporting Standards (IFRS), consult, research and adapt IFRS to local needs and advise Minister on their suitability • Minister will issue standards as regulations upon considering advice from Council • Sec 223 addresses concerns regarding speed with which financial reporting standards may be issued

5. Auditing • Appointment of audit committee • Shareholders must appoint the Audit Committee as a sub-committee of the Board; s94 • Audit Committee report must be included in the Annual Financial Statements • Filling of audit committee vacancy to be done by shareholders instead of board; s94(6) • Appointment of auditors • No intention to amend Auditing Professions Act wrt auditor liability and there must be no contracting out of liabilities through this Bill • Rotation period of 5 financial years maintained but cooling off period to be reduced to 2 years; s92 • No intention to give exemption to principle of rotation on geographic basis

6. Shareholder protection • Shareholder protection • Demand for a shareholder meeting to be supported by at least 10% of voting rights instead of 25%; s61(3) • S 63(3) takes away right to abstain from voting, this is unintended and should be corrected • Concern of MOI eroding shareholder protection is unfounded as amendments to MOI require approval by shareholders • S 71 – powers to remove member of board must rest with shareholders • A meeting which is not properly quorated, must be adjourned and the members present at the adjourned meeting shall be deemed to form a quorum at the next meeting • Pre-emptive rights should not apply to a public company except to the extent provided for in the MOI; s39 • Scope for MOI to change threshold for ordinary and special resolutions is appropriate; s65 – shareholders approve changes to MOI • Directors should not be indemnified should they be found to be in breach of their duties; s78 – this is clear in the provision, no amendments

7. Business rescue • Business rescue • Concept of business rescue designed to provide rescue mechanism to a company that has financial difficulties but has not reached stage of insolvency • This Bill not intended to deal with insolvency • Business rescue is best placed in the Companies Bill and should not be under the Insolvency Act, as agreed between the dti & Department of Justice • To the extent that definition of ‘financially distressed’ companies is not clear it should be amended by deletion of para f(i) of s128 • In business rescue, speed is of essence. Therefore Supervisor should be given appropriate powers to control the process including power to suspend transactions and claims temporarily • Consultation process provided for in Bill caters for participation by relevant stakeholders • Appointment of joint supervisors could derail process; however appointment could be done after consultation with stakeholders • Business rescue is a new concept and therefore no single profession can claim to be best suited for the task. It will evolve over time

8. Business rescue Business rescue cont… • Claims of the workers will be aligned with Insolvency Act, for consistency wrt equal treatment of those claims; s135 & s144 • Also to consider alignment of preferred ranking of employee claims with Insolvency Act and ILO convention • The Bill as it stands caters for development of business rescue plan ‘after consultation’ with all “affected” stakeholders, as opposed to ‘in consultation’, as proposed by labour; s150 • Supervisor’s report will be available to the trade unions and employees, as currently contained in the bill; s140(1)(d) • Definition of pension schemes will be amended to include provident schemes • In business rescue process, voting by interest should remain applicable as is in the Insolvency Act

9. Access to information • Access to information • Trade unions to be given limited access to company financial statements for purposes of initiating business rescue • Such access to be provided through Companies Commission • S26 to be extended to include s113 of current Act in order to provide access to company records to more persons other than holders of beneficial interest • Whistle-blowing • The list as contained in the section should be limited to groups that can take appropriate action on the information in relation to the protection of the whistleblower. Should not include disclosure to media, trade unions and other bodies; s159 • Certain legislation does provide for the definition of confidential information and therefore guidance can be sought from such legislation. Definition of confidential information will thus be inserted in the Bill

10. Other issues • Principles of Constitution normally reflected in preamble of legislation and its spirit should guide implementation and interpretation of this Bill • Regulations to be drafted and consulted prior to the Act being put into operation • Amendment of Schedule 1 and 3 should fall within the domain of the Minister to be changed by way of notice in the Govt Gazette • Provision should be made for the registration of defensive names • The funding of agencies should be provided for in the Bill • All grammatical and syntax errors will be addressed in the re-draft in consultation with the State law advisors • Functions of Ombud in Bill are that of Tribunal and therefore term Ombud will be reviewed to deal with confusion that may be created

11. THANK YOU