Acta Juridica - Volume 2010, Issue 1, 2010
Volume 2010, Issue 1, 2010
Source: Acta Juridica 2010, pp XIII –XXV (2010)More Less
This article provides a broad overview of the company law reform process. The contribution does not attempt to discuss substantive provisions of the Companies Act 71 of 2008. Instead, the author explains the process followed in the drafting of this groundbreaking piece of legislation. The article begins by setting out the underlying fundamental objectives which drove the process of reforming company law in South Africa. Then it discusses the structure established for the completion of the process, starting with the appointment of the Project Manager, the establishment of the working committees on broad company law areas to assist the process of preparing drafter's instructions, the establishment of the local and international reference teams to advise on policy and legislative consistency, the drafting and consultation processes, the introduction of the legislation into Parliament, the passing of the legislation by Parliament and the signing of the Act into law by the President. Finally, the article explains the process which still needs to unfold between the signing of the law by the President and the scheduled implementation later in 2010.
Author Tshepo Herbert MongaloSource: Acta Juridica 2010, pp XI –XII (2010)More Less
When the company law reform process was officially launched in early 2003, it might have been easy to dismiss as a far-fetched dream or fantasy the idea that South Africa would have a completely new statute by the end of 2008 to replace the Companies Act 61 of 1973, which had been the primary corporate legislation for thirty years. However, following a lengthy and arduous consultative process, the Parliament of the Republic of South Africa passed the new Companies Bill 61D of 2008 on 20 November 2008. The adoption by Parliament was followed by the signing of the statute into law by the then President, Kgalema Motlanthe, on 8 April 2009, after which it was gazetted on 9 April 2009, as the Companies Act 71 of 2008.
Keep it simple and set it free : the new ethos of corporate formation : corporate formation and corporate finance : part IAuthor Philip KnightSource: Acta Juridica 2010, pp 3 –42 (2010)More Less
The 2004 blueprint for corporate law reform promised South Africans a liberalised regime, in which simplicity and flexibility of corporate formation would be maximised, formality and administrative burdens would be minimised, and the categorisation and regulation of companies would be rationalised. The Companies Act 71 of 2008 advanced that promise, creating a framework regime for the simple, yet flexible formation, and the scalable development, of companies.
Transparency and accountability under the new company law : corporate formation and corporate finance : part IAuthor Caroline B. NcubeSource: Acta Juridica 2010, pp 43 –72 (2010)More Less
This paper discusses the two-tier transparency and accountability regime provided for by the Companies Act 71 of 2008 (the Act). It includes a detailed outline and an analysis of the relevant provisions hinged on JL Mashaw's six-facet enquiry into governance. The analysis also includes a comparison with the provisions of the King Code of Governance Principles for South Africa 2009 (King III Code). The paper finds that the Act retains many of the provisions of the Companies Act 61 of 1973 but omits references to public interest, closely held and widely-held companies as these types of company are not provided for in the Act. Further it makes substantive changes such as increasing the minimum audit committee membership from two to three; providing for audits in the public interest; an express statement of a company secretary's accountability to the board and the statutory statement of directors' duties accompanied by the provision for the business judgment rule. These changes serve various ends ranging from confirming the legal position with regard to company secretaries to better protecting society through requiring audits in the public interest and codifying directors' duties. The Act's provisions are largely mirrored by the King III Code although certain inconsistencies are evident, for example, with regard to the appointment of company secretaries. However, in such instances the Act prevails. Overall, the paper concludes that the Act's transparency and accountability provisions are both comprehensive and appropriate.
The registration of securities under the new Companies Act 71 of 2008 : corporate formation and corporate finance : part IAuthor Sigwadi MuthundinneSource: Acta Juridica 2010, pp 73 –86 (2010)More Less
This paper explores an area of company law dealing with the registration of securities. It compares the procedure and the requirements for registering securities in terms of the Companies Act of 1973, and the new Companies Act of 2008. It also highlights the differences between the provisions of these two Acts regarding registration of securities.
The paper further discusses how the rights of securities holders are protected in the new Companies Act of 2008 and highlights a new remedy protecting the rights of the holders of issued securities.
It concludes with a submission that most of the provisions in the new Companies Act of 2008 dealing with the registration of securities do not differ significantly from those provided by the current Companies Act of 1973. A submission is also made that, given the similarities between the two Acts, authoritative interpretations (including some cases) of relevant provisions of the Companies Act of 1973 may still apply and thus provide some guidance on how to better understand and apply the new Companies Act of 2008.
The reform of the law of uncertificated securities in South African company law : corporate formation and corporate finance : part IAuthor Maria VermaasSource: Acta Juridica 2010, pp 87 –116 (2010)More Less
The writer points out that the new Act no longer creates artificial preferences for a specific transfer and holding model of uncertificated securities, such as the subregister model of the old Act. It enables the Central Securities Depository (CSD) rules to spell out the specific settlement model to be used. The new Act therefore balances the competing interests of the users in a practical way. However, the actual reform in the market place remains in the hands of the players. The writer submits that this is the correct approach, since only detailed and technical consultation can ensure that South Africa will have up-to-date, competitive and reliable electronic systems. The market is presented with an important opportunity to carry out ground-breaking changes in our commercial environment that can benefit shareholders and the economy as a whole. The reform is facilitated in the Act and will, indeed, be central to South Africa's economy and prosperity.
Public offerings of company securities : a closer look at certain aspects of chapter 4 of the Companies Act 71 of 2008 : corporate formation and corporate finance : part IAuthor Jacqueline YeatsSource: Acta Juridica 2010, pp 117 –130 (2010)More Less
Chapter 4 of the Companies Act 71 of 2008 deals with public offerings of company securities and introduces fundamental changes to this area of company law. Section 99 places restrictions on offers to the public of the securities of a company and also prescribes certain requirements (most notably the issue of a prospectus) in this regard. The section draws new distinctions between the primary and secondary markets, as well as listed and unlisted securities. These distinctions provide legal clarity and certainty as to the relevant requirements, but are also aimed at supplying would-be investors with the information they require to make informed investment decisions without placing the offer or under an unreasonable or unnecessary administrative and financial burden. The fact that separate provision is made for offers pertaining to listed and unlisted securities should provide prospective investors with the requisite protection without unnecessary duplication or over regulation in terms of compliance with stock exchange and company law requirements. The drafting of the new section also provides clarity on legal problems which currently exist in relation to the definition of 'offers to the public' and 'employee share schemes'. Potential liability for untrue statements in a prospectus has been extended but largely decriminalised. Finally, the layout and structure of this section of the legislation as a whole has been simplified and the improved definitions and legal framework should provide improved and more certain guidelines in this area of law both for companies and the courts.
Author James J. Hanks, JRSource: Acta Juridica 2010, pp 131 –150 (2010)More Less
Mike Larkin was a sweet and gentle man. I knew him primarily as a teacher and considered him a friend. On my trips to South Africa during the period of Company Law Reform, he often asked me to teach a class or two in his courses at Wits or UCT, generally followed by dinner with others and hearty conversation. Unfailingly courteous and constitutionally respectful of others' views, he seemed more interested in what he could learn than what he could say. In the din of many voices, this grace sometimes obscured, although only briefly, a keen mind operating at a fine pitch. As the horror of his violent and far too early death recedes, we are left with the warm memories of a wonderful human being, whom all of his friends were honored to know. This essay is for Mike Larkin.
Author Farouk H.I. CassimSource: Acta Juridica 2010, pp 151 –164 (2010)More Less
Treasury shares are shares repurchased by a company which, instead of being cancelled on their re-acquisition, are held by the company until reissue or resale. The US Model Business Corporation Act (1979) has rendered treasury shares redundant by requiring re-acquired shares to be restored to the status of authorised but unissued shares or, in certain circumstances, to be cancelled and eliminated from authorised shares. The South African Companies Act 71 of 2008 follows the Australian, New Zealand and Canadian approaches in requiring re-acquired shares to be cancelled on their re-acquisition except where a subsidiary acquires shares in its holding company, which it may do up to a maximum of ten per cent in the aggregate of the issued shares of its holding company.Yet, recently, the distinct advantages of treasury shares have become more apparent, particularly in the flexibility which they afford to companies in managing their capital structure and in adjusting their ratio of debt and equity. Treasury shares also enable companies to reduce or avoid the cost of raising new capital and are also useful for employee share schemes. Treasury shares are currently permitted - in Singapore, Malaysia, the United Kingdom and the European Union. The experience of the United Kingdom demonstrates that complex legislation to curtail the potential abuse of treasury shares is unnecessary. All that is required in order to reap the much needed flexibility which treasury shares would inject into our developing economy are a few simple and surprisingly uncomplicated statutory provisions.
Financial assistance to directors - the Companies Act 71 of 2008 : corporate formation and corporate finance : part IAuthor Richard JoosteSource: Acta Juridica 2010, pp 165 –188 (2010)More Less
Transactions between a company and its directors, which benefit the company at the company's actual or potential expense, are to an extent regulated by ss 37, 226 and 297 of the current Companies Act 61 of 1973. These provisions are flawed and this article examines the corresponding (but by no means equivalent) provisions of the new Companies Act 71 of 2008, which is expected to be brought into force in 2010. The article seeks to show that the new provisions are also unsatisfactory. It reveals that the provisions are in certain respects too far-ranging and that, in others, treat directors too leniently. The article also exposes problems of interpretation which impact significantly on the effectiveness of the new provisions. The article demonstrates that the provisions need legislative attention.
Corporate governance, finance and growth : unravelling the relationship : corporate governance and mergers & takeovers : part llAuthor Simon DeakinSource: Acta Juridica 2010, pp 191 –218 (2010)More Less
Company law systems around the world have seen a considerable strengthening of shareholder rights in the past 15 years, with board structure and the regulation of takeover bids among the areas most affected by change. This shift reflects a widely held consensus to the effect that shareholder-orientated company law has an important role to play in stimulating financial development and improving managerial performance. This paper looks empirically at the evidence behind this assumption. The view that promoting independent boards and an active market for corporate control contributes to greater financial development and firm-level performance is seen to have little support at the empirical level. Analysis of newly constructed longitudinal data on changes in company law in a sample of 20 developed, developing and transition systems shows no correlation between the strengthening of shareholder rights since the mid-1990s and financial development indicators over the same period. While stock markets are a significant source of external finance for firms in a developing country context, there is evidence of their decreasing effectiveness in fulfilling this role in developed countries, particularly in those with shareholder-orientated company law and corporate governance systems. For developed and developing countries alike, reforms based on the promotion of independent boards and hostile takeover bids could well have been a distraction in the search for the right institutional mix.
South Africa moves to a global model of corporate governance but with important national variations : corporate governance and mergers & takeovers : part llAuthor John F. OlsonSource: Acta Juridica 2010, pp 219 –247 (2010)More Less
South Africa's path toward sustainable economic development requires a sound legal structure for governance of its businesses - a structure that complements and supports the continuing development of a diverse, equitable political system and respects South Africa's distinct social needs. With the Companies Act of 2008, South Africa has established a model of corporate regulation that can substantially improve its business climate while supporting essential broader economic and social aims. In this chapter, we compare the new Companies Act governance provisions to those in comparable statutes in the United States, the United Kingdom, and Germany. We also compare Companies Act rules to securities market listing standards, codes applicable to publicly traded companies, and other statements of corporate governance 'best practices', including those set out in the King Reports. The comparative analysis addresses protection of stakeholder rights; board duties, governance, and independence; appointment and removal of directors; director and management compensation; board supervision of management; and shareholder rights. Our analysis confirms that, in line with tested standards in other major economies and current international trends in corporate governance, the Companies Act sets out a modern, enabling model of regulation. In providing for flexibility and simplicity of company formation, transparency of governance, and effective exercise of shareholder rights, the Act creates a secure environment for entrepreneurship and investment. At the same time, it establishes standards of corporate responsibility distinctly appropriate to South Africa.
Governance under the Companies Act 71 of 2008 : flexibility is the keyword : corporate governance and mergers & takeovers : part llAuthor Michael M. KatzSource: Acta Juridica 2010, pp 248 –262 (2010)More Less
Professor Larkin was a friend and colleague for many years. In particular he assisted me for nearly two decades in the presentation of the Higher Diploma in Company Law course at Wits Law School, and his quiet and acute observations added immeasurably to the quality and challenges of the course. I miss him greatly and will continue to do so. It is my privilege to dedicate this article in recognition of a very special person.
A comparative analysis of directors' duty of care, skill and diligence in South Africa and in Australia : corporate governance and mergers & takeovers : part llAuthor Jean J. Du PlessisSource: Acta Juridica 2010, pp 263 –289 (2010)More Less
The South African and Australian law regarding directors' duty of care, skill and diligence were influenced considerably by English precedents of the late 1800s and early 1900s. Originally both jurisdictions adopted a conservative approach towards directors' duty of care, skill and diligence. This resulted in very low standards of care, skill and diligence expected of directors. In Australia, the standards of care and diligence expected of directors changed drastically with the case of Daniels v Anderson, where objective standards were used to determine a breach of directors' duty of care and diligence, and when objective standards of care and diligence were introduced in Australian corporations legislation. In this article it is submitted that if the opportunity arose for a South African court to consider whether a director is in breach of his or her common law duty of care, skill and diligence, the form of fault that will be required will be negligence as judged against the standards of a reasonable person. This means that in actual fact objective standards of care and diligence are expected of directors in South Africa. Although section 76(3) of the South African Companies Act 71 of 2008 does not introduce purely objective standards of care, skill and diligence, the section is defended in this article. It is pointed out that encouraging emerging entrepreneurs to become directors of South African companies provides justification for keeping subjective elements as part of the test to determine whether a director was in breach of his or her statutory duty of care, skill and diligence.
A comparative analysis of the derivative litigation proceedings under the Companies Act 61 of 1973 and the Companies Act 71 of 2008 : corporate governance and mergers & takeovers : part llAuthor Lindi CoetzeeSource: Acta Juridica 2010, pp 290 –305 (2010)More Less
Very little protection was afforded to the protection of minority rights in the common law of companies. The motivation for the lack of protection was that a company is a legal person that exists separate from its members. The proper plaintiff principle as mentioned in Foss v Harbottle provides that the company is the proper plaintiff that has to institute legal action where a wrong has been committed against the company. Both the common law and the Companies Act 61 of 1973 provided exceptions to the proper plaintiff rule. The common law provided for a common-law derivative action while section 266 of the Companies Act 61 of 1973 provided for a statutory derivative action. Derivative actions are provided for in section 165 of the Companies Act 71 of 2008. This article compares derivative action litigation proceedings under the 1973 Companies Act with the provisions in the new Companies Act 71 of 2008. The article analyses the unique nature of both the common-law and the statutory derivative actions. It draws a comparison between the statutory derivative action contained in section 266 of the Companies Act 61 of 1973 and section 165 of the Companies Act 71 of 2008.
A critical analysis of the new South African takeover laws as proposed under the Companies Act 71 of 2008 : corporate governance and mergers & takeovers : part llAuthor Nigel BoardmanSource: Acta Juridica 2010, pp 306 –336 (2010)More Less
This chapter analyses in detail the provisions of the Companies Act 71 of 2008 relating to business acquisitions, schemes of arrangement (insofar as they relate to takeovers) and takeover offers. In so doing, it compares the new provisions against, first, the pre-existing South African law, second, the comparable provisions in the United Kingdom, and third, where points of interest arise, the comparable provisions in the United States and Australia. The chapter highlights where such takeover laws diverge and explores the reason for such divergence, focusing on the interaction between two principal objectives of takeover law, the protection of stakeholders' interests and the enhancement of the market for corporate control, and suggests that divergence can largely be explained contextually by considering the particular markets and the particular composition and expectations of the market users. The chapter finds that the new South African provisions progress significantly from the pre-existing South African law, and that such progression has been effected by absorbing and adapting elements from the laws of the UK, in particular, but also, where appropriate, Australia and the United States. It notes that such absorption should improve efficiency and so encourage investment, as well as align South Africa's corporate takeover laws with other developed corporate law regimes. Finally, the chapter argues that adaptation, where material, largely derives from South Africa's particular social, political and economic context, its market and its market-users, and reflects the utmost importance of stakeholder protection, and in particular minority shareholder protection.
A microscopic analysis of the new merger and amalgamation provision in the Companies Act 71 of 2008 : corporate governance and mergers & takeovers : part llSource: Acta Juridica 2010, pp 337 –371 (2010)More Less
This article argues that the drafters of the Companies Act, 2008 largely succeeded in their stated objective of providing for 'equitable and efficient amalgamations, mergers and takeovers of companies'. The authors do, however, point out a few drafting idiosyncrasies and ambiguities which may require further judicial refinement in order for those provisions to be effective as intended. While retaining the basic structure of pre-existing South African takeover law, the new Act includes some new innovations in company law (largely drawn from foreign experience but tailored for the specific South African situation), which should enhance the objective of balancing the encouragement of economic activity and prudent risk-taking with appropriate protections for the interests of all company stakeholders. These new provisions include a new statutory merger procedure, an appraisal rights remedy for shareholders who dissent from corporate control transactions, and an 'early-warning' disclosure requirement for significant acquisitions of public company shares. This article concentrates in particular on the first two of these new additions - the merger procedure and the appraisal rights remedy - and conducts a detailed analysis of the relevant provisions of the new Act. Among other things, this article considers the extent to which the new statutory merger procedure is likely to become practitioners' M&A vehicle of choice, given its greater flexibility and versatility vis-à-vis the existing procedures available under the current Act. It also considers the safeguards which are provided for minority shareholders and creditors, which are more protective than in other jurisdictions and, in some cases, in the view of the authors, may undermine some of the benefits sought to be achieved by the new law.
A critical analysis of the business rescue regime in the Companies Act 71 of 2008 : business rescue : part IIIAuthor Jonathan RushworthSource: Acta Juridica 2010, pp 375 –408 (2010)More Less
The Companies Act introduces a new business rescue regime into South African law. The purpose is to facilitate the rescue and rehabilitation of a company in financial difficulty, and in certain other circumstances. The proceedings commence by resolution of the directors of the company or by application to court by a shareholder, a creditor or employees (or their representatives). The grounds for commencement are based on an insolvency test and there must be a reasonable prospect of the rescue proceedings succeeding. The court procedure may also be commenced on alternative grounds.