On 14 August 2023, the Minister of Trade, Industry and Competition of South Africa (“Minister”) published in Government Gazette No. 49116 (“Gazette”), an announcement that it plans to imminently introduce proposed amendments to the Companies Act 71 of 2008 (“Companies Act”) in Parliament.
The Gazette states that the Minister intends to introduce the Companies First Amendment Bill 2023 and the Companies Second Amendment Bill 2023 during August 2023 to Parliament.
Explanatory summaries of the proposed Amendment Bills are set out in the Gazette.
A snapshot of the explanatory summary of the Companies First Amendment Bill 2023
The explanatory summary in the Gazette states that the Companies First Amendment Bill 2023 seeks to achieve the following 3 key policy objectives or pillars:
- ensure “the ease of doing business and cutting unnecessary red tape” to promote (amongst others) foreign investors and efficient and effective conduct of the domestic economy and the creation of jobs in South Africa;
- achieve equity as between directors and senior management on the one hand, and shareholders and workers on the other hand as well as addressing public concerns regarding high levels of inequalities in society; and
- provide greater disclosure of the ultimate owner of securities, as part of the broader efforts to combat corruption and money-laundering.
The Companies First Amendment Bill 2023 will propose amendments to the Companies Act to achieve the aforesaid 3 policy objectives.
The 3 policy objectives are not new. Proposed amendments to the Companies Act were first published for public comment on 21 September 2018. On 1 October 2021, a new draft of the Companies Amendment Bill, 2021 (“2021 Bill”) was published for public comment. Notably, during the time in which comments on the 2021 Bill were being received and considered by the Department of Trade, Industry and Competition, the General Laws Amendment Act No 22 of 2022 was enacted, resulting in amendments to the Companies Act related to beneficial interests in securities and the concept of “true owner” being affected. Accordingly, certain of the proposed amendments initially contemplated in the 2021 Bill have become unnecessary.
A snapshot of the explanatory summary of the Companies Second Amendment Bill 2023
The explanatory summary in the Gazette states that the proposed Companies Second Amendment Bill seeks to, inter alia:
- Extend the current 24-month time bar provision contained in sections 162(2) and 162(3) of the Companies Act of relating to delinquency directors to a period of 5 years:
- The proposal if accepted would mean that (amongst others) a company, a shareholder, director, company secretary, prescribed officer of a company, the Commission or the Panel, would be able to apply to a court for an order declaring a person delinquent or under probation if (i) the person is a director of that company; or (ii) the person was a director of the company within the 5 years immediately preceding the application.
- Empower the Courts to extend the proposed 5-year time bar on good cause shown:
- It is mooted that in certain circumstances a time bar of 5 years may not be sufficient. Accordingly, Courts should be empowered on good cause shown to extend that time period in a specific case, taking into account the interests of justice and fairness.
- Further, it is stated that the proposed amendments to empower the Courts to extend the time bar provisions on good cause shown in terms of sections 162(2) and 162(3), should apply retrospectively.
- Extend the 3-year time bar provisions contained in section 77(7) of the Companies Act relating to the liability of directors and prescribed officers for breaching their fiduciary duties and duties of care, skill and diligence as well as certain statutory duties.
- Currently, section 77(7) of the Companies Act provides that the commencement of proceedings to recover any loss, damages or costs for which a person is or may be held liable in terms of section 77 of the Companies Act may not be commenced more than three years after the act or omission that give rise to that liability. It is now being proposed that a Court should now be empowered, on good cause shown, to extend the time bar of three years, to cover acts or omissions that occurred during the period before the extension.
The proposals mooted in the Companies Second Amendment Bill 2023 is consequent upon recommendations made during the Zondo Commission of Enquiry into State Capture, to amend the Companies Act, to extend the time bar which is contained in sections 162(2) and 162(3) of the Companies Act. The recommendations were made in light of the fact that directors of the various captured state entities could not be held accountable due to the limited time bar provisions.
Some key takeaways
- Companies, directors and prescribed officers should assess the impact of the proposals to be mooted in the Companies First Amendment Bill 2023 on, inter alia, their personal liability and fiduciary duties;
- Directors should actively monitor the proposed extension of the time bar provisions, and consider the increased accountability and risks which they may be exposed to should the proposed amendments be implemented; and
- Insurers similarly should monitor the proposed extension of the time bar provisions and consider the impact on existing D&O insurance cover should the proposed amendments be implemented.
Copies of the draft Amendment Bills have not yet been released for public comment. However further information can be obtained from the Department of Trade, Industry and Competition via email: firstname.lastname@example.org.
For more information on the proposed amendments, the potential increased liability for directors and practical implications of the proposed amendments for companies and directors, please reach out to Clyde & Co’s Corporate and Regulatory team.
To access the Gazette, click here.