The DTIC has published a notice of intention to introduce two Companies Amendment Bills in Parliament. These Bills are expected to, among other things, provide for the disclosure of executive remuneration and extend the time bars applicable to applications for director delinquency and proceedings to recover loss due to director liability.
On 14 August 2023, the Department of Trade, Industry and Competition (DTIC) published a notice that the Minister of Trade, Industry and Competition intends to introduce the Companies First Amendment Bill, 2023 (Companies First Amendment Bill) and Companies Second Amendment Bill, 2023 (collectively, Companies Amendment Bills) in Parliament in August.
Copies of the Companies Amendment Bills did not accompany the notice.
Below is a brief highlight of the background to, and some of the proposed amendments expected in the Companies Amendment Bills, as stated in the explanatory summaries in the notice.
Companies First Amendment Bill
The notice of intention to introduce the Companies First Amendment Bill in Parliament follows on from publication by the DTIC of a draft Companies Amendment Bill (draft 2021 Bill) for public comment in October 2021. The draft 2021 Bill was, however, never introduced in Parliament. A snapshot of the key amendments proposed by the draft 2021 Bill is provided in an article about the
New Draft Companies Amendment Bill.
Some of the amendments proposed in the draft 2021 Bill are centred around filing copies of a company's securities register and register of disclosure of beneficial interests with the annual returns and a new definition of "true owner". According to the Companies First Amendment Bill's explanatory summary, given that the General Laws (Anti-money Laundering and Combating Terrorism Financing) Amendment Act, 2022 (GLA Act) effected similar amendments to the Companies Act, 2008, those amendments proposed by the draft 2021 Bill are no longer necessary. In addition, the explanatory summary draws attention to the Companies Amendment Regulations 2023, which it states reinforces the new provisions in the Companies Act dealing with beneficial interests in shares. The recent amendments to the Companies Act implemented by the GLA Act are explained in an article about the
Commencement of the General Laws Amendment Act.
Some of the expected amendments in the Companies First Amendment Bill are set to:
- cut unnecessary red tape, enhance regulatory efficiency, clarify administrative issues and tidy up drafting deficiencies;
- achieve better disclosure of senior executive remuneration and transparency on the pay gap and reasonableness of remuneration (in respect of certain companies);
- update the social and ethics committee provisions to deal with several policy areas; and
- make provision for greater disclosure of the ultimate owner of shares as part of the efforts to combat corruption and money laundering (it will be interesting to see what amendments will be proposed in this regard over and above those already implemented by the GLA Act).
The extent of the changes in the Companies First Amendment Bill from the draft 2021 Bill remains to be seen, given the extent of comments the DTIC received on the draft 2021 Bill, as well as the amendments effected by the GLA Act. The explanatory summary has stated that the comments received on the draft 2021 Bill were carefully considered.
Companies Second Amendment Bill
The notice of intention to introduce the Companies Second Amendment Bill in Parliament follows from a recommendation made by the Zondo Commission of Enquiry into State Capture. The recommendation was to extend the time bar in sections 162(2) and 162(3) of the Companies Act relating to applications to declare a director delinquent. While the recommendation by the Zondo Commission was in respect of two specific companies, the explanatory summary states that it is in the public interest that any amendments to extend the time bar in section 162 apply generally.
Time bar in section 162
Under the current sections 162(2) and 162(3), an application to declare a person delinquent or placed under probation may be brought if the person concerned is a director of the company or, within the 24 months immediately preceding the application, was a director of the company. According to the explanatory summary, the Companies Second Amendment Bill is expected to extend this to a period of 5 years and to empower the courts on good cause to extend that period in a specific case. It is expected that the amendment will apply retrospectively, in that the court will be empowered to extend the period even if the listed circumstance (to cause the director to be declared delinquent or under probation) was committed before the extension.
Time bar in section 77(7)
Additionally, and although not a recommendation of the Zondo Commission, the DTIC has also considered that section 77(7) should be amended. Section 77 of the Companies Act deals with the liability of directors and prescribed officers for breach of their duties. The current section 77(7) provides that proceedings to recover any loss for which a person may be held liable in terms of section 77 may not be commenced
more than 3 years from the act or omission that gave rise to the liability. The Second Companies Amendment Bill is expected to amend the section to empower the courts on good cause to extend the time period of three years.
The effects of the proposals to amend section 162 and section 77(7) are potentially far-reaching for directors. In the case of s162, a director could be declared delinquent even when they have not been a director in a particular company for a lengthy period of time. In the case of s77(7), a director could now remain "on the hook", even where an arguably reasonable period has lapsed before the launching of proceedings to recover loss if a court determines that the time period should be extended. The wording of the proposed amendments to the sections would need to be assessed to understand how significant the changes and their implications are.
While copies of the Companies Amendment Bills did not accompany the notice, we expect these to be published imminently.
We will continue to monitor these developments
This summary is not intended to, and does not, constitute legal advice, and may not be relied upon. For further information or tailored advice, please contact Madelein van der Walt or your usual Webber Wentzel contact.