Guide to directors:companies act 71 of 2008

2011

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EXECUTIVESUMMARY....................................................................................1. AIMSOFTHECOMPANIESACT71OF2008............................................................2. THECHANGINGROLEOFTHEDIRECTOR.............................................................3. FUNDAMENTALCONCEPTS........................................................................ 3.1 CategoriesofCompanies....................................................................... 3.2 Privateversuspubliccompanyrequirements...........................................................4. THEMEMORANDUMOFINCORPORATION.......................................................................5. COMPANYFORMATIONUNDERTHEACT.......................................................................6. EXISTINGCOMPANIESANDCLOSECORPORATIONS.................................................................7. ACCOUNTABILITYANDTRANSPARENCY.......................................................................8. CAPITALISATIONOFPROFITCOMPANIES.......................................................................9. THESOLVENCYANDLIQUIDITYTEST.......................................................................10. BUSINESSRESCUE...................................................................................11. DISSENTINGSHAREHOLDERAPPRAISALRIGHTS....................................................................12. DIRECTORSANDTHECOMPANYSECRETARY....................................................................... 12.1 Currentdirectorsanddirectorappointment.................................................................. 12.2 Thecompanysecretary.................................................................................. 12.3 Disqualificationandterminationofdirectorships......................................................... 12.4 Removalofdirectors........................................................................... 12.5 Numberofdirectors.......................................................................13. GUIDELINESFORDUTIESOFDIRECTORS....................................................................... 13.1 Fiduciarydutiesofdirectors....................................................................... 13.2 Thefiduciarydutiesandstandardsofdirectorsconduct.............................................. 13.3 Materialinterestincontracts....................................................................... 13.4 Protectionofdirectors....................................................................... 13.5 Liabilityagainstclaimsbymembers/shareholdersandcreditors........................................14. REMUNERATIONOFDIRECTORS.......................................................................15. LOANSTODIRECTORS....................................................................... 15.1 Loans............................................................................... 15.2 Issuingsharestodirectors....................................................................... 15.3 Tradingininsolventcircumstances..................................................................... 15.4 Penalties,liabilitiesandnewdefence.............................................................16. BOARDCOMMITTEESANDBOARDMEETINGS................................................................. 16.1 Boardcommittees....................................................................... 16.2 Boardmeetings.......................................................................17. AUDITANDACCOUNTS....................................................................... 17.1 Financialstatementsandaccountingrecords.........................................................18. THEINTERNALAUDITFUNCTIONANDAUDITCOMMITTEES..................................................... 18.1 Internalaudit....................................................................... 18.2 Auditcommittees....................................................................... 18.3 Notablechangestothemake-upoftheAuditcommitteeundertheAct................................19. SHAREHOLDERSMEETINGSANDAGMs................................................................. 19.1 Shareholdersmeetings....................................................................... 19.2 Annualgeneralmeetings.............................................................................20. DIVIDENDS..........................................................................................21. MERGERS,FUNDAMENTALTRANSACTIONS,SCHEMEOFARRANGEMENTS, TAKEOVERSANDSHAREPURCHASES.......................................................................22. REGULATORYAGENCIES...........................................................................23. CONCLUSION.........................................................................................

12222344455677778899999

10101112121213131313131314141515151616161717

171919

Although great care and effort has been taken in the preparation of this guide, we cannot accept responsibility for any inaccuracies. This guide is not a substitute for reading the Act and its detailed requirements nor intended to substitute for competent opinion relating to specific sections of these Acts and serves only as a broad overview. This publication should be used as a guide only.

pLease note

contents

2011

GuIde TO dIrecTOrS, executive manaGementand prescriBed officers:companies act 71 of 2008

1ThenewCompaniesActwassignedbythePresidentonthe8thApril2009andgazettedin(GazetteNo.32121(NoticeNo.421)).

ThisActiscalledtheCompaniesAct,Actno.71of2008.TheActcameintooperationon1May2011.

TheRegulationsandTransitionalProvisionsstipulatedbytheMinisterwillhaveasignificantimpactontheapplicationoftheCompaniesActandreadersneedtotakeheedofwhathasbeenpublishedaswellasguidancethatisstillcoming,treadingcarefullyinanalysisoftheActuntiltheRegulationsareassimilated.

TheMinisterhasmadethefollowingregulations:

establishaCounciltobeknownastheFinancialReportingStandardsCouncil(FRSC)

selectandappointcandidatesformembershipof theFRSC establishtheTakeoverRegulationPanel provideforthetransitionalstatusandconversionofnominal

orparvalueshares,treasurysharesandcapitalaccountstonoparvalueshares.

TheMinisterisalsoempoweredtoissueregulationsprescribingthefollowing:

financialreportingstandards requirementsfordifferentcompaniesprescribingthe

privatecompaniesthathavetohavetheirannualfinancialstatementsaudited

manner,formandproceduresfortheconductofanindependentreview

theprofessionalqualificationsofthepeoplewhocanconducttheindependentreview

categoriesofcompaniesthathavetohaveasocialandethicscommittee

minimumqualificationrequirementsformembersofauditcommittees

designatingonepersonorassociationtoregulatethepracticeofpersonsasBusinessRescuePractitioners

BusinessRescuePractitionerqualifications,remunerationandprocedurestobefollowed

designateanyorganofstateorotherentitytodealwithconciliation,mediationandarbitrationrequiretheFRSCtobeamemberofarelevantinternationalaccountingstandardssettingorganisation.

TheActisamajorre-writeofthelongstandingCompaniesAct61of1973(asamended)andtheCorporateLawsAmendmentAct;itsimpactwillbefar-reachingandsubstantial.

TheActincertainrespectslegislatescorporategovernanceandexpandstheresponsibilitiesandaccountabilitiesofdirectors.Itincorporatesmanyofthedutieswhichwerepreviouslyconsideredtobecommonlawfiduciaryduties.TheActalsoregulatesinanovelwayfundamentaltransactionsbywhichmergersandtakeoversareeffected,andtheincreasedpowersandresponsibilitiesdirectorshaveinrelationthereto,aswellastheshareholderapprovalprocess.

TheAct,forthefirsttime,attemptstocodifythegeneraldutiesofdirectors.Thistakesintoaccountconflictsofinterestaswellasinformationthatcomestoadirectorsattentionthatneedstobecommunicatedattheearliestpracticableopportunity.Whilethisisawelcomedevelopment,itmustberememberedthatthisneedstobecoupledtotheexistingapplicationofcommonlaw.

Directorsneedtotreadcarefullytoavoidbecomingliableforlossessufferedbythecompanythroughtheiractionsorfailuretoact.

TheActintroducesthebusinessjudgmentrulewhichwillprotectadirectorfromallegationsofbreachofthedutiesofcare,skill,diligenceandthedutytoactinthebestinterestsofthecompany.

TheActalsoprovidesenhancedrightstodissentingshareholders.

WhentheActisadopted,allthestatutoryandgovernancedocumentsofthecompanywillneedtobereviewedandupdatedtotakeeffectofthechangesenacted.

WhereonemaybeuncertainastowhethertofollowtheActorotherlegislation,bothshouldapplytogetherwherepossible.ShouldtherebeuncertaintyovertheActandthefollowinglegislation,thefollowingtakesprecedence:

BanksAct,1990 PublicFinanceManagementAct,1999 LabourRelationsAct,1995 AuditingProfessionAct,2006 PromotionofAccesstoInformationAct,2000 PromotionofAdministrativeJusticeAct,2000 SecuritiesServicesAct,2004

executive summarY

21. AImS OF The cOmPAnIeS act 71 of 2008

IncreatingthenewAct,governmentstateditsintentionwasto,withinpredictableregulation,simplifytheexistingregime;increaseflexibility;ensurecorporateefficiency;andprovidetransparencyandaccountability.Itwilltaketimetodeterminewhethertheseobjectiveshavebeenmet.Thisisbecause,althoughtheActisinmanyrespectssimplyarestatementofthepreviousAct,therearemanyimportantdifferencesbetweenthisActandthepreviousAct.Someofthesechangesaremoresubtlethanothersand,inmanycases,wewillhavetowaittoseehowthecourtsinterpretandapplythesesectionsinordertodeterminetheirtruemeaningandeffect.

2. The chAnGInG rOle OF The dIrecTOrThecommonlawhasalwaysrequiredadirectortoactinlinewiththeirfiduciarydutiesofduecareanddiligenceandtoactingoodfaith.However,severalfactorsoverthepastdecadehaveresultedinthepotentialrisksofholdingtheofficeofdirectorbeingnumerousandtheresponsibilitiesfarmoreonerousthaneverbefore.Itisnolongerviewedasatitleandpositionwithprestige,extraincomeandrelativelyfewduties.Todaysdirectorfacesdauntingduties,responsibilities,powersandpotentialliabilitieswhichareimposedbyvariouscodesandlegislation.

Examplesoftheincreasinglevelofresponsibilityandpotentialliabilityimposedbylegislationcanbefoundin:

theVATActwhichstatesthatpersonalliabilitycanbeimposedupondirectorswhoareregularlyinvolvedinthefinancialaffairsofthecompany,forVATpenaltiesandinterestpayablebythecompany;

theNationalEnvironmentalManagementActwhichdeterminesthatunlessadirectorcanshowthathetookallreasonablestepstopreventtheharm,adirectorcanbefoundguiltyofthesameoffenceasthecompanyintheeventofpollutionordegradationoftheenvironment;and

otherstatuteswhichrelatetotaxation,theenvironment,labourrelations,industrialrelationsandcompetitionlaw.

TheKingCodeofCorporateGovernanceII(KingII),inMarch2002,representedasignificantshiftinthegovernancerequirementsofSouthAfricanenterprises.TherequirementsofKingIII,whichbecameapplicableinMarch2010,arenolessonerous.ManycorporategovernanceaspectsenunciatedinKingIIhavenowbeenlegislatedinthe2008Act.

ThisshiftisequallyapparentintheAct,whichclearlysetsoutthestandardofconductrequiredofadirectorandthethresholdandextentofliabilityfornotmeetingthatstandard.Sufficetosayfor

currentpurposes(astheseprovisionswillbediscussedatlengthlaterinthispublication),the2008ActsetsthethresholdforliabilitylowincomparisonwiththepreviousActandthepossibleextentofliabilityismuchgreater.

It is therefore imperative that directors are familiar with their responsibilities in terms of the Act as well as all other applicable legislation and codes.

3. FundAmenTAl cOncePTS3.1. Categories of Companies

Theconceptsofwidelyheldandlimitedinterestcompanies,imposedbytheCorporateLawsAmendmentActof2006,havebeendiscarded.Allcompaniesnowfallintooneoftwobroadcategoriesprofitcompaniesandnon-profitcompanies.

Theprovisionsconcerningnon-profitcompaniesareset-outinSchedule1oftheAct.ItistheeffectivereplacementofSection21ofthepreviousAct.Intermsofitem1(1)ofthefirstSchedule,anon-profitcompanymusthaveanobjecttofurthersomepublicbenefitorrelatingtooneormoreculturalorsocialactivities,orcommunalorgroupactivities.

Anon-profitcompanymustbeincorporatedbythreeormorepersons.ThereisnorequirementforaminimumnumberofmembersunlessprovidedforintheMemorandumofIncorporation.

Intermsofitem1(2),alltheincomeandassetsofnon-profitcompaniesmustbeutilisedforthedeterminedobjectand,intermsofitem1(3),noincomeorassetsofthecompanymaybetransferredtoitsdirectors,members,officersorincorporators.Thesepartiesare,however,entitledtoreasonableremunerationfortheirservices.

Section1oftheActdefinesaprofitcompanyasacompanyincorporatedforthepurposeoffinancialgainforitsshareholders.Thismaybeincorporatedbyoneperson.

3Guide to directors

ThefollowingtypesofprofitcompaniesarepromotedinthenewAct:

i. The state-owned company(tobereflectedasSOCLTD)definedinSection1asanenterprisethatisregisteredintermsoftheActasacompany,andeitherfallswithinthemeaningofstate-ownedenterpriseintermsofthePublicFinanceManagementActof1999,orisownedbyamunicipality,ascontemplatedintheLocalGovernment:MunicipalSystemsAct.ThemajorityoftheprovisionsoftheActwhichappliestoaPubliccompanywillapplytoastate-ownedcompanyunlessspecificallyexemptedbytheMinister.Thereisnorequirementforaminimumnumberofmembers.

ii. The private company(tobereflectedasProprietaryLimitedorPtyLtd)almostidenticaltoitspredecessorinthepreviousActwithonekeydifference.TheActnolongerlimitssuchcompaniesto50members.TheActdefinessuchcompaniesasprofitcompanieswhicharenotapubliccompanyorapersonalliabilityorstate-ownedcompany;and,intermsofitsMemorandumofIncorporation,prohibitsofferinganyofitssecuritiestothepublicandrestrictsthetransferabilityofitsshares.

iii. The personal liability company(tobereflectedasIncorporatedorInc)acompanywhoseMemorandumofIncorporationstatesthatthecompanyisapersonalliabilitycompany,andmeetsthecriteriaforaprivatecompany.Thedirectorsandpastdirectorsofsuchcompaniesarejointlyandseverallyliable,togetherwiththecompany,foranydebtsandliabilitiescontractedduringtheirperiodofoffice.Theminimumnumberofdirectorsofapersonalliabilitycompanyisone.

iv. The public company(tobereflectedasLimitedorLtd)

verysimilartoitspredecessorinthepreviousAct.Theminimumnumberofmembershasbeenchangedfromseven(inthepreviousAct)tooneinthisAct.ItisdefinedinthisActasaprofitcompanythatisnotastate-ownedcompany,aprivatecompanyorapersonalliabilitycompany.

v. The foreign company and external company: aforeigncompanyisdefinedinSection1oftheActasanentityincorporatedoutsidetheRepublic,irrespectiveofwhetheritisforprofitornotforprofit,orwhetheritcarriesonbusinessornon-profitactivitieswithintheRepublic.AforeigncompanyisprohibitedfromofferingsecuritiestothepublicunlessitfollowsthespecificprovisionsrelatingtoofferstothepublicintheAct.Anexternalcompanyisaforeigncompanywhichcarriesonbusinessornon-profitactivitieswithintheRepublic.Section23oftheActlistsaseriesofactivitieswhichconstitutecarryingonbusiness.

All foreign companies that wish to carry on business in South Africa will have to register as external companies.

3.2. Private versus public company requirements

Thefollowingrequirementsneedtobemetforprivateandpubliccompanies:

Public Companies Private CompaniesTheMemorandumofIncorporationmustrestrictthetransferabilityofitssecuritiesandprohibitanofferofsecuritiestothepublic(Section8)

Aminimumof3directors(Section66)

Aminimumof1director(Section 66)

Mustgive15businessdaysnoticeforshareholdermeetings(Section62(1))

Mustgive10businessdaysnoticebeforeshareholdermeetings(Section62(1))

ExtratransparencyandaccountabilityrequirementsasdescribedinChapter3.

NotallprivatecompaniesmustadheretoChapter3sadditionalrequirements

Musthaveamechanismforelectronicparticipationatshareholdermeetings(Section 61(10))

Shareholdershaverightofpreemptionregardingtheissueofnewsecurities(unlessexcludedbyMOI)(Section39)

MustholdAGMs(Section61(7)) PrivatecompaniesneednotholdAGMs

MustlodgeannualfinancialstatementswiththeCommission(Section33)

Inthecasethataprivatecompanysannualfinancialstatementsmustbeaudited,itmustalsolodgeitwiththeCommission

Nomineeshareholdersmustdisclosethebeneficialholdersofthesecurities(Section56)

Apubliccompanyisrequiredtoimplementareportingprocessforwhistleblowers(Section 159(7))

Thenewtake-overregulationsapplytoeverypubliccompany

Takeoverregulationswillonlyapplytocertainprivatecompanies

ThenewCompaniesActrequirescompaniesandclosecorporationstocalculatetheirPublicInterestScores(PIS)andinterprettheregulations.ThenewActtreatscompaniesandclosecorporationsthesameasfarastheauditandreviewrequirementsapply.ThePIScalculation,interalia,determineswhatreporttheseentitiesneedinfuture,unlesstheyholdassetsinafiduciarycapacitywithanaggregatevalueexceedingR5millionineachfinancialyear,inwhichcaseanauditisneeded.

4Everycompanymustcalculateitspublicinterestscoreforeachfinancialyear,calculatedasthesumofthefollowing:

Anumberofpointsequaltotheaveragenumberofemployeesofthecompanyduringthefinancialyear;

OnepointforeveryR1million(orportion)inthirdpartyliabilityofthecompanyatthefinancialyear-end;

OnepointforeveryR1million(orportion)inturnoverduringthefinancialyear,and

Onepointforeveryindividualwho,attheendoftheyear,isknownbythecompany:- inthecaseofaprofitcompany,todirectlyorindirectlyhaveabeneficialinterestinanyofthecompanysissuedsecurities,or

- inthecaseofanon-profitcompany,tobeamemberofthecompany,oramemberofanassociationthatisamemberofthecompany.

4. The memOrAndum of incorporation

TheActdefinestheMemorandumofIncorporation(MOI)asthedocument,asamendedfromtimetotime,thatsetsoutrights,dutiesandresponsibilitiesofshareholders,directorsandotherswithinandinrelationtoacompany,andothermattersascontemplatedinSection15;andbywhichthecompanywasincorporated;orapre-existingcompanywasstructuredandgovernedbeforethelateroftheeffectivedate;orthedateitwasconvertedtoacompanyintermsofSchedule2.

TheMOIhasreplacedtheArticlesofAssociationandMemorandumofAssociationcalledforinthepreviousAct.TheMOIisaflexibledocumentandcandealwithanymatterthattheActdoesnotaddressandmayaltertheeffectofanyprovisionintheActwhichisanalterableprovision.UnlessthecompanysMOIprovidesotherwise,andprovideditisin-linewiththeprovisionsoftheAct,acompanysboardofdirectorswillbeabletomake,amendorrepealanyrulesnecessaryorincidentaltothegovernanceofthecompany.

TheActstillprovidesthatshareholdersmayconcludeshareholdersagreements.However,suchagreementsmustbeinlinewiththeActandtheMOI.Itisthereforeadvisablethatpartiesreconsidercurrentshareholdersagreementsastheymayneedtobeamended.InadditiontotheMOI,unlesstheMOIprovidesotherwise,theboardmayformulaterulesthatarenecessaryorincidentaltothegovernanceofthecompany.Anyrulesformulatedbytheboardwillbeeffectiveonaninterimbasisuntilvotedonbytheshareholdersatthenextgeneralshareholdersmeeting.

Ifsuchrulesareratifiedatsuchgeneralshareholdersmeeting,theruleswillremainbindingandhavethesameeffectasifincorporatedintheMOI.Naturally,therulesmustnotbeinconsistentwiththeActandtheMOI.

ThetransitionalprovisionsinthisActprovidethattheMemorandumandArticlesofAssociationofanexistingcompanywillcontinuetobeeffectivefortwoyears,evenifthereisaconflictbetweentheArticlesandtheAct.TheexistingArticlescancontinuetobeeffectivebeyondtwoyearsifthereisnoconflictbetweentheArticlesandtheAct.

JSElistedcompaniesshouldtakenotethattheJSEhavehoweverlimitedsomeoftheflexibilityprovidedforintheAct;forexample,noJSElistedcompanymayallowforrulestobemadebythedirectors(analterableconditionintheAct).Inaddition,anythingrequiredbytheJSElistingrequirementstobecontainedinalistedcompanysMOIwouldbeapplicablefrom1May2011,despitetheMOInotyethavingbeenharmonisedwiththeAct,thusnegatingsomeofthebenefitsofthetwoyeargraceperiod.

5. cOmPAny FOrmATIOn under The AcTMinimalrequirementshavebeenimposedfortheincorporationofacompany.AcompanybecomesincorporatedbytheadoptionoftheMOI,filingaNoticeofIncorporationwiththeCommissionandthepaymentofafee.

Forexistingcompanies,theMemorandumandArticlesofAssociationwillconstituteitsMOI.TheActcontainsdetailedprovisionswhichapplytotheseexistingcompanies.Section4(4)(a)oftheActoutlinescertainareaswhereacompanysmemorandumandarticlesofassociationwillbeoperableintermsofthenewActforthenexttwoyears.However,attheendofthattwoyearperiod,suchcompanieswillbeequallysubjecttothenewAct.

6. exISTInG cOmPAnIeS And cLose corporations

Item2ofSchedule5oftheActstatesthatexistingcompaniesincorporatedorregisteredintermsoftheActorrecognisedasanexistingcompanyintermsofthepreviousActcontinuetoexistasiftheyhadbeenincorporatedintermsofthenewAct,withthesameregistrationnumberpreviouslyassigned.Thisissubjecttoitem4ofSchedule5whichplacescertainadditionaldeemingprovisionsoncompaniesincorporatedintermsofSection21and53(b)ofthepreviousAct,limitedguaranteecompaniesandcompanieswhichfallwithinthedefinitionofstate-ownedcompanies.

Closecorporations(CCs)alreadyregisteredmaycontinuetoexist;however,sincethenewActhasbecomeapplicable,itwillnolongerbepossibletoregisternewCCs.ExistingCCscanconvertintocompaniesbyfollowingarelativelysimpleprocedure.CompaniescannotbeconvertedintoclosecorporationsaftertheeffectivedateoftheAct(1May2011).

5AclosecorporationmayberequiredtobeauditedifitfallswithinthecategoryofregulationspassedbytheMinisterstipulatingtheentitiesrequiringanaudit(refer3above).

7. AccOunTAbIlITy and transparencY

TheidealsofaccountabilityandtransparencyemanatefromtheConstitution.TheActseekstopromotetheseideals.Chapter2PartCoftheActistitledTransparency,accountabilityandintegrityofcompanies.Hence,allcompanieswillberequiredto:

havearegisteredoffice(Section23); maintaincertainrecordsforsevenyears(Section24); haveafixedfinancialyear(Section27); maintainaccurateandcompleteaccountingrecords

(Section28); prepareannualfinancialstatements(Section30),and fileanannualreturn(Section33).Thisiscertainlynotaclosedlistofrequirements.Severaloftheaboverequirementsandseveralfurtherrequirementsarediscussedindetailbelow.

Allcompaniesarerequiredtoprepareannualfinancialstatementswhichsatisfythefinancialreportingstandards.

Theannualfinancialstatementsofpubliccompanieswillcontinuetorequireanexternal,independentaudit,asisthecasepresently.

Othercompanies:

willbesubjecttobeauditedifitfallsintoacategoryprescribedbytheMinister,takingintoaccountwhetheritisdesirableinthepublicinterest,havingregardtotheeconomicorsocialsignificanceofthecompany,asindicatedby:-itsannualturnover-thesizeofitsworkforce-thenatureandextentofitsactivities;or

maybeauditedvoluntarilyattheoptionofthecompany;or mustbeindependentlyreviewed,ifitisnotaudited.

Privatecompanieswhichhaveonlyonebeneficialshareholder,orwhereallthedirectorsarealsothebeneficialshareholders,arenotrequiredtohaveanauditorindependentreviewincertainsituations.ThesecompanieswillstillrequireanauditiftheirPISisabove350,orbetween100and350withinternallycompiledfinancialstatements(Section30(2A)).

InadditiontoRegulationsrelatingtothecategoriesofprivatecompaniesthatrequireanaudit,theMinistermaymakeregulationsprescribingthemanner,formandproceduresfortheconductofanindependentreview,otherthananaudit.

TheMinisterhasalsomaderegulationsprescribingtheprofessionalqualificationsofpersonswhomayconductsuchreviews.

Section30doesnotspecificallyrequireastate-ownedcompanytobeaudited,butSection90expresslyrequiresthatastate-ownedcompanymustappointanauditor.

8. cAPITAlISATIOn OF profit companies

Sharescurrentlyinexistencewillnolongerhaveaparornominalvalue.Regulationshavebeenpassedtoprovideforthetransitionofexistingparvaluesharestonoparvalueshares.ThisdoesnotapplytoabankasdefinedintheBanksActof1993,untiladatedeclaredbytheMinister.

TheMOIwillincludethenumberofauthorisedshares,theclassofsuchsharesandtherightsandtermsassociatedwiththeauthorisedshares.Thecompanymayalsohaveaclasscategorisedasunclassifiedsharesanddirectorsmaydeterminetherightsandtermswhichwillpertaintotheseunclassifiedshares.

Shareholderapproval(bywayofaSpecialResolution)willberequiredfortheissueofshares,convertiblesecuritiesorshareoptionstodirectors(andotherpersonsthatarerelatedtothecompanyortoanydirector)orifthereisanissueofsharesorconvertiblesecuritieswithvotingpowersexceeding30%.

Thedirectorsmayonlyissuesharesforadequateconsideration.Thetermadequateconsiderationhasnotbeendefined.Thiscouldincludesharesthatmaybeissuedatadiscount.Ifitsubsequentlytranspiresthatshareswerenotissuedforadequateconsideration,thisdiscoverywillnotinvalidatetheissueoftheshares.However,itmayresultinthecompanyhavingaclaimagainstthedirectorsforabreachoftheirdutiesassetoutintheAct.

Sharescanbeissuedforaconsiderationoffutureservices,futurebenefitsorfuturepayment.

Thedirectorshavethepower,unlessalteredorlimitedbytheMOI,to:

increaseordecreasethenumberofauthorisedsharesofanyclass;

reclassifyanyauthorisedbutunissuedclassifiedshares; classifysharesthatareauthorisedbutareunclassifiedand

unissued,and determinethepreferences,rights,limitationsandotherterms

ofunclassifiedshareswhichhavebeenauthorisedbut notissued.

Guide to directors

69. The SOlvency And LiquiditY test

Solvencyreferstowhetheranentitysassetsfairlyvaluedequalorexceeditsliabilitiesfairlyvalued.Liquidityreferstoanentitysabilitytopayitsdebtsastheyfalldueintheordinarycourseofbusinessforaperiodoftwelvemonthsthereafter.Section4oftheActsetsoutthefactorsthatmustbetakenintoaccountinperformingthesetests.Inordertosatisfythesetests,itmustbedeterminedthatthecompanywillbesolventandliquidafterthecontemplatedactionistaken.Thesetestsmustbeappliedandsatisfiedbefore:

Providingfinancialassistance(Section44);- Therearerestrictionsonacompanyprovidingfinancial

assistanceforthesubscriptionorpurchaseofitsownsharesorsharesinarelatedorinter-relatedcompany.TheActwilleffectivelyapplytofinancialassistancegiveninrelationtosharesofthecompanyoranyothercompanywithinthegroupofcompaniesofwhichthecompanyformspart.

- Thedirectorsmayauthorisetheprovisionoffinancialassistanceifimmediatelyaftertheprovisionofthefinancialassistance,thecompanymeetsthesolvencyandliquiditytestsandthefinancialassistancehasbeenapprovedbyaspecialresolutionpassedwithintheprevioustwoyears.

- Inaddition,thedirectorsmustbesatisfiedthatthefinancialassistanceisfairandreasonabletothecompanyandanyrequirementscontainedintheMOIhavebeencompliedwith.AspecialresolutionwillnotberequiredifthefinancialassistancehasbeengivenpursuanttoanEmployeeShareScheme(whichmeetstherequirementsoftheAct).

Providingloansorfinancialassistancetodirectorsandinter-grouploansingroupsituations(Section45);- Financialassistanceprovidedmustbepursuanttoan

employeesharescheme;or;- Shareholdersmusthaveapprovedsuchfinancial

assistancebyspecialresolution(withinthepasttwoyears),and thecompanysboardofdirectorsmustbesatisfied

thatafterthetransaction,thecompanywillremainliquidandsolvent;

thecompanysboardofdirectorsmustbesatisfiedthatthetermsunderwhichthefinancialassistanceisproposedtobegivenarefairandreasonabletothecompanyandanyrequirementscontainedintheMOIhavebeencompliedwith,and

theboardtoinformallshareholdersandtradeunionsrepresentingemployeeswheneveritdecidedtoprovidefinancialassistance(timelinesinwhichnotificationmustoccur,dependsonthequantumoftheassistance).

Providingdistributions(includingdividends)toshareholders(Section46);- Alldistributionstoshareholdersrequireboardapproval

andneedtosatisfythesolvencyandliquiditytests.Distributionsareunfortunatelyextremelywidelydefinedandincludedividendsandsharebuy-backs.

- Thereneedstobe: resolutionbytheboard, solvencyandliquiditytests, resolutiontoapprovesharebuybackmust

specificallyacknowledgeapplicationandcompliancewiththesolvencyandliquiditytests,

subsidiariesmaynotownmorethan10%inaggregateofthesharesofthe(holding)company,

subsidiariesmaynotexerciseanyvotingrightsattachedtosharesintheholdingcompany

Offeringcashinplaceofcapitalisationshares(Section47); Sharebuybacks(Section48);

- Acompanymayrepurchaseitsownshares(asharebuy-back)providedthatthecompanymeetsthesolvencyandliquiditytests.Asharebuy-backmaybeauthorisedbytheboard,inmostinstances,withouttheneedforshareholderapproval.ThisisdifferenttothepreviousActwhichrequiredaspecialresolutionforasharebuy-back.

- Asubsidiarycompanycanbuysharesinitsholdingcompany(asharebuy-in)providedthatthenumberofsharesheldbyallitssubsidiariescollectivelyintheholdingcompanydoesnotexceed10%ofthenumberofissuedsharesofanyclassofsharesintheholdingcompany.

- Asharebuy-inmaybeauthorisedbytheboardwithouttheneedforshareholderapproval.Again,thisisdifferenttothecurrentCompaniesActwhichwouldrequireaspecialresolution(ofeitherthesubsidiaryorholdingcompany-thecurrentCompaniesActisnotclear)forasharebuy-in.

Amalgamationsormergers(Section113);and AforeigncompanytransfersitsregistrationtoSouthAfrica

(Section13).

710. buSIneSS reScue

Judicialmanagementhasbeenreplacedbybusinessrescue,foundinChapter6oftheAct.JudicialmanagementwasalargelyunusedandunsuccessfulcomponentofthepreviousAct.Itishopedthatthebusinessrescueprocedurescanemulatethesuccessachievedinotherjurisdictions.

Section128definesbusinessrescueasproceedingstofacilitatetherehabilitationofacompanythatisfinanciallydistressedbyprovidingfor:

thetemporarysupervisionofthecompany,andofthemanagementofitsaffairs,businessandproperty;

atemporarymoratoriumontherightsofclaimantsagainstthecompanyorinrespectofpropertyinitspossession,and

thedevelopmentandimplementation,ifapproved,ofaplantorescuethecompanybyrestructuringitsaffairs,business,property,debtandotherliabilities,andequityinamannerthatmaximisesthelikelihoodofthecompanycontinuinginexistenceonasolventbasisor,ifitisnotpossibleforthecompanytosocontinueinexistence,resultsinabetterreturnforthecompanyscreditorsorshareholdersthanwouldresultfromtheimmediateliquidationofthecompany.

Section129explainsthatthisprocedureisavailablewhenthecompanyisfinanciallydistressedbutthereappearstobeareasonableprospectofrescuingthecompany.However,ifliquidationproceedingshavebeeninitiatedbyoragainstthecompany,businessrescueisunavailable.

BusinessrescueproceedingscanbebroughtbyvariousaffectedpersonswhoaredefinedintermsofSection128oftheActas:

ashareholderorcreditorofthecompany; anyregisteredtradeunionrepresentingemployeesofthe

company,and ifanyoftheemployeesofthecompanyarenotrepresented

byaregisteredtradeunion,eachofthoseemployeesortheirrespectiverepresentatives.

Theinitiationofbusinessrescueproceedingscreatesatemporarymoratoriumonclaimsagainstthecompany.Thebusinessrescuepractitionerwhotakesthereinsofthecompanyisentitledto,forthedurationofthebusinessrescue,entirely,partiallyorconditionallysuspendanyobligationofthecompanyunderanagreementinplacewiththecompanyandmayonurgentapplicationtoacourtrequesttoentirely,partiallyorconditionallycancel,onanytermsthatarejustandreasonableinthecircumstances,anyagreementtowhichthecompanyisaparty.Theothercontractingpartyis,intermsoftheAct,limitedtoaclaimfordamagesforsuchbreach.Suchclaimmayendupbeingworthless.

TheActalsoallowsacompanyinbusinessrescuetoobtainfinancingwhichmaybesecuredbyanyunencumberedassetsofthecompany.

11. dISSenTInG ShArehOlder APPrAISAl rIGhTSThisnewadditionintheActcanbefoundinSection164.Theserightsprovideprotectiontodissentingshareholders.Theserightsapplyinasituationwhereacompanyhaseither:

amendeditsMOItochangetherightsofanyclassofsharesinamannerwhichmateriallyadverselyaffectstheshareholder;or

enteredintoafundamentaltransaction.

Therightsarehowever,intermsofSection164(1),notavailableifthetransactionispursuanttoashareholderapprovedbusinessrescueplanapprovedbyshareholders.

Theappraisalrightsallowadissentingshareholdertodemandthatthecompanyrepurchaseitssharesatfairvalueiftheshareholderhasfollowedtheformalrequirementsandbothgivennoticetothecompanythatitintendsopposingtheresolutionandthereaftervotesagainstit.

12. dIrecTOrS And The companY secretarY

12.1. Current directors and director appointment

ThedefinitionofdirectorinthenewActremainsthesameasinthepreviousAct.Adirectorisdefinedasamemberoftheboard,ascontemplatedinSection66,oranalternatedirector(bywhatevernamedesignated).

Existingdirectors,officersandcompanysecretarieswillcontinuetoholdtheirpositionsafterthenewActcomesintoeffectunlesstheyare,intermsofthenewAct,ineligibletoholdsuchpositions;thosepartieswillbeconsideredtohaveresignedfromsuchpositionsasfromtheeffectivedate.

Section66oftheActdealswiththeboard,directorsandprescribedofficers.ThepreviousActrequiredthatthecompanysArticlesofAssociationdictatehowboardvacanciesaretobefilled.TheActsimilarlyrequiresthatthesetermsbedictatedbythecompanysMOI.However,Section66(4)(b)oftheActrequiresthattheMOIofprofitcompanies,otherthanstate-ownedcompanies,providesforshareholderstoelectatleast50percentofthedirectorsandalternatedirectors.

TheActissilentontheperiodofappointmentandtherotationofdirectors.Onappointment,adirectorisrequiredtoconsenttosuchappointmentandthereisnolongeraspecificformwhichrequirescompletion,itisthereforesuggestedthatapersonwhoacceptstheappointmentmustcompleteandsigntheoldFormCM27orsimilarasdevelopedbyeachcompanyandonly

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8becomesentitledtoserveasdirectoroncehe/shehasdeliveredthewrittenconsenttothecompany.

TheperiodforwhichthepersonisappointedshouldbelaiddownintheMOIofthecompany.Thedirectorisobligedtoretirewhentheperiodexpires,althoughtheMOIwillusuallyprovideforre-election.

Ifnotimespanisspecified,thetenurecanlastforanindefiniteperiodandduringthattimethedirectorcanresignorcanberemovedfromofficebythemembersinaccordancewithprocedureslaiddowninthepreviousActorthenewAct.Alternatively,theperiodofservicecanbelaiddowninaservicecontractandtheappointmentcomestoanendatamutuallyagreedtime.

12.2. The company secretary

InlinewithSection268AofthepreviousAct,Section86ofthisActmakestheappointmentofacompanysecretaryinapublicorstate-ownedcompanymandatory.ThecompanysecretarymustbeapermanentresidentoftheRepublic,andmustremainsowhileservinginthatcapacity.

TheActstipulatesdetaileddutiesforthecompanysecretary,althoughnotrestrictedtomerelythese,being:

providingthedirectorsofthecompanycollectivelyandindividuallywithguidanceastotheirduties,responsibilitiesandpowers;

makingthedirectorsawareofanylawrelevanttooraffectingthecompany;

reportingtothecompanysboardanyfailureonthepartofthecompanyoradirectortocomplywiththeMemorandumofIncorporationorrulesofthecompanyorthisAct;

ensuringthatminutesofallshareholdersmeetings,boardmeetingsandthemeetingsofanycommitteesofthedirectors,orofthecompanysauditcommittee,areproperlyrecordedinaccordancewiththisAct;

certifyinginthecompanysannualfinancialstatementswhetherthecompanyhasfiledrequiredreturnsandnoticesintermsofthisAct,andwhetherallsuchreturnsandnoticesappeartobetrue,correctanduptodate;

ensuringthatacopyofthecompanysannualfinancialstatementsissent,inaccordancewiththisAct,toeverypersonwhoisentitledtothem;and

carryingoutthefunctionsofapersondesignatedintermsoftheActasindividualresponsibleforthecompanyscompliancewiththetransparency,accountabilityandintegrityrequirements,aswellastheenhanced

accountabilityrequirements.

Thesedutiesareverymuchinlinewiththethemeofaccountabilityandtransparencydiscussedabove.

Section268FofthepreviousActdealtwiththedisqualificationofacompanysecretary.Section89oftheActisthecorrespondingSectiontoSection268F.Section89(2)isanadditionthatdidnotexistinthepreviousAct.Itstatesthatacompanysecretarycanberemovedbytheboard.Therefore,thereisnoneedtoconveneageneralmeetinginordertoeffectaremoval.Thecompanysecretaryremainsentitledtohaveastatementincludedinthecompanysannualfinancialstatementswhichsetsouthis/hercontentionastothecircumstanceswhichresultedinhis/herremoval.

12.3. Disqualification and termination of directorships

TheAct,likethepreviousAct,doesnotprescribespecificqualificationsforapersontobecomeadirector.Itdoes,however,inSection69(6),statethatacompanycanplacewhateverminimumqualificationsitwishesinitsMOI.Furthermore,thisAct,likethepreviousAct,statesinSection69thatthefollowingpersonsareineligibletobedirectors:

juristicpersons; unemancipatedminors,orpersonsundersimilarlegaldisability; personswhodonotsatisfyanyqualificationsetoutinthe

companysMOI;Whereas,personsareregardedtobedisqualifiedtobedirectors:

ifacourthasprohibitedthatpersonfrombeingadirector,ordeclaredthepersontobedelinquentintermsofSection162,orintermsofSection47oftheCloseCorporationsAct;

Thefollowingdisqualificationspersistforfiveyears(orsuchextensionasdeterminedbyacourt)afterthedateofremovalfromoffice,orthecompletionofthesentenceimposed.

unrehabilitatedinsolvents; personsprohibitedintermsofanypublicregulationtobea

directorofthecompany; personsthathavebeenremovedfromanofficeoftruston

thegroundsofmisconductinvolvingdishonesty;orhavebeenconvicted,intheRepublicorelsewhere,andimprisonedwithouttheoptionofafine,orfinedmorethantheprescribedamount,fortheft,fraud,forgery,perjuryoranoffenceinvolvingfraud,misrepresentationordishonesty;inconnectionwiththepromotion,formationormanagementofacompany,orinconnectionwithanyactcontemplatedinsubsection(2)or(5);orunderthisAct,theInsolvencyAct,theCloseCorporationsAct,theCompetitionAct,theFinancialIntelligenceCentreAct,theSecuritiesServicesAct,orChapter2ofthePreventionandCombatingofCorruptionActivitiesAct.

Theelectionorappointmentofapersonasadirectorisanullityifatthetimeoftheelectionorappointment,thepersonisdisqualifiedandifapersonbecomesineligibleordisqualifiedwhileservingasadirector,he/sheceasestobeentitledtocontinuetoactimmediatelyinsuchinstance.

912.4. Removal of directors

IntermsofSection71oftheAct,adirectormayberemovedbyordinaryresolutionatashareholdersmeeting.Therequirementsthatthedirectorbegivennoticeofthemeetingandtheopportunitytomakeapresentationbeforethevoteremains.

Theboardmayremoveadirectorwhoisineligible,disqualified,incapacitated,negligentorguiltyofderelictionofduty.

AdirectorremainsentitledtosuefordamagesorlossofearningssufferedasaresultthereofandmayapplytocourtforreviewofthedecisiontoberemovedintermsofSection71(5).

12.5. Number of directors

IntermsofthepreviousAct,apubliccompanywasrequiredtohaveatleasttwodirectorsandprivatecompaniesmusthavehadatleastone.TheActhaschangedthestatusquo.IntermsofSection66oftheAct,privatecompaniesandpersonalliabilitycompaniesmusthaveatleastonedirectorandpubliccompaniesandnon-profitcompaniesatleastthreedirectors,inadditiontotheminimumnumberofdirectorsthatthecompanymusthavetosatisfyanyrequirementtoappointanauditcommitteeorsocialandethicscommittee.

13. GuIdelIneS FOr duTIeS OF directors

13.1. Fiduciary duties of directors

Directorsowefiduciarydutiestotheircompanies.Afiduciaryissomeonewhohasaresponsibilitytoactintheinterestsofanother(thebeneficiary),asopposedtohisowninterests.Thebeneficiaryisvulnerableasthefiduciaryisinanempoweredpositionandcapableofusinghispositiontopromotehisowninterests,insteadofthoseofthebeneficiary.

Fiduciarydutiesarisefromthenatureoftherelationshipbetweendirectorsandthecompany.Directorsareentrustedwithcertainpowersandinformation.Thesepowersandinformationmustbeusedinthebestinterestsofthecompanyandfornootherpurpose.Tocontravenethisprincipleisunlawfulandcarrieswithitseriouspenalties.

Thelawimposesthreemaindutiesupondirectorstotheircompanies:

1. Thedutyofcareandskilltothecompany.Thisdutyisconcernedwiththecare,diligenceandskillwhichacompanydirectorisrequiredtoexercise;

2. Thedutytoactbonafideintheinterestsofthecompany,and3. Thedutytoactonlywithinthepowersconferredonhim/her

asadirector.

KingIIsetouttheguidelinesfordirectorsinrespectoftheirdutiesandobligations.Thesearesummarisedasfollows:

Directorsmustexercisetheutmostgoodfaith,honestyandintegrityinalltheirdealingswithoronbehalfofthecompany.

Directorsshouldensurethattheyhavethetimetodevotetocarryouttheirdutiesandresponsibilitiestothecompanyproperly.

ThishasbeenrepeatedinKingIII.

Traditionally,fiduciarydutieswerecommonlawduties.Thismeansthattheywerecreatedthroughcaselawandnotcontainedinlegislation.Thiswasseenasaproblem.Therefore,therehasbeenamajorshiftintheActtosetdownthefiduciarydutiesowedbyadirectortothecompany.ThesearesetdowninSections75and76oftheAct.

KingIIIcameintoeffecton1March2010.Unlikeitspredecessors,KingIIIisapplicabletoallentities,regardlessoftheirmannerandformofincorporationorestablishment.ThestakeholderapproachplaysaprominentroleinKingIIIandisthereforeathemethatalldirectorsmustbeacutelyawareof.Thestakeholderapproachrequiresacompanytobeconcernedwithfarmorethanjustitsprofitability.Acompanymustbearespectedcorporatecitizenandmustbalanceeconomic,socialandenvironmentalconcernsinitsdaytodayoperations(integratedReportingandSustainability).

ThestakeholderapproachisalsoprevalentintheAct.TheActaffordscertainrightstotradeunions,employeesandcreditors.Theseareparticularlynotableintheareaofbusinessrescue.

Forthepurposesofdutiesandstandardsofdirectorsconduct,liabilitiesandindemnification,directorhasaverywidemeaninginthatitincludesprescribedofficers,non-directorcommitteemembersandalternatedirectors.

13.2. The fiduciary duties and standards of directors conduct

Section76oftheActistitledstandardsofdirectorsconduct.Itsetsoutthefollowingrequirementsfordirectors.

Adirectorofacompanymust:

notusetheposition,oranyinformationobtainedwhileactingasadirector,togainanadvantageforhimselforforanotherpersonotherthanthecompanyorawholly-ownedsubsidiaryofthecompany;

notknowinglycauseharmtothecompanyorasubsidiaryofthecompany;and

communicatetotheboardattheearliestpracticableopportunityanyinformationthatcomestohisattentionunlesshereasonablybelievestheinformationisimmaterialto

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thecompany;generallyavailabletothepublic;knowntotheotherdirectors;orisboundnottodisclosethatinformationbyalegalorethicalobligationofconfidentiality.

Adirectormustexercisethepowersandperformthefunctionsofdirector:

ingoodfaithandforaproperpurpose; inthebestinterestsofthecompany,and withthedegreeofcare,skillanddiligencethatmay

reasonablybeexpectedofapersoncarryingoutthesamefunctionsinrelationtothecompanyasthosecarriedoutbythatdirector;andhavingthegeneralknowledge,skillandexperienceofthatdirector.

Furthermore:

Directorsmustalwaysactinthebestinterestsofthecompany,andnotforanyself-interest.

Directorshaveadutytoactwithintheirprescribedpowers. Directorsmustnotpermitaconflictofdutiesorinterests. Directorsmustdisclosepotentialconflictsofinterestatthe

earliestopportunity. Directorsmustactindependentlyofanyoutsiderestraintor

instruction. Directorsmustactwithenterpriseandalwaysstriveto

increaseshareownervalue,whilehavingregardtotheinterestsofallstakeholders.

Directorsmustbeopenandhonestandensurethatallinterestedpartiesarefullyinformedofanymaterialmatteraffectingthecompanysbusiness.

Directorsmustensurethatthecompanysstrategyandstructurehavebeencollectivelyagreedbytheboard.

Confidentialmattersofthecompany,learnedintheircapacityasdirectors,shouldbetreatedassuchandnotdivulgedtoanyonewithouttheauthorityofthecompany.

IfauthorisedbytheMOI,directorsmaybejustifiedinleavingsomedutiesthatcanbedelegatedtooneormoremembersofmanagementandtrustingmanagementtoperformsuchdutieshonestly.Adirectormayalsotrustandrelyonthejudgement,informationandadvicegivenbymanagement.However,therighttoquerysuchadviceremains.Inthesecircumstances,thedirectorneedstomaintainindependenceofjudgementandacriticalstance.

Indelegatingpowersasmentionedabove,thedirectorsmayimposesuchconditions,restrictionsandtimelimitsastheydeemappropriatefortheeffectiveexerciseofsuchdelegatedpowers;theymayalsorevokeorvarythisdelegatedauthorityshouldtheydeemitnecessarytodoso.Thus,thescopeofmanagementauthorityisdependentupontheextenttowhichthedirectorshadpowersdelegatedtothem.Inthesamemanner,wherepowershavebeendelegated,thedirectorstillremainsresponsiblefortheexerciseofthosepowersandhis/herdutyofcareandskilltothecompanyisnotdiminished.Itisthereforeadvisabletoconfirmdetailsofdelegatedtasksinwriting.

Abreachofdirectorsdutiescouldleadtothedirectorbeingpersonallyliabletothecompanyforanylosscausedasaresultthereof.Thedirector/smaybeobligedtorestoreanypropertywhichthecompanyhaslostoraccountforlossofprofitssufferedbythecompanyinthesecircumstances.

Adirectorwhohascausedthecompanytosufferlossesasaresultofwrongfulconductmaybeliabletoacommonlawclaimbyamember.Thisisknownasmembersderivativeactionandislimitedtoanactionagainstdirectorsorshareholderswhoareinthemajorityandcontrolthecompanyandwhohaveactedfraudulentlyorinbreachoftheirduties.DerivativeactionshavenowalsobeenlegislatedintheActandexpanded:ashareholder(alsoofarelatedcompany),director/prescribedofficer(alsoofarelatedcompany),union/employees,andanyoneelsegrantedstandingcantakestepstoprotectthelegalinterestsofthecompany.

13.3. Material interest in contracts

TheActenacts,inSection75,thecommonlawapproachwhichshouldbetakenbydirectorswithpersonalfinancialinterestsinmatterstobedeterminedbytheboard.Thesectioncallsuponthedirectortodeliver,inadvance,alettertotheboardortheshareholders(incertaincircumstances),settingoutthenatureandextentoftheinterest.

IntermsofSection75(5)oftheAct,ifadirectorhasapersonalfinancialinterestorknowsofarelatedparty(whichisverywidelydefinedandincludesthedirectorsspouse,immediatefamilymembers,asecondcompanyofwhichthedirectororarelatedpersonisalsoadirector,aCCofwhichthedirectororarelatedpersonisamemberoranyjuristicpersonthatthedirectorcontrols)thathassuchaninterest,thedirectormustdisclosetheinterestbeforethematterisconsidered,discloseanyfurthermaterialinformationheisawareofandmustleavethemeetingafterthedisclosureandcannotparticipateinthediscussionordecision-making.Thedirectormustnotexecuteanydocumentrelatingtothematter,unlesstheboardspecificallyrequestsordirectshimtodoso.Whereapersonalfinancialinterestisacquiredpostapprovalofthetransactionorconclusionofanagreement,thedirectormustpromptlydisclosethenatureandextentoftheinterestandmaterialcircumstancesrelatingtotheacquisition.

13.4. Protection of directors

Section247oftheCompaniesAct61of1973preventedacompanyfromexemptingorindemnifyingdirectorsfromliabilityfornegligence,default,breachofdutyorbreachoftrust.

Furthermore,acompanycouldnothavecompensateditsdirectorsforsuchclaimsagainstthedirectors.

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Acompanycouldhave,however,indemnifiedsuchdirectorsforcostsincurredinsuccessfullydefendingsuchaclaim.

Acompanycouldnothaveinsuredtoprovideindemnitytoitsdirectors.

Acompanycouldhave,however,effecteditsowninsurancetocoveranylosseswhichmayhaveresultedfromtheactionsofitsdirectors.

Therewasandisnoprovisionwhichprohibitsdirectorsfrominsuringthemselvesagainstpersonalclaims.

TheKingIIReporthadrecommendedthatSection247berevisitedtoincludeaprovisiontoallowinsurancecoveratthecompanysexpense,toprotectdirectorsandofficers.Furthermore,theKingIIReporthadrecommendedthatamendmentsbemadetothestatutestoreduceadirectorsliabilityforabreachofdutyofcareandskillarisingwherethedirectorhasactedingoodfaith,havingtakenaninformedandrationaldecisionandwheretherehasbeennoself-interestonthepartofthedirector.

UnderSection248oftheCompaniesActof61of1973,thecourtsmayhaveallowedthedirectorrelief.However,suchreliefwouldhaveonlybeengrantedifthedirectorcouldhaveprovenhe/shehadactedhonestlyandreasonably,albeitnegligentlyorinbreachofdutyorbreachoftrust.

Section78ofthenewActisacruciallyimportantsectionfordirectorsregardingliabilityandindemnification.Thesectionisbadlywordedandsetout.Theneteffectofthesectionisasfollows:

1. Adirectorisliable,irrespectiveofwhatisstatedinthecompanysMOIorrules,forcarryingouttheactionssetoutinSections75to77oftheAct.

2. Thecompany,totheextenttheMOIallows,mayindemnifythedirectorforlegalexpensesandliabilitiesincurred.

3. However,thecompanymaynotindemnifythedirector,directlyorindirectly,for:3.1.Afineimposeduponthedirectorforbeingconvictedof

anoffenceintermsofnationallegislation;3.2.Willfulmisconductorwillfulbreachoftrustonthepartof

thedirector;or3.3.LiabilityarisingasaresultofSection77(3)(a),(b),and(c)

oftheAct.3.4.Recklesstrading.

4. Thecompanymaypurchaseinsuranceforthoseliabilitiesforwhichitisentitledtoindemnifyitsdirectorsandmayclaimrestitutionfromitsdirectorsforanymoneypaiddirectlyorindirectlyinamannerinconsistentwiththesection.

Section77(3)(a),(b)and(c)readasfollows:

Adirectorofacompanyisliableforanyloss,damagesorcostssustainedbythecompanyasadirectorindirectconsequenceofthedirectorhaving

a) actedinthenameofthecompany,signedanythingonbehalfofthecompany,orpurportedtobindthecompanyorauthorisethetakingofanyactionbyoronbehalfofthecompany,despiteknowingthatthedirectorlackedtheauthoritytodoso;

b) acquiescedinthecarryingonofthecompanysbusinessdespiteknowingthatitwasbeingconductedinamannerprohibitedbySection22(1);

c) beenapartytoanactoromissionbythecompany,despiteknowingthattheactoromissionwascalculatedtodefraudacreditor,employeeorshareholderofthecompany,orhadanotherfraudulentpurpose.

13.5. Liability against claims by members/shareholders and creditors

Section266ofthepreviousActprovidedthatwhereacompanyhadsuffereddamagesorlossorhadbeendeprivedofanybenefitasaresultofanywrong-doing,breachoffaithorbreachoftrustcommittedbyanydirector,memberofboardcommitteeorofficerofthatcompany,andwherethecompanyhadnotinstitutedproceedingsforrecoveryofsuchloss,anymember/shareholdercouldobtainajudgementorcourtorderonbehalfofthecompanycompellingthedirectororofficertomakegoodsuchlosstothecompany.

Section424ofthepreviousActprovidedforacourseofactiononbehalfofthecreditorsofthecompany.

Thecourtcouldhavedeclaredthedirectorsofacompanypersonallyliableforthecompanysdebtsorliabilitiesifitcouldbeshownthatthedirectorscarriedonthebusinessoftheircompany:

recklessly; withtheintenttodefrauditscreditorsorcreditorsofany

otherperson;or foranyfraudulentpurpose.

Inordertoprovefraud,ortheintentiontodefraud,aplaintiffmusthaveprovedthattherespondenthadtherequisitesubjectivementalelement.Thiswasverydifficulttoprove.Itwasmadeevenmoredifficultasaresultofthefactthathewhocommittedfraudwasusuallyreasonablycarefulabouthidingdocumentaryevidence.Therefore,mostactionsintermsofSection424wouldhavedealtwithallegationsofrecklessness.

Whereacompanyhadbeenplacedunderawinding-uporderSection417oftheActprovidedforthesummoningand

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examinationofanypersonswhotheMasteroftheSupremeCourtdeemedcapableofgivinginformationconcerningtrade,dealings,affairsorpropertyofthecompany.

UnderproceedingsintermsofSection417,adirectorofacompanyhadbeenexposedtoextensiveexaminationandinterrogationregardingthecompanysaffairs.Suchproceedingscouldhaveassistedinbuildingacase,intermsofSection424,againstadirector.

Section22oftheActistheequivalenttoSection424ofthepreviousAct.ThisActgoesmuchfurther:Section77isaone-stopsectionforimposingliabilityondirectorsandprescribedofficers.Furthermore,Section218(2)oftheActstatesthatanypersonwhocontravenesanyprovisionoftheActisliabletoanyotherpersonforanylossordamagesufferedbythatpersonasaresultofthatcontravention.Thismeansthatplaintiffs,whethershareholders,creditors,oranyotherparty,needsimplyprovethattheyhavesufferedlossasaresultofacontraventioninorderforliabilitytobeimposed.Theeffectofthissectionwillbeenormousanddirectorsshouldbeparticularlycautious.ThisisespeciallysowhenoneconsidersthemannerinwhichtheActdealswiththeindemnifyingofdirectors(discussedabove).

14. remunerATIOn OF dIrecTOrSSection30(4)ofthisActstatesthatannualfinancialstatementsmustincludeparticularsshowingtheremunerationandbenefitsreceivedbyeachdirector.Thisincludes:

theremunerationasdefinedintheAct; theamountofanypensionspaidbythecompanytoor

receivablebycurrentorpastdirectorsorindividualswhoholdorhaveheldanyprescribedofficeinthecompany;

anyamountpaidorpayablebythecompanytoapensionschemewithrespecttocurrentorpastdirectorsorindividualswhoholdorhaveheldanyprescribedofficeinthecompany;

theamountofanycompensationpaidinrespectoflossofofficetocurrentorpastdirectorsorindividualswhoholdorhaveheldanyprescribedofficeinthecompany;thenumberandclassofanysecuritiesissuedtoadirectororpersonholdinganyprescribedofficeinthecompany,ortoanypersonrelatedtoanyofthem,andtheconsiderationreceivedbythecompanyforthosesecurities,and

detailsofservicecontractsofcurrentdirectorsandindividualswhoholdanyprescribedofficeinthecompany.

Theinformationdisclosedmustsatisfytheprescribedstandardsandmustshowtheamountofanyremunerationorbenefitspaidtoorreceivableinrespectof:

servicesrenderedasdirectorsorprescribedofficersofthecompany,or

servicesrenderedwhilebeingdirectorsorprescribedofficersofthecompany.

Section30(6)oftheActgivesadetailedexplanationofwhatisincludedwithinthedefinitionofremunerationforthesepurposes.

Section66(8)and66(9)oftheActstatethat,excepttotheextentthattheMOIofacompanyprovidesotherwise,thecompanymaypayremunerationtoitsdirectorsfortheirserviceasdirectors,subjecttothefactthatsuchremunerationmaybepaidonlyinaccordancewithaspecialresolutionapprovedbytheshareholderswithintheprevioustwoyears.

15. lOAnS TO dIrecTOrS15.1. Loans

ThepreviousActstatedthatnocompanyshallmakealoan,eitherdirectlyorindirectly,to

anydirectorormanagerofthecompany,itsholdingcompanyoranyothercompanywhichisasubsidiaryofitsholdingcompany;

anyothercompanyorotherbodycorporatecontrolledbyoneormoredirectors/managersofthecompanyorofitsholdingcompanyorofanyothercompanywhichisasubsidiaryofitsholdingcompany;

Normayithaveprovidedsecuritytoanypersoninconnectionwithanobligationofsuchdirector,manager,companyorbodycorporate.

Thewordloanincludedtheloanofmoney,shares,debenturesoranyotherpropertyoranycreditoverandabovenormalbusinesscreditortheprovisionofsecurity.

Exceptionstothisrulecouldhavebeenmadeunderthefollowingcircumstances:

whenaspecialresolutionhadbeenpassedrelatingtoaspecifictransactionorwhentheconsentofallshareholdersormembersofthecompanyhadbeengranted;

whenadirectorrequiredfundstomeetexpenditureforthepurposesofthecompanyorwhensuchaloanwouldhaveenabledadirectortoperformhis/herdutiesasadirectormoreeffectively;

ifanadvancehadbeenmadeontheunderstandingthatthedirectorwouldhaveaccountedforallorpartoftheadvancenotrefundedinwhichcasethiswouldnothavebeenregardedasaloan,e.g.traveladvances;

whenacompanylaunchedasharepurchasescheme; forhousing,providedithadbeensanctionedbythecompany

ingeneralmeeting; ifthepersonwasadirectorofasubsidiarybutnotalsoa

directorofthelendingcompany;

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whentheloanwasmadeduringthefinancialyear,beforethepersonwasappointedasadirector.

Itisconsideredgoodcorporategovernanceforaloanagreementtobedraftedandproperinterestandrepaymenttermsarranged.

IntermsofSection45oftheAct,financialassistanceasdefinedinthesection,includesaloan,guaranteeorsecuringofadebtandmayonlybegiventoadirector,prescribedofficerandanypartiesrelatedtothecompany(whichincludessubsidiarycompanies)onthefollowingbasis:

1. TheloananditsformmustnotbeinconsistentwithanytermoftheMOI.

2. ThefinancialassistancemustbepursuanttoanemployeeshareschemethatsatisfiestherequirementsofSection 97;orpursuanttoaspecialresolutionoftheshareholders,adoptedwithintheprevioustwoyears,whichapprovedsuchassistanceeitherforthespecificrecipient,orgenerallyforacategoryofpotentialrecipients,andthespecificrecipientfallswithinthatcategory.

3. Theboardmustbesatisfiedthatimmediatelyafterprovidingthefinancialassistancethecompanywouldsatisfythesolvencyandliquiditytest.

4. Thecompanymustprovidewrittennoticeofthatresolutiontoallshareholders,unlesseveryshareholderisalsoadirectorofthecompany,andtoanytradeunionrepresentingitsemployeeswithinthetime-framesetoutinSection45(5).

Aresolutionbytheboardofacompanytoprovidefinancialassistancetoadirector,prescribedofficerorrelatedpartyisvoidtotheextentthatitdoesnotcomplywiththeaboverequirementsoranyothertermsoftheAct.

DirectorsandprescribedofficerswhoparticipateinsuchadecisionwithknowledgethatitdidnotmeettheActsrequirementscanincurpersonalliability.

15.2. Issuing shares to directors

IntermsofSection41(1)oftheAct,approvalbyspecialresolutionofshareholdersisrequiredfortheissuingofsharestodirectors,prescribedofficers,futuredirectorsandprescribedofficersandanypartiesrelatedtothecompanyorthedirectorsandprescribedofficers.

15.3. Trading in insolvent circumstances

Section22(1)oftheActstatesthatacompanymustnotcarryonitsbusinessrecklessly,withgrossnegligence,withintenttodefraudanypersonorforanyfraudulentpurpose;ortradeunderinsolventcircumstances.DoingsocanresultintheCommissionrequiringthecompanytoceasecarryingonitsbusiness;andapartywhoisknowinglyapartytothecompanycarryingonitsbusinessinthesecircumstancesmayfacecriminalcharges.

Furthermore,adirectormaybeliabletothecompanyorathirdpartyforthelossestheysufferedasaresultofthecompanytradinginthesecircumstances.

15.4. Penalties, liabilities and new defence

OneofthegoalsoftheActistodecriminalisecompanylaw.Therefore,thefollowingarethemajoroffencesintermsoftheAct:

falsificationofaccountingrecords; fraudulentlyprovidingfalseormisleadinginformation,and knowinglybeingapartytorecklesstradingortradingin

insolventcircumstances.

ThelistofpenaltieswhichresultfromtransgressionsoftheActaretoonumeroustomentioninthispublicationandreadersareurgedtoconsulttheActinconnectionherewith.Chapter9oftheActshouldbethestartingpointfordeterminingthesortofliabilitythatmaybeentailed.Itthereforeremainsessentialtogetprofessionaladviceifyouareinanydoubtaboutthelegalityofanyissueorcourseofaction.

ItmayalsoproveveryusefulfordirectorstobeawarethatthisActprovidesdirectorswithanewdefencetoallegationsofnotactingwiththenecessarydegreeofcare,skillanddiligence.Adirectorwhocanshowthathetookallreasonablediligentstepstobecomeinformedaboutthematter,hadnopersonalfinancialinterestandmadethedecisiononanobjectivelyrationalbasis,maybeabletoavoidliability.

16. bOArd cOmmITTeeS And Board meetinGs

16.1. Board committees

IntermsofSection72ofthisAct,unlesstheMOIdeclaresotherwise,theboardmayappointanynumberofboardcommitteesanddelegateanyauthorityitwishestothem.Suchcommitteesmaybemadeupofbothdirectorsandnon-directors.Non-directorshoweverwillnotbeentitledtovote.Itisimportanttorealisethat,whereauthorityisdelegated,theultimateresponsibilitywillremainwiththeboard.

16.2. Board meetings

ThisActintroducesfargreaterflexibilitythanitspredecessorregardingtheconductofboardmeetings.IntermsoftheAct,unlesstheMOIprovidesotherwise,ameetingoftheboardmaybeconductedbyelectroniccommunication(teleconference,videoconference,etc.).Inaddition,unlesstheMOIstatesotherwise,adecisionthatcouldbevotedonatameetingoftheboardcanbeadoptedbywrittenconsentofthemajorityofdirectors.Theboardisobliged,within40businessdays,toconveneashareholders

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meetingtoelectdirectors(S67)ifthenumberofdirectorsfallsbelowtheminimum.

Itishopedthatthisflexibilityallowsboardstocarryouttheirdutiesmoreefficiently.

17. AudIT And AccOunTSThemattersofauditandannualfinancialstatementshavereceivedsignificantattentionintheActinSections90-93.

Appointment of auditor

Eachyear,atitsannualgeneralmeeting,apubliccompanyorstate-ownedcompanymustappointanauditor.

Tobeappointedasanauditorofacompany,apersonorfirm:

mustbearegisteredauditor mustnotbeprohibitedfrombeingadirectorofacompany mustnotbe:

- adirectororprescribedofficerofthecompany- anemployeeorconsultantofthecompanywhowas

orhasbeenengagedformorethanoneyearinthemaintenanceofanyofthecompanysfinancialrecordsorthepreparationofanyofitsfinancialstatements

- adirector,officeroremployeeofapersonappointedascompanysecretary

- apersonwho,aloneorwithapartneroremployees,habituallyorregularlyperformsthedutiesofaccountantorbookkeeper,orperformsrelatedsecretarialwork,forthecompany

- apersonwho,atanytimeduringthefivefinancialyearsimmediatelyprecedingthedateofappointment,wasapersoncontemplatedabove

- apersonrelatedtoapersoncontemplatedabove mustbeacceptabletothecompanysauditcommitteeas

beingindependentofthecompany.

Rotation of auditor

Thesameindividualmaynotserveastheauditorordesignatedauditorofacompanyformorethanfiveconsecutivefinancialyears.Ifanindividualhasservedastheauditorordesignatedauditorofacompanyfortwoormoreconsecutivefinancialyearsandthenceasestobetheauditorordesignatedauditor,theindividualmaynotbeappointedagainuntilaftertheexpiryofatleasttwofurtherfinancialyears.

Rights and restricted functions of auditors

Theauditorofacompany:

hastherightofaccessatalltimestotheaccountingrecordsandallbooksanddocumentsofthecompany,andisentitled

torequirefromthedirectorsorprescribedofficersofthecompanyanyinformationandexplanationsnecessaryfortheperformanceoftheauditorsduties

inthecaseoftheauditorofaholdingcompany,hastherightofaccesstoallcurrentandformerfinancialstatementsofanysubsidiaryofthatholdingcompany,andisentitledtorequirefromthedirectorsorofficersoftheholdingcompanyorsubsidiaryanyinformationandexplanationsinconnectionwithanysuchstatementsandinconnectionwiththeaccountingrecords,booksanddocumentsofthesubsidiaryasnecessaryfortheperformanceoftheauditorsduties

isentitledto:- attendanygeneralshareholdersmeeting- receiveallnoticesofandothercommunicationrelating

toanygeneralshareholdersmeeting- beheardatanygeneralshareholdersmeetingonany

partofthebusinessofthemeetingthatconcernstheauditorsdutiesorfunctions.

Anauditorappointedbyacompanymaynotperformanyservicesforthatcompany:

thatwouldplacetheauditorinaconflictofinterestasprescribedordeterminedbytheIndependentRegulatoryBoardforAuditorsintermsofSection44(6)oftheAuditingProfessionAct26of2005;or

asmaybedeterminedbythecompanysauditcommittee.

17.1. Financial statements and accounting recordsSection30oftheActsetsoutthedifferentauditrequirementsfordifferenttypesofcompanies.Allcompaniesmustpreparefinancialstatements;however,onlypubliccompaniesandcompaniesthatfallundertheambitofregulationsmadeintermsofSection30(7)oftheActarerequiredtobeaudited.(RefertoSection3aboveontherequirementsintermsoftheRegulations).

Financial statements

FinancialreportingstandardsprescribedintheRegulations(IFRSorIFRSforSMEs);

Mustbeapprovedbytheboardandpresentedtothefirstshareholdersmeetingaftersuchapproval(onlypubliccompaniesandstateownedcompaniesarerequiredtohaveanAGM);

Allcompaniesmustprepareannualfinancialstatementswithinsixmonthsoftheirfinancialyearend;

Financialstatementsshouldbesignedbyoneauthoriseddirector;

Shareholdersshouldreceiveasummaryofannualfinancialstatements;fullstatementstobemadeavailableelectronically(onawebsite)oronrequest,and

Summarisedfinancialstatementsmaybeissued.

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AllcompaniesthatdonotneedtobeauditedmusthavetheirfinancialstatementsindependentlyreviewedinamannerthatsatisfiestheregulationsmadeintermsofSection30(7).However,intermsofSection30(2A),privatecompaniesareexemptfromtherequirementsofindependentreview,whereeverypersonwhoisaholderof,orhasabeneficialinterestinanysecuritiesissuedbythecompanyisalsoadirectorofthecompany.

Theexternalauditrequirementscanberepresentedasfollows:

To be Audited Independently Reviewed

Publiccompanies State-ownedcompanies Privatecompanieswhich

fallwithinacategorytheMinisterhas,byRegulation,deemedsubjecttoaudit

Privatecompaniesthatelecttodosovoluntarily

Anyprofitornon-profitcompanyif,intheordinarycourseofitsprimaryactivities,itholdsassetsinafiduciarycapacityforpersonswhoarenotrelatedtothecompanyandtheaggregatevalueofsuchassetsheldatanytimeduringthefinancialyearexceedsR5million.

Anyothercompanymayvoluntarilychoosetobeaudited.

Allcompaniesthatarenotauditedmusthaveanindependentreview

Privatecompaniesinwhichallpartiesthatholdbeneficialinterestsarenotalso directors.

(CompaniesnotdescribedintheabovetablearenotsubjecttoauditnorindependentreviewunlesstheMOIrequiresanauditorreview.)

18. The InTernAl AudIT FuncTIOn and audit committees

18.1. Internal audit

Toensureadequatecontrols,manylargercompaniesarenowintroducinginternalauditdepartments(oroutsourcingtheconductthereof)toreviewsystemsandcontrolsandtomonitorkeyriskareasonacontinuousbasis.ThisisnotmentionedintheCompaniesActbutisarecommendationofKingII/III.Furthermore,Section94(7)(g)(i)oftheActstatesthatitistheresponsibilityoftheauditcommitteetoreceiveanddealappropriatelywithanyconcernsorcomplaints,whetherfromwithinoroutsidethecompany,oronitsowninitiative,relatingtotheaccountingpracticesandinternalauditofthecompany.Thissectionmaybeimplicitlystatingthatthereisarequirementofinternalauditinstitutionalisationforcertaincompanies.

18.2. Audit committees

Section84(4)(c)oftheActstatesthatallpublicandstate-ownedcompanies,exceptthosethathavebeenexplicitlyexempted,musthaveauditcommittees.Inaddition,certainprivatecompanies-generallythosewhoseMOIcallsforit-mustalsohaveauditcommittees.

Eachmemberofanauditcommitteeofacompanymust:

beadirectorofthecompany,whosatisfiesanyminimumqualificationrequirementsasmaybeprescribedby

theMinister notbe:

- involvedintheday-to-daymanagementofthecompanysbusinessorhavebeensoinvolvedatanytimeduringthepreviousfinancialyear;

- aprescribedofficer,orfull-timeexecutiveemployee,ofthecompanyoranotherrelatedorinter-relatedcompany,orhavebeensuchanofficeroremployeeatanytimeduringthepreviousthreefinancialyears;

- amaterialsupplierorcustomerofthecompany,suchthatareasonableandinformedthirdpartywouldconcludeinthecircumstancesthattheintegrity,impartialityandobjectivityofthatdirectoriscompromisedbythatrelationship

notberelatedtoanypersonwhofallsinthesecriteria.TheMinistermayprescribeminimumqualificationrequirementsformembersofanauditcommitteeasnecessarytoensurethatanysuchcommittee,takenasawhole,comprisespersonswithadequatefinancialknowledgeandexperiencetoequipthecommitteetoperformitsfunctions.Atleastonethirdofthemembersmusthaveacademicqualifications,orexperienceineconomics,law,corporategovernance,finance,accounting,commerce,industry,publicaffairsorhumanresourcemanagement.

Section94(7)oftheActliststhefollowingdutiesoftheauditcommittee:

tonominate,forappointmentasauditorofthecompanyunderSection90,aregisteredauditorwho,intheopinionoftheauditcommittee,isindependentofthecompany;

todeterminethefeestobepaidtotheauditorandtheauditorstermsofengagement;

toensurethattheappointmentoftheauditorcomplieswiththeprovisionsofthisActandanyotherlegislationrelatingtotheappointmentofauditors;

todetermine,subjecttotheprovisionsofthischapter,thenatureandextentofanynon-auditservicesthattheauditormayprovidetothecompany,orthattheauditormustnotprovidetothecompany,orarelatedcompany;

topre-approveanyproposedagreementwiththeauditorfortheprovisionofnon-auditservicestothecompany;

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toprepareareport,tobeincludedintheannualfinancialstatementsforthatfinancialyear- describinghowtheauditcommitteecarriedoutits

functions;- statingwhethertheauditcommitteeissatisfiedthatthe

auditorwasindependentofthecompany;and- commentinginanywaythecommitteeconsiders

appropriateonthefinancialstatements,theaccountingpracticesandtheinternalfinancialcontrolofthecompany;

toreceiveanddealappropriatelywithanyconcernsorcomplaints,whetherfromwithinoroutsidethecompany,oronitsowninitiative,relatingto- theaccountingpracticesandinternalauditofthe

company;- thecontentorauditingofthecompanysfinancial

statements;- theinternalfinancialcontrolsofthecompany;or- anyrelatedmatter;

tomakesubmissionstotheboardonanymatterconcerningthecompanysaccountingpolicies,financialcontrol,recordsandreporting,and

toperformotherfunctionsdeterminedbytheboard,includingthedevelopmentandimplementationofapolicyandplanforasystematic,disciplinedapproachtoevaluateandimprovetheeffectivenessofriskmanagement,control,andgovernanceprocesseswithinthecompany.

18.3. Notable changes to the make-up of the Audit committee under the Act

Section92(1)oftheActstatesthatnoindividualcanserveasanauditorofthesamecompanyformorethanfiveconsecutiveyears.Section92(2)statesthatonceapartyhasbeenanauditorofacompanyfortwoormoreconsecutiveyears,thereisamandatorytwoyearcoolingoffperiodbeforethatpersonmaybeagainbeappointedauditorofthatcompany.

IntermsofSection269andSection269AofthepreviousAct,theauditorsareappointedbythedirectors.Section94(2)oftheActstatesthattheauditcommitteemustbeappointedatthegeneralmeeting.Itisnowtheshareholdersthatappointtheauditcommittee.

TheActrequiresthattheauditcommitteebecomposedonlyofindependentnon-executivedirectors.IntermsofSection94(4)oftheAct,nopersonwhoiscurrentlyorhasatanytimewithinthepreviousfinancialyearbeenafulltimeemployeeofthecompanymaybeontheauditcommittee.Amaterialsupplierorcustomerofthecompany,suchthatareasonableandinformedpersonmaysuspectpartiality,cannotbeontheauditcommitteenorcanarelativeofapersoninvolvedintheday-to-daymanagementorsupplierorcustomer.

19. ShArehOlderS meeTInGS and aGms

19.1. Shareholders meetings

IntermsofSection62oftheAct,apubliccompanymustgiveatleast15daysnoticetoshareholderspriortoconveningshareholdersmeetingsandaprivatecompanyatleast10daysnotice.Thesenoticeperiodsapplyirrespectiveofwhetherornotthemeetingisheldtoconsiderordinaryorspecialresolutions.

Aquorumof25%ofthevotesrepresentedatageneralmeetingofmembers/shareholdersisrequired,providedthatthecompanyhasmorethantwoshareholders,theremustbeatleastthreeshareholderspresenttoconstituteaquorum(butnottherequirementofthreeshareholderswhereapplicable).TheActmakesprovisionforthepostponementofameetingifaquorumisnotpresent.

TheActhasintroducedflexibilityintothemannerandformofshareholdersmeetings;thiscanbefoundinSection61oftheAct.

IntermsofSection61(3)(b)oftheActthethresholdrequiredtocallashareholdersmeetingis10percentofthevotingrightsentitledtobeexercisedontheproposedmatter;thisisthemaximumthatcanberequired;theMOIofacompanymayspecifythatalowerpercentageisrequired.

WrittenroundrobinshareholderresolutionscantakeplaceundertheActandwillhavethesameeffectasiftheywereapprovedataproperlyconstitutedshareholdersmeeting.Businesswhichshouldbedealtwithatannualgeneralmeetingscannotbedealtwithinthisway.Apubliccompanymustallowforreasonableaccesstoelectronicparticipationbyshareholdersateveryshareholdermeetingofthecompany.

IntermsoftheAct,anordinaryresolutionmustbeapprovedbymorethan50percentofthevotingrights,thoughtheMOIcanrequireahigherpercentage.AspecialresolutionintermsoftheActissetat75percent,thoughtheMOIcansettherequirementlower.Theremusthoweverbeamarginofatleast10percentbetweenanordinaryandaspecialresolution.

Specialresolutionsarerequired:

toamendtheMOI; toratifyactionslimitedbytheMOI; toamendthenumberandrightsofauthorisedshares; fortheissueofsharestodirectorsortoapersonrelatedto

adirectororapersonrelatedtoadirectororpersonrelatedorinter-relatedtothecompany;

toissuesharesifthevotingpowerofsuchsharesexceeds30%;

fortheprovisionoffinancialassistance; fortheprovisionofloansorfinancialassistancetodirectors;

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toapproveavoluntarywinding-up; forfundamentaltransactions; fordirectorsremuneration; forsuchothermattersthattheMOIrequiresaspecial

resolution,and loanstorelated/groupcompanies.

19.2. Annual general meeting (AGM)

AnAGMmustbeheldnolaterthan15monthsafterthedateofincorporation.OnlyapubliccompanyisobligedtohaveanAGM.

21daysnoticemustbegivenforanAGM,unlessallshareholdersagreetoashorternoticeperiod.

AteachAGMofapubliccompanyandastate-ownedcompany,theshareholdersmustappointatleastthreedirectorstotheauditcommittee.ThisisunlessthecompanyisasubsidiaryofanothercompanywhichhasanauditcommitteeandthatauditcommitteewillperformthefunctionsrequiredintermsoftheActonbehalfofthatsubsidiary.

TheAGMshouldcoverallmatterslaiddownintheCompaniesAct,including:

directorsreport; theauditedannualfinancialstatements; auditcommitteereport; theapprovalofdividends; theapprovaloftheauditfee; theadoptionoffinancialstatementsforthemostrecent

financialyear; theelectionandretentionofdirectors,and theappointment(orre-appointment)ofauditors.

IntermsofSection94(7)oftheAct,theauditcommitteemembersmustbeelectedbytheshareholdersattheAGM.

ThecompanysecretaryusuallyorganisestheAGMonbehalfoftheboardbutalldirectorsandprescribedofficerswillbefinediftheyareknowinglypartytothefailuretoholdanAGM.

Shareholdersshouldbeencouragedbytheboardtoattendannualgeneralmeetings.AlldirectorsshouldattendtheAGMandparticularlythechairpersonsofthevariousboardcommittees.

20. dIvIdendSDividendsareregardedasdistributionsandhencealltherequirementsinSection46oftheActmustbecompliedwith,inter alia,distributionsmayonlybemadepursuanttoanexistinglegalobligation,acourtorderorboardresolutionauthorisingsuchandthecompanywouldpassthesolvencyandliquiditytestsafterthedistributionhasbeenpaidout.

21. merGerS, FundAmenTAl TrAnSAcTIOnS, Scheme OF ArrAnGemenTS, TAKeOverS And ShAre PurchASeS

Intheeventofatakeoverormerger,thereareveryspecificresponsibilitiesimposedondirectorsandprofessionaladviceshouldbesoughtinthisregard.Accurateinformationmustbepresentedtoshareholdersandminoritiesmustbetreatedfairly;directorsofbothpartiesmustensurethattheyactindependentlyanddonothaveregardtotheirpersonalshareownershipwhenadvisingshareholders.

Non-compliancewillresultinpenaltiesaswellastheriskofpersonalliabilitytoanypersonwhosufferslossasaresultofanycontraventionofthereportingrules.

TheActhasaffectedchangestothelawrelatingtofundamentaltransactions.IntermsoftheActfundamentaltransactionsinclude:

adisposalofallorthegreaterpartofacompanysassetsorundertakings,subjecttothelimitedexceptionssetoutinSection112(1)(whichdealswithdisposalsbetweenoramongstwhollyownedsubsidiariesthemselvesortheirholdingcompanythussimilartotheexclusioninthepreviousAct);

amalgamationsandmergers(whichwerenotdealtwithintheActandaredealtwithanddefinedinSection113oftheAct),and

schemesofarrangement(dealtwithinSection114andhaveawiderdefinitionintheActthaninthepreviousAct).

Allfundamentaltransactionsmust:

beapprovedbyspecialresolution(unlesstheexclusionsareapplicable),approvingtherelevanttransactionalongwithaspecialresolutionoftheholdingcompanywherethetransactionamountstoadisposalofamajorpartoftheholdingcompanysassets,and

aquorumofatleast25percentofallvotesisrequired.

Furthermore,unlikeinthepreviousAct,approvalfromtheCourtisonlyrequiredif:

morethan15percentofthevotesatthemeetingopposedthetransactionandashareholderwhovotedagainstthetransactionrequiresthecompanytoseekcourtapproval;or

anopposingshareholderisgrantedleavetoapplytocourtforareviewofthetransaction.

Guide to directors

18

ThefollowingarefurthernotableadditionsincludedbythenewAct:

Section164oftheActgivesdissentingminorityshareholdersappraisalrightsincertaincircumstanceswhichentitletheseshareholderstodemandpaymentofthefairvalueforthesharestheyholdintakeoversandthelike.

Therearefurtherrequirementsinthemidstofanaffectedtransaction.TheActcallsforcertainagreementstobeconcludedwhichdealwithspecificissues.Furthermore,noticemustbegiventoallcreditorsassoonasamergerresolutionhasbeenadopted.Thisallowscreditorstoapplytocourtiftheybelievethetransactionwillmateriallyprejudicethem.

ThetakeoverprovisionsintheAct,unlikethepreviousAct,applytoallpublic,state-ownedandincertaininstancesprivatecompanies.

Amalgamations

Currently,toeffectanamalgamationormerger,companieswouldeithergiveeffecttothisthroughasaleofbusinessorsaleofshares(oracombinationofboth).TheActnowcontemplatesaprocesswherebytwoormorecompaniescanenterintoanagreementtoamalgamateormergewhichwillresultinthefollowing:

anautomaticcreationofanewcompanyandautomaticdissolutionoftheamalgamatingormergingcompanies;oralternatively

survivalofoneofthecompaniesandtheautomaticdissolutionofoneormoreoftheotheramalgamatingormergingcompanies.

Toimplementanamalgamationormerger,thecompanieswouldneedtocomplywiththerequirementsforafundamentaltransaction(see9above)andmeetthesolvencyandliquiditytest.

Scheme of arrangement

Toeffectaschemeofarrangement,thecompanywouldneedtocomplywiththerequirementsforapprovalofafundamentaltransactionassetoutin9aboveandthereforewouldnotautomaticallyrequireanapplicationtoCourtasisthecaseintermsofSection311ofthecurrentCompaniesAct.

Anindependentexpertmustbeappointedtoprepareareportwhichmustbesubmittedtoallshareholdersforconsiderationpriortothemvotingontheschemeofarrangement.Acompanycannotenterintoaschemeofarrangementifitisinliquidationorinabusinessrescueprocess.

Takeovers, mandatory offers and squeeze-outs

TheActsetsoutprovisionsrelatingtotakeoversandoffers.TakeoverswillbeoverseenbytheTakeoverRegulationPanel(TRP)(whichisasimilarbodytothecurrentSecuritiesRegulationPanel(SRP))andmonitoredinaccordancewithtakeoverregulations(whichareenvisagedtobesimilartothecurrentSRPCode).

TheTRPandtakeoverregulationswillapplytoaregulatedcompany.ThedefinitionofregulatedcompanyiswiderthancompaniesthatarecurrentlygovernedbytheSRPCode.Aregulatedcompanyincludesapubliccompany,state-ownedcompanyandaprivatecompanyiftheMOIoftheprivatecompanyprovidesforitsapplicationorif10%ormoreofthesharesofsuchprivatecompanyhavebeentransferredwithintheprevious24months(thispercentagemayvarybutcannotbelessthan10%).TheTakeoverRegulationscouldapplytoprivatecompaniesirrespectiveoftheirsizeasthetestisdependentnotonthenumberofshareholdersorthesizeofshareholderequity,butratheronthepercentageofsharestransferredoveraperiod.

Anumberoftheprovisionsrelatingtotherequireddisclosureofsharetransactions,mandatoryoffers,comparableandpartialoffers,restrictionsonfrustratingactionandprohibiteddealingsbeforeandduringanoffer,whicharecurrentlyintheSRPCode,arenowincludedintheAct.TheeffectofthisisthatanychangestotheseprovisionswouldnowrequireanamendmenttotheActandwouldbewithinthepoweroftheMinister,ratherthanmerelyanamendmenttotheSRPCodewhichiscurrentlyundertheauthorityandpoweroftheSRP.

TheActhassimilarprovisionstoSection440(k)ofthepreviousActallowingacompulsorysqueezeoutofminorityshareholderswhere90%ormoreoftheshareholdershaveacceptedanoffertoacquiretheshares.

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22. reGulATOry AGencIeSChapter8ofthenewActdealswithregulatoryagenciesandadministrationoftheAct.ThefollowingregulatorybodieswillexistintermsoftheAct:

theCompaniesandIntellectualPropertyCommission(theCommission)(seepartA);

theCompaniesTribunal(seepartB); theTakeoverRegulationPanel(theTRP)(seepartC),and theFinancialReportingStandardsCouncil(theFRSC)(see

partD).

TheCommissionistheeffectivereplacementofCIPRO;itwillbethecomplianceandefficacycentreofSouthAfricancompanylaw.Itischargedwiththeobjectivesofefficientlyregisteringcompanies,maintainingup-to-daterecords,educatingpartiesaboutthelawandencouragingcompliancetherewith.Itwillthereforebethepointofcomplaintregardingacompanysnon-compliancewiththetermsoftheActandwillhavecertaininvestigativeandreportingpowers.

TheCompaniesTribunalisthenewActsownalternativedisputeresolutionmechanism.ItwillserveasaforumforvoluntaryalternativedisputeresolutiononmattersarisingoutoftheActandwillreviewcertaindecisionsmadebytheCommission.Itwillinnowayoustthejurisdictionofthehighcourts.

TheTRPistheeffectivereplacementoftheSecuritiesRegulationPanelandisforthemostpartidenticalinpowersandfunctionstoitspredecessor.

TheFRSCisanadvisorycommitteetotheMinister.Itsobjectives,intermsofSection204,arethefollowing:

Toreceiveandconsideranyrelevantinformationrelatingtothereliabilityof,andcompliancewith,financialreportingstandardsandadaptinternationalreportingstandardsforlocalcircumstancesandconsiderinformationfromtheCommissionascontemplatedinSection187(3)(b);

ToadvisetheMinisteronmattersrelatingtofinancialreportingstandards,and

ToconsultwiththeMinisteronthemakingofregulationsestablishingfinancialreportingstandards.

23. cOncluSIOnThechangesbroughtaboutbythenewActaimtomakeourcompanylawsimpler,moreaccessibleandeffective.TheInstituteofDirectors(viatheKingCommittee)hasreleasedtheKingIIIReportonCorporateGovernanceforSouthAfricawhichtakesintoaccountthelegislativechanges.TheListingsRequirementsoftheJSEhavebeenrevisedtorecognisethe2008Actsrequirements.

Guide to directors

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