Corporate law, partnerships and
trusts
BY: RC (Bob) WILLIAMS | BA LLB (Cape) LLM (London) H Dip Tax (Wits) PhD (Macquarie) , Professor in the Faculty of
Law, University of KwaZulu-Natal, Pietermaritzburg
1. THE COMPANIES BILL, 2007
The long-awaited Companies Bill of 2007 has now
been released and its 338 pages are being closely
studied by businesspeople and professionals
around the country. The Bill is certainly long
overdue. The last major overhaul of company
law was in 1973, and the enactment of the Close
Corporations Act occurred in 1984.
A discussion draft
The present status of the Companies Bill, 2007 is that it is
a “discussion draft” which was prepared by the Dept of Trade
1
and Industry. It is therefore in no way cast in stone, and may
undergo significant revision before it is enacted. Some of
the changes mooted in the government’s 2004 policy paper,
Company Law for the 21st Century, have been abandoned
or modified, indicating DTI’s receptiveness to criticism and
concerns.
The Bill has turned out to be more ambitious than some
had expected. This is not a fiddling-around-the-edges attempt
at corporate law reform. What is envisaged is the wholesale
repeal and replacement of the Companies Act, 1973 with a
new Act. However, as the Explanatory Memorandum makes
clear, the new Act retains many of the provisions of the current
law. The process has not included any review or reform of
partnership law.
Projected time frames for completion
Trade and Industry Minister, Mandisi Mpahlwa, has been
reported as saying that he expects the new Companies Act to
be tabled in Parliament by the end of 2007 and to be enacted
by next March or April.
The objectives of corporate law reform
The Explanatory Memorandum that accompanies the
Bill encapsulates the objectives of the legislative reform of
corporate law in South Africa as follows –
 encouraging entrepreneurship;
 simplifying the procedures for forming companies and
reducing the costs of forming and maintaining a company;
 enhancing flexibility in the design and organisation
of companies and creating a predictable and effective
regulatory environment;
 encouraging transparency and high standards of corporate
governance.
The stated goals
The goals of corporate law reform which emerged in the
course of the consultative process were as follows –
 simplification;
 flexibility and diversity of corporate structures;
 corporate efficiency in relation to capital maintenance,
board structures and directors’ responsibilities, duties
and liabilities; remedies for minority shareholders to avoid
their being locked in; reform of the mergers and take-overs
The Professional Accountant 27
 regime; and a business rescue system to replace judicial
management;
 transparency, which includes the proper recognition of
director accountability, and appropriate participation
of other stakeholders; truth and accuracy in public
pronouncements; the protection of shareholders’ rights,
the protection of minority shareholders and shareholder
activism, and accounting standards;
 predictable regulation, including the decriminalisation of
company sanctions where possible, appropriate bodies for
the enforcement of company law, and the achievement of a
balance which avoids over-regulation.
Those goals are formally stated in section 6 of the Bill, which
sets out the purposes of the envisaged legislation.
The future of close corporations
In addition to the proposed repeal and replacement of
the Companies Act, 1973, it is envisaged that there will be
a “possible eventual repeal” of the Close Corporations Act
“following a 10-year experimental period during which both
would be concurrently in place”.
There will be widespread relief at this extended lease of
life for close corporations, for they have proved both popular
and practical, and nearly 1.3 million had been registered as at
February 2007.
The justification put forward for the repeal of the Close
Corporations Act is that the regime created by the proposed new
Companies Act will be sufficiently streamlined and simplified as
to render it unnecessary to retain close corporations as a separate
corporate form, governed by a separate Act. Only time will tell
whether this goal will be achieved, and a ten-year assessment
period is a realistic time frame. However, the simplified
corporate regime established by the Close Corporations Act
will not disappear. The Explanatory Memorandum says that
“company law should provide for an appropriate diversity of
company structures” and it seems that one such structure
will reflect “the characteristics of close corporations, as one
of the available options”. It seems, therefore, that closely-held
companies, under the new legislation, will take over some of
the features of close corporations.
Insolvency legislation
The Explanatory Memorandum reveals that the Dept of
Justice is proposing the development of uniform insolvency
legislation that, if brought to fruition, would overlap and
possibly conflict with the regime set out in the Companies Act,
1973 for dealing with and winding up insolvent companies.
To avoid any future conflict, the Dept of Trade and
Industry “proposes a transitional arrangement that will
retain the current regime as set out in chapter 14 of the
Companies Act, 1973, without alteration, on an interim
28 The Professional Accountant
basis until such time as any new uniform insolvency law
2
may be enacted and brought into operation”.
Envisaged institutional reforms
The draft Bill proposes the establishment of one new
institution, the Companies Ombud, and the transformation
of three existing company law institutions, namely the
Securities Regulation Panel (“SRP”), the Companies and
Intellectual Property Registration Office (“CIPRO”), and the
Financial Reporting Standards Council (“FRSC”).
It is proposed that the Securities Regulation Panel
become an independent organ of state, to be called the
Take-over Regulation Panel, with powers similar to those
currently vested in the SRP, but its powers will be exercised
in consultation with the minister of trade and industry.
The FRSC will be re-established as an advisory committee
to the Minister, with responsibilities to advise on
regulations governing the form, content and maintenance
of companies’ financial records and reports.
It is envisaged that CIPRO (which is currently located
within the Dept of Trade and Industry) and the enforcement
functions presently vested in the DTI will become a newly-
established organ of state, to be known as the Companies
and Intellectual Property Commission (“CIPC”). Most of the
administrative functions currently vested in the Minister
under the Companies Act will be located within the CIPC, but
the Minister will retain the power to issue policy directives
to the CIPC and require the CIPC to conduct investigations
in terms of the Act.
The envisaged Companies Ombud will be an independent
organ of state with a dual mandate: firstly, to serve as a
forum for alternative dispute resolution in any matter
arising under the Act, and secondly, to carry out reviews of
administrative decisions made by the Commission or the
Take-over Regulation Panel “on an optional basis”.
Decisions of the Ombud will be binding on the
Commission or the Panel, but not on the other party, and
the latter will retain a right of access to the ordinary courts
for further review.
As is presently the case, the High Court is to remain
the primary forum for the resolution of disputes and the
interpretation and enforcement of the Companies Act. 
FOOT NOTES
1
See the Explanatory Memorandum which accompanies
the Bill, p 5.
2
Explanatory Memorandum p 6.
Extracted from the Corporate Law, Partnerships and
Trusts Sibergramme, a regular update written by
Prof Bob Williams and published by Siber Ink, and is
reproduced here by kind permission.