Companies Act

No 71 of 2008

Auditing 221E
Unit 3

1
Lecture Plan
• Directors
• Enhanced accountability and transparency
• Company secretary
• Auditors
• Other

• Sections:
• 66-70, 71-78, 84-89, 90-94
Directors (1)
• 66 – Board, directors and prescribed officers
• Management of business affairs by BOD
• Authority to exercise powers and perform functions of the co (except as ltd by
MOI)
• Private company (or Inc) – min 1 director
• Public (or non-profit) – min 3 directors
• MOI may provide for:
• Direct appointment and removal by any person named in MOI (but at least 50% must be
elected by SH in profit co) e.g. Chairperson
• Higher min number of directors
• Ex-officio directors (holds office as consequence of holding other office, title, designation
or status)
• Ineligibility / disqualification criteria (s69)
• Consent to act as director in writing
• Remuneration – directors emoluments for services as director (special
resolution, within last 2 years)
Directors (2)
• 68 – election of directors (by shareholders)
• Each director must be:
• Elected by the persons with voting rights
• To serve for an indefinite term (or per MOI)
• Voted on individually
• Each voting right used only once per candidate and a
50% majority is required
Directors (3)
• 69 – Ineligibility and disqualification of persons to
be director or prescribed officer (NB)
• Person ineligible or disqualified must not be appointed,
elected, consent to be or act as a director
• Ineligible
• Juristic person, or
• Unemancipated minor (or under similar legal disability), or
• Does not meet the requirements of the MOI
• If eligible, must still pass the qualification criteria - may
still be disqualified (refer next) and then must not be
appointed
Directors (4)
• Disqualification:
• Prohibited or declared delinquent by a court
• Unrehabilitated insolvent
• Prohibited ito any public regulation
• * Has been removed from office of trust on grounds of misconduct
involving dishonesty, or
• * Has been convicted, in RSA or elsewhere, and imprisoned without the
option of a fine, for theft, fraud, forgery, perjury or an offence:
• Involving fraud, misrepresentation or dishonesty
• In connection with the promotion, formation or management of a company or
• Under the Insolvency Act, Companies Act, Close Corporation Act, the Financial
Intelligence Centre Act, the Securities Service Act or Chpt 2 of the Prevention
and Combating of Corruption Activities Act
• Disqualification lifted after 5 years after the date of removal/
sentence for * above, however commission may apply to court for
extension
Directors (5)
• Disqualification
• MOI may impose additional grounds
• For purposes of s69, Director means
• A prescribed officer
• A member of a committee of the board
• A member of the audit committee
• Commission must establish and maintain a public
register of persons who are disqualified from being a
director or who are on probation as a director
Directors (6)
• 70 - vacancies on the board
• New appointment by the person named in the MOI
• At the next AGM, or
• Within 6 months of the vacancy arising at a SH meeting
or by a poll in accordance with s60
• File a notice within 10 business days after person
becomes or ceases to be a director
Directors (7)
• 71 – removal of directors
• By ordinary resolution at SH meeting, but before this can happen, the
following must have taken place:
• Give director notice of meeting and resolution to remove him, notice period same as
for SH (ie 15 days or 10 days)
• AND
• Director must be afforded reasonable opportunity to make a representation (in person
or through a representative)
• to the meeting before voting takes places
• If a SH or director alleges that a fellow director has become
• Ineligible or disqualified, or
• Incapacitated so that cannot perform as director, or
• Negligent or derelict in this duties as director
• Then the board MUST consider the allegation and may vote on the removal
of the director (still subject to notice and representation)
• 20 days to apply to court for a review either way (accused or BOD where
accused not removed)
• Different for co where less than 3 directors – apply to Companies Tribunal
Directors (8)
• 72 – Board Committees
• (except as ltd by MOI), board may
• Appoint any number of committees of directors
• Delegate any authority of the board to any committee
• The “sub” committees
• May include persons who are NOT directors, BUT
• Such person must not be ineligible or disqualified if they were to be
directors (S69) and
• Will not have a vote on any matters to be decided by the company
• Delegation by a director does not constitute compliance by a
director of his duties
• Minister HAS prescribed the appointment of a social and ethics
committee (public interest with regards to turnover, size of
workforce, nature and extent of activities) – Reg 43
 Directors (9)
• 73 – board meetings
• A director authorised the board
• May call a meeting at any time
• Must call a meeting if required to do so by 25% of directors if dir>12, or 2 directors if dir<12
• MOI may change % up or down
• May be conducted electronically (same req as SH)
• Notice – board must determine form and time – MOI
• Quorum – majority must be present before a vote may be called
• Voting – one director one vote, majority casts a resolution, chair has casting vote in case of
tie (if did not initially vote) otherwise in case of tie, matter fails
• Requirement to keep minutes
• Resolutions adopted must be dated, sequentially numbered, and immediately
effective (unless date stipulated in resolution)
• 74 – directors acting other than at meeting
• (MOI) resolution can be adopted also by written consent or electronic
communication, provided each director has received notice of matter to be
voted on
Directors (10)
• 75 – directors personal financial interests
• Director includes:
• Alternate directors
• A prescribed officer, and
• A person who is a member of a board committee, or an audit
committee member, irrespective of whether that person is also
a board member
• Does not apply to decisions:
• Which affect all directors in their capacities as directors
• Which affect a class of persons
• If one person holds all the beneficial interest of the company’s
issued shares and is also that company’s only director
Directors (11)
• Common law – all contracts btw dir and co are voidable at the option of the co
• Requirements
• May disclose personal financial interest in advance (deliver to board a notice setting out
nature and extent of interest)
• If in a matter to be considered at a board meeting:
• MUST disclose before the matter is considered
• MUST disclose material information relating thereto
• MAY disclose observations / pertinent insights thereto
• MUST leave after making the above disclosures
• MAY NOT vote in the decision
• While absent from meeting:
• Absent director still forms part of quorum
• Is not considered present for voting purposes
• MUST NOT auth / approve etc documents in the matter unless requested by board
• Decision, transaction or agreement will then be considered VALID (approved
ito this section after full disclosure) Ratified by SH if contract approved without
full disclosure. Court may still declare a transaction valid in other
circumstances
Directors (14)
• 76 – standards of directors’ conduct (NB)
• A director MUST:
• Not use the position of director / information obtained whilst acting as
director, to
• Gain advantage (self or other) other than for Co
• Knowingly cause harm to Co
• Communicate with Board if any information comes to his attention, unless
he believes that the information
• Is immaterial
• Generally publically available
• Bound by legal or ethical obligation of confidentiality
• Exercise the powers and functions of director
• In good faith
• In the best interests of the Co
• With the degree of care, skill and diligence reasonably expected of a director
Directors (15)
• 77 – liability of directors and prescribed officers
• Director may be held liable
• Common law – breach of fiduciary duty – for any loss, damages or
costs sustained by the company iro the director failing to:
• Disclose a personal financial interest
• Avoid a conflict of interest (using position to gain advantage or harm
co.)
• Act in good faith and for a proper purpose
• Act in the best interests of the company
• Common law – delict – for any loss, damages or costs sustained by
the company as a result of any breach of the director of:
• Duty to act with necessary degree of skill, care and diligence
• Any provision of the Act not specifically mentioned in this section
• Any provision of the MOI
Directors (16) Pg 3/46
• Director may be held liable to the company for loss, damages or
costs arising as a direct or indirect consequence of the director
(NB always the requirement of “knowing...”)
• Acting for the Co despite knowing he lacked authority
• Carrying on reckless trading, eg trading in insolvent circumstances
• Being party to an act or omission pursuant to defrauding a creditor,
employee or shareholder or any other fraudulent purpose
• Having signed, or consented to, publication of a document which was
false, misleading or untrue (despite having knowledge of such)
• Being present at a meeting (etc) and failing to vote against:
• Issuing of unauthorised shares, securities etc
• Provision of financial assistance in contravention of Act
• Approving a distribution in contravention of Act
• Acquisition by the Co of its own shares, contrary to the Act
• Allotment contrary to the Act
Directors (17)
• Each shareholder has right to claim damages from any
director
• MOI and rules will be binding btw each director
(prescribed officer) and the Co
• Director includes:
• Alternate directors
• A prescribed officer, and
• A person who is a member of a board committee, or an audit
committee member, irrespective of whether that person is also
a board member
Directors (18)
• 78 – Indemnification and directors insurance
• Provisions seeking to relieve directors of their duties in MOI
etc are VOID
• S75 personal financial interest
• S76 standards of directors conduct
• S77 liability arising from breach of fiduciary duty or in delict
• Provisions seeking to limit, negate, or limit legal consequence
from an act of omission which constitutes wilful misconduct or
wilful breach of trust will also be void
• Co may not directly or indirectly pay any fine imposed on a
director of the company (offence ito national legislation)
• Co may advance expenses to a director in defence of litigation
(subject to MOI)
Directors (19)
• Indemnity
• (Except for MOI), company may indemnify a director iro liability
EXCEPT where the director:
• Acted in name of Co despite knowing lacked authority to do so
• Acquiesced (agreed without protest) in reckless trading, with
gross negligence, with intent to defraud or trading under
insolvent circumstances
• Was party to an act or omission intended to defraud
• Committed wilful misconduct or wilful breach of trust
• Any fine (offence in terms of any national legislation, i.e.
Convicted of an offense)
• Wider definition of directors applies
Enhanced accountability & transparency
• 84 – application of chapter
• Chapter 3 – Enhanced accountability and transparency
• Focuses on improving accountability and transparency of companies in which the
public has an interest by setting requirements for every public and state-owned
company (or to extent required by MOI) to appoint:
• Company secretary
• External auditor (req by other co if AFS audited)
• Audit committee
• 85 – registration of company secretary and auditor
• Every company that appoints above, voluntarily or ito act, must maintain a record
of its company secretary and auditor
• Name of person
• Date of appointment
• If juristic person:
• Name, registration and registered office address
• Name of designated auditor
• Notice of appointment to be filed within 10 days
Company secretary (1)
• 86 – mandatory appointment of secretary
• Public or state owned MUST appoint
• Resident in SA (all the time whilst serving)
• Vacancy to be filled within 60 days by board
• Requisite knowledge & experience of relevant laws
• Directors disqualification criteria apply
• 87 – juristic person or partnership may be appointed
company secretary
• Provided that:
• No employee of juristic person would be disqualified as a director
• At least one of the employees/partners
• is resident in SA (all the time whilst serving)
• has the requisite knowledge and experience
Company secretary (2)
• 88 – duties of company secretary
• Accountable to BOD
• Guidance to directors on their duties
• Making directors aware of any law relevant to Co
• Reporting non-compliance (law or MOI) to the BOD
• Proper recording of minutes of all meetings:
• SH
• Directors
• Board committees
• Audit committee
• Certifying in AFS that company admin (forms, returns, notices
filed) are true, correct and up to date
• Copy of AFS sent to every person who is entitled
Company secretary (3)
• 89 – resignation or removal of company secretary
• Resignation
• One month’s written notice, or
• Less than one month with approval of board
• Removal
• He may require Co to include a statement of reasonable length
in AFS setting out secretary’s opinion on the circumstances
which resulted in his removal (included in directors report)
Auditors (1)
• Sections:
• 90 – 94
• 90 – Appointment
• Public and state owned companies must appoint
• An auditor must be:
• Registered auditor
• An auditor must NOT be (or have been in the last 5 years)
• Director/officer of company
• Employee / consultant – maintenance / prep of fin records
• Dir / employee / officer of company secretary company
• Person who habitually performs duties of accountant or bookkeeper or performs
company secretarial work
• Acceptable to audit committee
• Directors disqualification criteria
• Re-appointment of retiring auditors automatic unless... ss(6)
Auditors (2)
• 91 – Resignation of auditors and vacancies
• Notice of registration required, effective from date
thereof
• Procedure iro vacancies
• Board to propose to AC name of RA to be considered (15 days)
• AC has 5 days to reject in writing, otherwise board may appoint
• New appointment must be made within 40 business days
• 92 – Rotation of auditors
• 5 year max (auditor or designated partner of firm)
• If appointed for more than 2 years, then resigns, may not
be reappointed for a further 2 years
Auditors (3)
• 93 – Rights and Restricted Functions (NB NB NB)
• Right of access at all times to the accounting records and all
books and documents of the company and entitled to require
from the directors information and explanations necessary for
the performance of his/her duties
• Auditor of holding company – FS of subsidiary and requirement
of directors of HC and SC information and explanations etc...
• Entitled to:
• Attend any GM of shareholders (including AGM)
• Receive all notices of and other communications relating to any general
shareholders meetings
• Be heard at any general shareholders meeting on any part of the
business of the meeting that concerns the auditor’s duties or functions
Auditors (4)
• 94 – Audit committees
• Public and state owned to elect at annually AGM
• At least 3 members, unless sub of HC with AC and that AC will
perform AC duties for sub
• Each member of AC:
• MUST
• Be a director
• Meet minimum qualifications for AC
• MUST NOT BE
• In day to day management
• a prescribed officer now or in last 3 years
• Material supplier or customer (integrity, impartiality, objectivity of members)
• Be a related person to any person subject to the above prohibitions
* Regulation 42
Auditors (5)
• Sec 94(7) : Duties of AC – these must be learned in
detail - refer to Jackson and Stent Pg 3/53 - 3/54
Section 112
Proposal to dispose of all or greater part of
assets/undertaking:
• SR
• Notice as required
• Notice includes written summary of terms of transaction
• If subsidiary co - the Holding Co SR req
• N/A:
• Business rescue plan
• Between wholly owned subsidiary & holding co
• Between wholly owned subsidiaries of same holding co

29
Remaining Companies Act sections
• The following sections must be self-studied:
• S11 – criteria for names of companies
• S13 – rights to incorporate company
• S14 – registration of company
• S23 – registered office
• S26 – access to company records
• S27 – financial year of company
• S32 – use of company name and registration
• S33 – annual return
• S34 – additional accountability requirements for certain
companies
Remaining Companies Act
sections
• The following sections must be self-studied:
• S35 – legal nature of company shares and requirement to
have shareholders
• S36 – authorisation for shares
• S37 – preferences, rights, limitations and other share terms
• S39 – subscription of shares
• S48 – company or subsidiary acquiring company’s shares
• S49 – securities to be evidenced by certificates or
uncertificated
• S51, 52 and 53 – registration and transfer or certificated
and uncertificated securities
Remaining Companies Act
sections
• The following sections must be self-studied:
• S55 * – liability relating to uncertificated shares
• S59 – record date for determining shareholders rights
• S60 – shareholders acting other than at meetings
• S67 – first director or directors
Chpt 5: Fundamental transactions, takeovers and offers
• S112 – proposals to dispose of all or greater part of
assets or undertaking (NB)
• S113 – proposals for amalgamation or merger
• S114 – proposals for scheme of arrangement
Remaining Companies Act
sections
• The following sections must be self-studied:
Chapter 6: Business rescue and compromise with creditors
• Part A: Business rescue proceedings
• Part B: Practitioner’s functions and terms of appointment
• Part C: Rights of affected persons during business rescue
proceedings
• Part D: Development and approval of business rescue plan
Chapter 7: Remedies and Enforcement
• Part A: General principles
• Part B: Rights to seek specific remedies
Remaining Companies Act
sections
• The following sections must be self-studied:
Chapter 8: Regulatory Agencies and Administration of Act
• Part A: Companies and Intellectual Property Commission
• Part B: Companies Tribunal
• Part C: Takeover Regulation Panel
• Part D: Financial Reporting Standards Council
• Part E: Administrative provisions applicable to Agencies
Chapter 9: Offences, miscellaneous matters and general
provisions
• Part A: Offences and penalties
• Part C: Regulations etc
Remaining Companies Act
sections
• Sections not examinable
• Chapter 2 Part G - Winding up of solvent companies and
de-registration of companies
• Chapter 5 – Part B – authority of panel and takeover
regulations
• Chapter 5 – Part C – regulation of affected transactions
and offers
• Chapter 7: Parts C – F
• Chapter 9: Part B: Miscellaneous matters