Module 5: Statutory Aspects

Companies Act, CC Act & PFMA

Prof. Ben Marx
2019
1. STUDY APPROACH: COMPANIES ACT

• 2 Classes (6 & 13 March) : 14 hours (7 x 2)

• Home : Self study

• Revise and study the Act : DA CH 4 +/- 7 hours
• Reference to Act : NB issue of DA +/- 2 hours
• Revise class questions +/- 2 hours
• Do self-assessment questions +/- 3 hours

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2. IMPORTANCE

• Practice: Embedded knowledge

• Good CA (C&I)
• Good auditor

• Studies/Examination: Regularly asked

• UJ
• ITC (CE)

• Topics
• Companies Act 71 of 2008 & Regulations 2011
• CC Act
• PFMA

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3. STUDY SOURCE & STUDY APPROACH

• Dynamic Auditing: CH 4
• Study from the textbook
• Embedded knowledge
• Companies Act: open book
• Reference purposes
• Highlight, flag
• Guideline of SAICA & IRBA on non audit services ito sec 90
• Read the guideline and be able to apply
• Questions :
• Revision questions
• Class questions
• Self-assessment questions

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4. TYPES OF QUESTIONS

• Validity/legality of actions/transactions/etc.
• Companies Act Requirements for actions or transaction

or

• Audit procedures of statutory issues or accounts

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5. EXAMINATION TECHNIQUE

• Validity or legality of transactions/actions or Companies Act requirements

• Identify the issues of the question to address
• This is the headings to the answer

• Give the applicable Companies Act requirements for the issues

• Measure the given information of the question against the requirements
• Conclusion

• Example
• Empowerment transactions (issues of shares, financial assistance, personal financial interest)
• Sale of assets (authorization/personal financial interest, etc).
• Distributions - dividends (decision, authorization, requirements)

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5. EXAMINATION TECHNIQUE (continued)

• Audit procedures of transactions/actions

• Identify the statutory/companies act issues to audit

• Audit:
• compliance with the statutory requirements
• the accounting entries and disclosure

Example
• share buy-backs ; share issues; sale of assets
• etc.

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6. COMPANIES ACT 71 of 2008

• Corporate Law reform initiated by DTI in 2005

• Corporate Laws Amendments Act, 14 Dec 2007
• New Companies Act: 71 of 2008 signed on 8 Apr 2009
• Expected implementation date was : 1 July 2010
• Implementation date 1 May 2011 (Effective date)
• Some amendments to Act and regulations in the pipeline

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How should the Act be used

Companies Act, 2008

Companies Regulations
(gazetted), 2011

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Interaction between King IV and the Companies Act

• King IV aligned with the new Companies Act

• Provides best practices
• Apply and explain
• Could be viewed by courts as the benchmark for the required standard of best practice
• Companies Act requires compliance
• Link with JSE listing requirements
• Listed companies should comply

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7. CLOSE CORPORATIONS & PFMA

• CLOSE CORPORATIONS
• Will remain
• No new registrations after effective date
• More than 1,9 Million CC ► important
• Good working understanding: practice and studies: DA Ch 4

• PFMA
• Public entities
• Awareness level

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)
Section no. Section of Act
Chapter 1: Interpretation, purpose and application
2 Related and inter-related persons
3 Subsidiary relationships
4 Solvency and liquidity test
8 Categories of companies
Chapter 2: Formation, administration and dissolution of companies
15 Memorandum of Incorporation, shareholder agreements and rules of company
16 Amending Memorandum of Incorporation
19 Legal status of companies
20 Validity of company actions
21 Pre-incorporation contracts
22 Reckless trading prohibited
24 Form and standards for company records
27 Financial year of company
28 Accounting records
29 Financial statements
30 Annual financial statements

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)
(continued)
Chapter 2: Formation, administration and dissolution of companies
35 Legal nature of company shares and requirement to have shareholders
36 Authorisation for shares
37 Preferences, rights, limitations and other share terms
38 Issuing shares
39 Pre-emptive right to be offered and to subscribe shares
40 Consideration for shares
41 Shareholder approval for issuing shares in certain cases
42 Options for subscription of securities
44 Financial assistance for subscription of securities
45 Loans or other financial assistance to directors (Directors loans)
46 Distributions must be authorised by board
47 Capitalisation of shares
48 Company or subsidiary acquiring company’s shares (Share buybacks)
57 Interpretation and restricted application of Part
58 Shareholder right to be represented by Proxy
60 Shareholders acting other than at meeting

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)

(continued)
Chapter 2: Formation, administration and dissolution of companies
61 Shareholders meetings
62 Notice of meetings
63 Conduct of meetings
64 Meeting quorum and adjournment
65 Shareholder resolutions
66 Board, directors and prescribed officers
67 First director or directors
68 Election of directors
69 Ineligibility and disqualification of persons to be director or prescribed officer
70 Vacancies on board
71 Removal of directors
72 Board committees
73 Board meetings
74 Directors acting other than at meeting
75 Director’s personal financial interests
76 Standards of directors’ conduct
77 Liability of directors and prescribed officers
78 Indemnification and directors’ insurance

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)
(continue)
Chapter 3: Enhanced accountability and transparency
84 Application of Chapter
85 Registration of secretaries and auditors
86 Mandatory appointment of company secretary
88 Duties of company secretary
89 Resignation or removal of company secretary
90 Appointment of auditor
91 Resignation of auditors and vacancies
92 Rotation of auditors
93 Rights and restricted functions of auditors
94 Audit committees
Chapter 5: Fundamental transactions, takeovers and offers
112 Disposal of greater part of the undertaking or assets
114 Mergers, acquisitions, schemes of arrangement
Chapter 6: Business rescue
128 -133;136-138 Business rescue process and practitioner

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)
(continued)
Chapter 7: Remedies and enforcement
159 Protection for whistle-blowers
160-168 Rights to seek specific remedies / Application to:
• Alternative dispute resolution
• Companies tribunal
• High Court
• Commission

162 Application to declare director delinquent or under probation

Chapter 9: Offences, miscellaneous matters and general provisions
213 Breach of confidence
214 False statements, reckless conduct and non-compliance

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8. IMPORTANT SECTIONS FOR ITC (Act 71 of 2008)
(continued)
Schedule 3: Amendment laws
A Close Corporations Act, 1984
Schedule 5: Transitional arrangements
1 Interpretation
2 Continuation of pre-existing companies
3 Pending filings
4 Memorandum of Incorporation and rules
5 Pre-incorporation contracts
6 Par-value of shares, treasury shares, capital accounts and share certificates
10 Preservation and continuation of court proceedings and orders
14 Regulations

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9. REGULATIONS (at the back of the Act)

More important regulations (use SAICA book as

reference):
• 25 Financial year and accounting records
• 27 Financial reporting standards
• 28 Categories of companies required to be audited
• 29 Independent review
• 30 Annual returns
• 31 Conversion of PV to NPV shares
• 38 Prescribed officer
• 43 Social and ethics committee

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