Agenda Definitions Categories of companies Reservation and - - PDF document

SLIDE 1

10/12/2011 1

October and November 2011

Agenda

• Definitions
• Categories of companies
• Reservation and registration of company names
• MOI, rules and shareholders agreements
• Transparency, accountability and integrity of companies
• Governance of companies
• Governance of companies
• Shareholders’ rights
• Enhanced accountability and transparency
• Fundamental transactions
• Business rescue

2

Definitions

Person

• Includes a juristic

person

Prescribed officer

(Reg 38)

• Exercise or regularly

participates to a material degree general executive

Knowing, knows, knowingly

• Had actual knowledge
• Was in a position to

reasonably ought to have had actual general executive control over, and management of the whole, or a significant portion of the business and activities

• Irrespective of title and

function have had actual knowledge, investigated the matter, taken other measures to become informed

• Ignorance no longer a

defence

3

SLIDE 2

10/12/2011 2

Definitions

Financial statements

• Annual financial statements
• Interim or preliminary

reports

• Group and consolidated
• Financial information in

circular, prospectus or provisional announcement that creditor shareholder, regulatory authority rely on

Distribution

• Transfer of money/property

to holder of share or beneficial interest:

• Dividend
• Payment in lieu of

capitalisation share

• Consideration for

acquisition by company for its shares

Beneficial interest

• Right or entitlement i.r.o

securities to:

• Receive or participate in

any distribution

• Exercise any or all of the

rights attaching to securities

• Dispose securities, or any

part of a distribution

• Incurrence of

debt/obligation for benefit

• f holders of shares
• Forgiveness or waiver of

debt/obligation owned to company by holders of shares

• Exclude any payment upon

final liquidation

• Exclude interest held by

person in unit trust

4

Related and inter-related persons

Individual to another individual

Married

Individual to juristic (includes a foreign company and trust)

Directly or indirectly

Juristic to another juristic

Directly or indirectly controls the other or the business of the other Live together similar to marriage Separated by 2 degrees

• f consanguinity

Directly or indirectly controls the juristic person (majority voting rights or appoint majority directors votes) Subsidiary of the other Person controls each of them or the business of each of them

Two or more persons are inter-related if the 1st and 2nd persons are related, the 2nd and 3rd persons are related and so forth in an unbroken series

Sec 2 5

Categories of companies

PFMA definition PFMA definition Gain vs Public Benefit Gain vs Public Benefit

Companies Profit Not state-

• wned

State-

• wned

Non-profit

Name Name MOI MOI

• wned

Private company (Pty) Ltd. Personal liability company Inc. Public company Ltd.

• wned

State-

• wned

company SOC Ltd. Non-profit company NPC Sec 8 6

SLIDE 3

10/12/2011 3

Categories of companies

State-owned company

• Defined by PFMA

Act; or

• Owned by a

municipality

• Same provisions

apply as for public companies Private company

• Profit company:
• Not a state-owned

company or a personal liability company; and

• MOI prohibits offering
• f securities to the

public Personal liability company

• Meets the criteria

for a private company.

• MOI states it is a

personal liability company

• Directors and past

Public company

• A profit company

that is not:

• State - owned

company; or

• Private; or
• Personal liability

company p p

• Restricts transferability
• f securities
• No limit on no. of

shareholders (prev. 50) p directors are jointly and severally liable

• Name ends with

“Incorporated” or “Inc.” company

• Name ends with

“Limited” or “Ltd.”

• Min number of

incorporators reduced from 7 to 1

7

Close corporations

Notice of conversion to be filed (Form CoR 18.1) Every member becomes a shareholder if qualified No need for Legal Juristic persona, Close Corporations Act is amended to include CCs in company provisions Act and CC Act will run concurrently 75% written consent needed shares to be in proportion to members’ interest assets, liabilities and legal proceedings continue CC must comply with both

Schedule 2 and reg 18 8

Names of companies

Prohibited

• Similar to another

company, business or person

• Falsely implying

associations

• Propaganda of war,

hate speech, violence, etc

• Similar to another

company, business or person

• Falsely implying

associations

• Propaganda of war,

hate speech, violence, etc Suffixes

• If number used:
• “(South Africa)”
• If MOI contains special

conditions (restrictive

• r procedural

conditions):

• “(RF)”
• If number used:
• “(South Africa)”
• If MOI contains special

conditions (restrictive

• r procedural

conditions):

• “(RF)”

Other

• No need to be

descriptive (reflect nature of business)

• Any letters, words and

some symbols (* + & # @ % = “()

• No requirement to

reserve a name (may

• No need to be

descriptive (reflect nature of business)

• Any letters, words and

some symbols (* + & # @ % = “()

• No requirement to

reserve a name (may etc

• Commission will issue

notice if another party has interest in name etc

• Commission will issue

notice if another party has interest in name reserve a name (may reserve to protect)

• Name reservation: valid

6 months, with 60 day extensions

• If name is already in

use Commission will use registration number reserve a name (may reserve to protect)

• Name reservation: valid

6 months, with 60 day extensions

• If name is already in

use Commission will use registration number

Sec 11

Name and registration number in legible characters on all documentation

9

SLIDE 4

10/12/2011 4

MOI + Rules

Consistent with Act Void otherwise Sets out rights, duties, responsibilities

• f shareholders and directors

Alter any alterable provision Board may make rules (subject to MOI) Publish to shareholders and file copy with Commission Filed within 10 business days after being published/ratified/rejected/amended Contain restrictive conditions/Prohibit amendment of any provision Amended by special resolution adopted at shareholders meeting p j Permanently binding if ratified by

• rdinary resolution

If filed but not ratified Board may not make similar rule within 12 months

MOI Rules

Sec 15 & Reg 16 10

Shareholders agreements

• Consistent with Act and

MOI

• Some issues previously

addressed in shareholders agreement now included in MOI (e.g. directors authority to manage)

• Valid for two years
• Agreement prevails over Act
• Ends if agreement is

amended within two year period

Prohibited Transitional period

Sec 15(7) 11

Company records

Location Accessible from registered office File notice setting out location if not kept at registered office Form Written form Another manner that allows information to be converted in written form Retention period Minimum of 7 years Longer period as per regulations written form

Sec 24 12

SLIDE 5

10/12/2011 5

Company records

For 7 years Reports presented at AGM Annual financial statements Accounting records Notice and minutes of shareholders/ directors/ committee meetings Resolutions adopted by shareholders Written communication to shareholders Indefinitely Copy of MOI Any amendments to MOI Copy of rules Registration certificate Register of directors (7 years for past director) Securities register/ secretary/auditor

Sec 24 13

Directors’ register

Name and former names ID/passport or date of birth Nationality Occupation Date of most recent appointment Name and registration number of all companies of which the person is a director Professional qualifications and experience of a director who sits on the audit committee Address for service

Sec 25 and Reg 23

Regulations

14

Access to company records

Method

Direct request, personally or through attorney in writing PROATIA

Who?

Security holders Any other person: Only

Security holder access?

MOI and rules All registers

Excluded: Minutes and resolutions of directors and committee meetings

PROATIA CIPC registers (fee payable) Creditors: F/S within 5 business days Unions: Access to F/S through CIPC to begin business rescue All registers Annual financial statements and all reports at AGM All information relating to shareholders

Members and directors register available for inspection during business hours

Sec 26 15

SLIDE 6

10/12/2011 6

Accounting records

Complete Accurate One official language Support preparation of F/S, audit and review requirements Adequate precaution against theft, loss, falsification, intentional and accidental damage or destruction Facilitate the discovery of falsification Capable of being retrieved to a readable and printable form

Warning: Commission may issue compliance notice in respect

• f any failure to comply with accounting record requirements

Sec 28 and Reg 25 16

Accounting records

Non current assets

Date acquired and cost

Loans to/from shareholders, directors, prescribed officers and employees including related persons

Amount interest

Property held in fiduciary capacity NPC: Revenue received from donations grants Revenue and expenses

Daily records of cash in and out

Daily records of goods purchased and sold on dit/ f ti

Date re-valued, amount, basis and reason Date disposed, value, name of person Amount, interest rates, terms Guarantee, surety ships, indemnity

donations grants, members fees

credit/ names of parties

Stock take records Vouchers/supporting documents

Sec 28 and Reg 25 17

Financial year end

Requirements First financial year

Begins: Date of incorporation

Change of year-end

Only once during financial year Ending on date set

• ut in MOI

Ends: Date set out in Notice of Incorporation (not more than 15 months) Not more than 15 months after end of preceding financial year

Sec 27 18

SLIDE 7

10/12/2011 7

Financial statements

Financial statements (including annual financial statements)

• Satisfy financial reporting standards
• Present fairly state of affairs and

business

• Explain transactions and financial

position

• Show assets, liabilities, equity, income

and expenses Continue

• May not be false or misleading in any

material respect

• Incomplete in any material particular
• Guilty of offence if person is party to

preparation, approval, dissemination

• r publication and knowing that it is

materially false or misleading

• Set out the date when published and

accounting period

• Bear on first page prominent notice

indicating whether audited, reviewed

• r not
• Name and professional designation of

individual who prepared or supervised

Sec 29

May provide summary

19

Annual financial statements

Public and State-owned company

• Audit

Other profit or non-profit company

• Audit if

required by regulations; or

• Audited

voluntarily if required by MOI, shareholders

Owner managed companies

• Every security

holder is a director

• Exempt from

audit or independent review unless:

• Regulations

shareholders resolution or determined by board; or

• Independently

reviewed if required by regulations Regulations require audit,

• r
• Another law
• r

agreement require either audit

• r review

Sec 30 20

Annual financial statements

Requirements

• Include an auditor’s

report if audited

• Directors report
• Approved by the board

and signed by authorised director

• Presented at first

When?

• Within 6 months after

financial year-end

• No extension

Presented at first shareholders meeting after approval by the board

• Consolidated F/S to

comply with FRF

Sec 30 21

SLIDE 8

10/12/2011 8

Annual financial statements: dir’s remuneration

Requirements

• If audit is required
• Paid to each director and

prescribed officer (current and past)

• For services rendered

(including services rendered to other companies in group) Disclose

• Remuneration and benefits
• Pensions paid/pension

scheme payments

• Loss of office
• Number and class of

securities issued and consideration received (including related persons)

• Details of service contracts

Includes

• Fees paid for services

rendered as directors

• Salary, bonuses and

performance related payments

• Expense allowances (not

accounted for)

• Value of option or rights

(including future director)

Special resolution to approve remuneration for fees paid for service as directors

• Details of service contracts

(including future director)

• Financial assistance to

purchase options or securities (including future director)

• Interest deferred, waived
• r forgiven
• Difference in value

between market related interest and actually charged Sec 30 (4-6)

22

Public interest score

What? Who? Every company How?

• Sum of:
• Average number of employees

during the financial year

• 1 point: R1 mil (portion) third

party liability at year end

• 1 point: R1 mil (portion) turnover

during financial year When? At the end of each financial year Public interest score g y

• 1 point for every known

individual who directly or indirectly has beneficial interest in issued security (non-profit company a member)

Reg 26 23

Public interest score

• Defined in Labour Relations Act
• Include temporary staff
• Exclude independent contractors
• Exclude labour broker
• Based on applicable reporting

framework

• Gross Income
• Sales, services, royalties, interest

and dividends

• Excludes: Amount excluded from

gross revenue as per reporting framework, taxes or rebates, gains

• n non-current assets and foreign

t ti

Employee

currency transactions

Turnover

24

SLIDE 9

10/12/2011 9

Financial reporting

Public listed/State owned IFRS/ PFMA All listing requirements ( Public not listed IFRS/IFRs for SME’s (meeting scoping requirements for SMEs) Profit or non-profit In ordinary course of its primary activities hold assets in fiduciary capacity for unrelated persons > R 5 mil (aggregate) NPC incorporated by state, international entity, foreign state entity, or foreign company “PIS” is 350 or more or at least 100 and AFS internally il d (require all companies in group to be audited) Audit Secretary, auditor, audit committee Audit Secretary, auditor, audit committee compiled IFRS/ IFRs for SME’s (meeting scoping requirements for SMEs) Audit

25

Private companies

Audit Audit Audit Audit None Audit Review Audit None None Review Review

PIS 350 100

None None Review Review

Independently compiled Internally compiled Independently compiled Internally compiled Owner managed Not owner managed

Audit Review None

26

Reporting framework for private companies

IFRS or IFRS for SMEs IFRS or IFRS for SMEs IFRS or IFRS for SMEs IFRS or IFRS for SMEs iFRS or IFRS for SMEs or SA GAAP IFRS or IFRS for SMEs or SA GAAP IFRS or IFRS for SMEs or SA GAAP IFRS or IFRS for SMEs or SA GAAP IFRS or IFRS IFRS or IFRS

PIS 350 100

IFRS or IFRS for SMEs IFRS or IFRS for SMEs or SA GAAP No requirement

for SMEs or SA GAAP None for SMEs or SA GAAP Acceptable

Independent ly compiled Internally compiled Independent ly compiled Internally compiled Owner managed Not owner managed

No requirement, but framework must be “acceptable” Financial year end starting on or after 1 May 2011

27

SLIDE 10

10/12/2011 10 Independent accounting professional

Registered auditor i.t.o APA Member in good standing of a professional body accredited i.t.o sec 33 of APA (only SAICA) Not involved in day-to-day management (previous 3 years) No personal financial interest in company/ related or inter-related company Not a prescribed officer or full time Qualified to be appointed as an accounting officer of a close corporation Not a prescribed officer or full time executive employee (previous 3 years) Not related to any person listed above

Reg 26(1)(d) 28

Independently compiled and reported

The financial statements are prepared:

• By an independent accounting professional;
• On the basis of financial records provided by the company; and
• In accordance with any relevant financial reporting standards.

Reg 26(1)(e)

Regarded as having been compiled internally, unless they have been independently compiled and reported

29

Who may perform independent reviews?

“PIS” > 100

Registered auditor; or

“PIS” < 100

Registered auditor; or

Independent reviews must be performed in accordance with ISRE 2400 Must not be carried out by i d d t ti

Member in good standing of professional body accredited i.t.o sec 33 of APA Member in good standing of professional body accredited i.t.o sec 33 of APA, or CC Accounting Officer

independent accounting professional who was involved in the preparation of the financial statements

Reg 29(4) and (5) 30

SLIDE 11

10/12/2011 11

Private companies

Auditor Auditor Auditor Auditor N/A Auditor Auditor (CA(SA) Auditor N/A N/A Auditor CA(SA) Accounting

• fficer

Auditor CA(SA) Accounting

• fficer

PIS 350 100

Auditor Auditor CA(SA) Auditor , CA(SA)

• r CC accounting
• fficer
• fficer

Independent ly compiled Internally compiled Independentl y compiled Internally compiled Owner managed Not owner managed

• fficer

Not applicable

31

Reportable irregularity

• Regulation 29(1)(b) of the Companies Regulations

2011 defines a “reportable irregularity” as:

• Any act or omission committed by any person

responsible for the management of a company, which -

– (i) unlawfully has caused or is likely to cause material financial loss to the company or to any member financial loss to the company or to any member, shareholder, creditor or investor of the company in respect of his, her or its dealings with that entity; or – (ii) is fraudulent or amounts to theft; or – (iii) causes or has caused the company to trade under insolvent circumstances

32

Reporting process

When

• Is satisfied; or
• Reason to believe
• That RI has/is taken

place

Process

• Without delay send

written report to Commission

• Giving particulars of RI
• Notify board within 3

business days in writing

• A copy of report to

Commission must accompany notice

Process cont.

• Send another report to

Commission within 20 business days

• Report to include

statement:

• No RI has/is taken

place

• Suspected RI is no

longer taking place and that adequate accompany notice

• Discuss report within

20 business days with board

• Afford board to make

representation and that adequate steps have been taken for prevention

• r recovery of any

loss

• RI is continuing
• Detailed particulars and

information supporting conclusion

33

SLIDE 12

10/12/2011 12

Annual returns and financial accountability supplements

Audited i.t.o Act

• r Reg 28

Voluntary audit and review Not audited/reviewed

Also applicable to NPC and external company

• Latest

approved audited financial statements

• Audited or

reviewed statements

• File financial

accountability supplement with annual return

Within 30 business days after anniversary date of its incorporation Commission may monitor compliance with financial record keeping and issue compliance notice

Sec 33 & Reg 30 34

Auditors

Rotation after five years

The same individual

Annually appointed at AGM

Specify the Two year break Specify the name of individual member Acceptable to audit committee

Other services if allowed by:

IRBA Audit committee Sec 90(2) 35

Auditors

• Director or prescribed officer
• Employee or consultant engaged more than 1 year in

maintenance of financial records or preparation of statements

• Director/officer/employee of the company secretary

Must not be:

• Director/officer/employee of the company secretary
• Person who regularly performs duties of

accountant/secretarial work

• Was not any of the above in the preceding 5 years

from date of appointment

• A person related to any of the above

Sec 90(2)(b) 36

SLIDE 13

10/12/2011 13

Audit committee

Compulsory

• Public, SOC, or MOI
• Appointed at AGM

At least three members who are all directors

• All non-executive
• All independent
• Third must have

d i May not be

• Involved in day to

day management (previous year)

• Prescribed officer or

academic qualifications or experience in economies, law, corporate governance, finance accounting etc.

• Prescribed officer or

full time employee (previous 3 years)

• Material customer or

supplier

• Not related to above

If holding company has audit committee the subsidiary does not require one

Sec 90(4) 37

Directors

Definition of a director

Member of the Board

Prescribed officer (Reg 38)

Exercise general executive control and management Regularly participates to material degree in exercise of executive control Alternate director degree in exercise of executive control Of whole or significant portion of business and activities Regardless of title or function

38

Minimum directors

• Three

Non-Profit Companies

• Three (or to satisfy requirement

for audit and S&E Committee Public Companies

• One

Personal Liability Companies Authority to exercise all powers and perform any functions, except to extent that Act and MOI provides

• therwise

Shareholders to elect at least 50% directors Companies

• One

Private Companies MOI may specify higher % at least 50% directors and alternate directors Remuneration: only for services if approved by shareholders by way of special resolution

Sec 66

Listed companies: JSE LR requires 4 directors. Exempt executive directors from retiring by rotation. Directorship for life

• r indefinite periods not permissible

39

SLIDE 14

10/12/2011 14

Appointment of directors

First director

• Each incorporator is

director

• Call shareholders

meeting within 40 business days to elect

Election

• Elected by

shareholders

• Conducted as a series
• f votes (unless MOI

provides otherwise)

Conditions

• Nullity if ineligible or

disqualified at time of appointment (sec 66(6))

• Failure to have

minimum number does y directors to satisfy minimum requirement

(sec 67)

p )

• Majority of votes
• Vacancy: board may

elect director on temporary basis (unless MOI provides

• therwise) (sec 68)

not limit or negate authority of board or invalidate anything (sec

66(11))

• File notice within 10

business days after appointment (CoR 39(1))

40

Resignation/dismissal/removal of directors

Resignation

• Tendering a letter of

resignation Dismissal by Board

• Ineligible,

disqualified, incapacitated, negligence or dereliction (without shareholder approval) Removal by shareholders

• Ordinary resolution

adopted by shareholders (51%) (Despite anything in MOI and any agreement)

• Notice to director

pp )

• Notice to director
• Provide opportunity

to make presentation

• May apply to court

within 20 business day to review at own cost Notice to director

• Provide opportunity

to make presentation

Sec 71 41

Ineligibility and disqualification

• f directors

Ineligible

• Juristic person
• Minor or legal disability

D t ti f lifi ti t t i

Disqualified

• Prohibited by court or declared

delinquent

• Unrehabilitated insolvent

MOI may impose additional grounds

• Does not satisfy qualification set out in

MOI

• Unrehabilitated insolvent
• Prohibited i.t.o public regulation
• *Previously removed from an office of

trust involving dishonesty

• *Imprisoned without option of a fine for

theft, fraud, forgery, perjury, managing a company or this Act(R 1000 fine) (reg

39(4))

Include alternate director /prescribed officer/committee member *Disqualification ends automatically after five years

Sec 69 42

SLIDE 15

10/12/2011 15

Probation and delinquency

Who can apply?

• Shareholders
• Other stakeholders e.g.

company, director, secretary, prescribed

Apply to court

• Delinquent: Prohibited

from being a director

• Probation: Restricted

from serving as a

Must be:

• Current director
• Was a director within

24 months immediately preceding the

Commission will keep register

y, p

• fficer, trade union,

employees

• Commission or Panel
• Organ of state

responsible for legislation g director p g application

Sec 162 (2) 43

Delinquent directors

• Served as a director while ineligible or disqualified
• Contravening a court order while under probation

Unconditional – Lifelong prohibition

• Grossly abused position of director
• Took personal advantage of information
• Inflicted harm on the company
• Gross negligence, wilful misconduct, breach of trust
• Repeatedly subject to compliance notice
• Twice personally convicted of an offence or administrative

Subsists for seven years

Twice personally convicted of an offence or administrative fine

• For a period of 5 years was a director or manager and

convicted of offence, administrative fine i.t.o. any legislation

• Designated program of remedial education
• Community service
• Pay compensation to person adversely affected
• May apply to court after three years to suspend, and after

two years after suspension to set aside

Consequences

Sec 162 44

Directors on probation

When?

• Improperly supported a

resolution contrary to solvency and liquidity test

• Acted in manner

materially inconsistent with duties as director

• Have been a

director/member of CC or managing member of 2 or Period

• Not more than 5 years

Consequences

• May not serve as a

director except to extent permitted by the probation order

• Limited to serving as

director of private company, or of company

• f which that person is

sole shareholder managing member of 2 or more companies which failed to pay its creditors (within any period of 10 years after effective date) sole shareholder

• Remedial education
• Community service
• Mentoring
• Pay compensation
• May apply to court to set

aside the order after two years

Sec 162 45

SLIDE 16

10/12/2011 16

Board meetings

When?

At any time; or Called for by at least 2 directors; or

How?

Notice to all directors as set

• ut in MOI

Quorum and voting

Majority of directors in person or by electronic communication directors; or In case of Board with > 12 directors, 25% of directors require it MOI may specify < or > %

• r number

May be conducted by electronic communication Keep minutes /resolutions be dated and numbered/signed by chairman Each director has one vote Chairman will have deciding vote in case of a tied vote (if not voted before) Sec 73

46

Board committees

• Subject to MOI
• May appoint

committees and

• May appoint non-

directors Sh ld t b

Members

• Non-director member

will not be allowed to vote

Has full authority of the board

delegate any authority to such committee

The Board

• Should not be

disqualified or ineligible

Prohibited May consult with or receive advice from any person

Sec 72(1)and (2) 47

Social and ethics committee

Compulsory

State owned company

Unless

Subsidiary of another company

Must

Appoint first members 12 months after effective date

• r one year after date of

incorporation 3 Di t ( t Listed public company Other company with “PIS” > 500 in any 2 of previous 5 years Exempted by the Tribunal (valid for 5 years) 3 Directors (one not involved in day-to-day management for previous 3 years) Elect members at each AGM

48

SLIDE 17

10/12/2011 17

Codified regime of directors duties

Fiduciary duty

• Act bona fide in

the interest of the company

• In good faith and

for proper purpose

• Independent

judgement in Degree of care, skill & diligence

• Person with

general knowledge, skill and experience reasonably expected of a person when carrying out the functions of that Act intra vires

• Act on behalf of

the company only to extent permitted by the powers and authority conferred upon him/her by law, MOI Business judgement rule

• Diligent steps to

become informed about subject matter

• Does not have

material personal financial interest

• Disclosed

decision making

• Not to use

corporate property information or

• pportunities for

personal profit

• Prevent conflict of

interest functions of that director; and

• Having the

general knowledge, skill and experience of that director MOI, shareholders, and fellow directors financial interest

• Rational basis for

believing the decision was in best interest

Includes alternate director, prescribed officer and committee members

Sec 76

These are unalterable provisions

49

Communicate to the board

When

Earliest i bl

What Unless reason to believe

practicable

• pportunity

Opportunity and any information that comes to his attention

Unless reason to believe

Immaterial to company Generally available to public Known to

• ther

directors Legally or ethically not allowed

Sec 76 (2)(b) 50

Relying on information

Directors are entitled to rely on information provided by:

Employees of Employees of the company who director believes to be reliable and competent Legal counsel Accountants Other professional persons Committee of the Board

Who they reasonably believe are competent

Sec 76 (5) 51

SLIDE 18

10/12/2011 18

Director’s personal financial interest

• Including related person to director
• Must disclose the interest at the meeting (ordinary resolution)
• Must disclose material information known to the director.

Does not apply if there is one shareholder who is also director

• Must immediately leave the meeting after making the disclosure
• Must not:
• Take part in the consideration of the matter
• Must not execute any document in relation to the matter

Includes an alternate director /prescribed officer and committee member

Sec 75

Even If correct procedure not followed board decision valid if approved by

• rdinary resolution or court

52

Issue of shares

Who may issue shares?

Only authorised shares may be issued

Issuing of unauthorised shares

• r in excess of

number of authorised shares Failure to authorise

Share issue is a nullity Return consideration plus Only a board resolution is required Three exceptions to general provision May be retrospectively authorised within 60 business days interest Certificate invalid and entry is security register is void Personal liability for director who failed to vote against decision Sec 38 & 41

53

Issue of shares

Special resolution in following case Issued to directors, prescribed

• fficers or related persons

Shareholders approval do not apply if these shares are issued to director Under agreement underwriting the shares Exercise of statutory or MOI pre- emptive rights If after issue the voting power will be equal to or exceed 30% of voting of all shares immediately before transaction (same class of share) In proportion to existing holding, same terms and conditions offered to all Pursuant to an employee share scheme Pursuant to an offer to public

54

SLIDE 19

10/12/2011 19

Financial assistance to buy securities

• f company or related company

To any person Loan, guarantee, provision of security Board may authorise (subject to MOI) Solvent and liquid after transaction By special resolution (within 2 prior years) Approving specific recipient or in general for category of potential recipient

Board

Employee share scheme (excluded) For the subscription of any option or securities Terms fair and reasonable to company and conditions and restrictions in MOI satisfied Solvent and liquid after transaction

Sec 44 55

Financial assistance to directors

• r related entities

Prescribed officer Or Director Or Solvent and liquid after transaction And By special resolution (within 2 prior years) And Credit card (unless on behalf of company) Or Expenses paid on behalf of director Or Person related to such company or director Related or inter-related company or CC Or Board decision has to be circulated in writing to all shareholders and trade unions Terms fair and reasonable to company Treasury function (listed companies) Intercompany loan/sales Or Sec 45

Within 10 days if > .01% of net worth else 30 days after year end

56

Distributions to shareholders

Permitted if:

• Pursuant to an existing

legal obligation or a court

• rder
• Authorised by the Board

by resolution

• Satisfies the solvency

and liquidity test

Examples

• Dividends (paid within

120 days otherwise another board resolution)

Definition

• Transfer of money or
• ther property, other than

its own shares to benefit

• f shareholders
• Consideration paid within

same group of companies for and liquidity test p acquisition of any shares within that group

• Incurrence of debt or
• ther obligation for

benefit of shareholders

• Forgiveness of waiver of

shareholders debt Warning: Failure to comply with the sections relating to financial assistance and distributions by directors may lead to directors being subject to both criminal and civil liability (failed to vote against decision)

Sec 46 57

SLIDE 20

10/12/2011 20

Solvency and liquidity test

Considering reasonably foreseeable circumstances:

Assets fairly valued equal or exceed liabilities fairly valued

Financial information

Accounting records satisfy S28 Financial statements satisfy S29 Able to pay debts as due for 12 months after consideration of test Able to pay debts as due for 12 months following distribution Financial statements satisfy S29 Fair valuation of assets and liabilities Include reasonably foreseeable contingent assets and liabilities

Sec 4 58

Fundamental transactions: disposal of assets

What is disposal?

• Disposing of all or the greater part of

assets or undertaking

• Based on the fair market value of the

assets

Disposal of greater part of assets or undertaking

• Special resolution (authorises a specific

transaction)

• Approval of shareholders of holding

company

• Regulated company: compliance

certificate from Panel

• In advance: no ratification allowed
• Sec 115 approval
• Notice to shareholders within prescribed

time and manner: (recall if notice not effective)

• Summary of precise terms
• Summary of section 115 and 164
• Assets fairly valued at date of proposal

Sec 112 - 114

Excluded: pursuant to business rescue plan

59

Fundamental transactions: mergers

• Transfer of assets and liabilities to another company without consent of

its creditors

• Two or more profit companies including holding and subsidiary
• Each company must pass solvency and liquidity test upon

implementation (determine by each board)

• Written agreement setting out the terms
• Special resolution (submit agreement)

Amalgamation or merger

p ( g )

• Notice to all known creditors (15 days to apply to court)
• If regulated company: Certificate by Panel
• Sec 115 approval
• Pursuant to business rescue plan

Excluded

Sec 112 - 114 60

SLIDE 21

10/12/2011 21

Fundamental transactions: scheme of arrangement

Schemes of arrangements

• Any arrangement between company

and shareholders:

• Consolidation of securities of

different classes

• Division of securities in different

classes Requirements to implement

• Proposed by the board
• Approved by special resolution of

shareholders

• In some cases court approval and

approval of holding company is necessary

• Expropriation of securities from

the holders

• Exchange of any securities for
• ther securities
• Re-acquisition by company of any
• f its securities
• Combination of any of these

methods y

• Retain independent expert to

prepare report to the board

• Distribute report to all holders of

securities

• Regulated company: Compliance

certificate from panel

Sec 112 - 114

Unless in liquidation or business recue proceedings

61

Fundamental transactions: approval

• Adopted by persons entitled to exercise voting rights
• At a meeting called for that purpose
• Notice in prescribed manner
• Sufficient persons are present (25% or higher)
• May not be passed by way of round robin
• Approved by 75% of voting rights

Special resolution

• Opposed by 15% of exercised voting rights: Within 5 business days any person who

voted against the resolution requires the company to seek court approval; or

• Opposed by < 15%: Within 10 business days the court grant person leave to apply to a

court for a review of the transaction

• Else, company must within 10 business days apply to court for approval or treat

resolution as nullity Court approval

Sec 115 62

Shareholder appraisal rights

Appraisal rights (put option)

• Available to dissenting

shareholders who unsuccessfully oppose

• Written notice
• bjecting to special

resolution V t d i t th Offer to buy out dissenters

• Company obligated

within prescribed period to submit written offer to each dissenting shareholder

• Offer amount

considered by Unable to pay debts as a result of sec 164

• As they fall due and

payable within 12 months

• Company may apply

to court to vary its

• bligations

C t t

• Voted against the

resolution

• Compels company to

repurchase all their shares for fair value

• Unless a court orders
• therwise

considered by directors to be the fair value

• Dispute regarding fair

value must be referred to court (determination by court will be binding)

• Court must ensure

that dissenting shareholders are paid at earliest possible dates

Sec 164 63

SLIDE 22

10/12/2011 22

Exclusion of duties

Agreement MOI Relieve a director of: duty li bilit

Any provision void that is in

MOI Rules of company Resolution adopted Directly or indirectly liability limit, negate or restrict any legal consequences

Arising from Act or omission that constitutes willful misconduct or breach of trust

Sec 78 (2) 64

Indemnification of directors

May not indemnify when Indemnify directly or indirectly for litigation expenses Advance expenses to defend litigation Company may purchase insurance to protect a director against liability Acted without authority Reckless trading Defrauding a creditor employee

• r shareholder

Wilful misconduct

• r breach of trust

Fines ((execpt if all shareholders and directors related) Sec 78

Also include former director These are unalterable provisions

65

Ratification by shareholders

• f directors actions

Act ultra vires

A ti i i t t

Ratification

Shareholders may ratify transaction retrospectively by special resolution; or

Consequence

Actions inconsistent with any limitation, restriction or qualifications in MOI Elect to repudiate the action Action cannot be ratified if in contravention of Act Erring director may be held personally liable to company for loss suffered

Only a court can declare an action, agreement, resolution or provision void

66

SLIDE 23

10/12/2011 23

Liability of directors

Loss, damages or costs

• Breach of fiduciary

duty/delict

• Acted without authority
• Reckless trading
• Defraud a

creditor/employee or Loss, damages or costs continue

• Present at meeting and

failed to vote against:

• Issuing of unauthorised

shares/securities/options

• Provision of financial

assistance to any person di t i i t t Liability

• Joint and several
• Action to recover loss may

not commence more than 3 years after the act

• Court may provide relief if

satisfied that director acted h tl d bl

These are unalterable provisions

p y shareholder

• *Party to falsification of

accounting records

• *Party to false or misleading

financial statements or

• r director inconsistent

with sec 44 and MOI

• Approving distribution

(does not satisfy solvency and liquidity test)

• Acquisition of its shares,
• r shares of holding

company honestly and reasonably

Sec 77

Fine or imprisonment not > 12 months, or both

*criminal offence maximum 10 years and fine

67

Administrative fines

Who may impose? Court on application by Commission or Panel Type of offence Failure to comply with compliance notice Amount Not exceeding greater of 10% of turnover or R 1 000 000 Who must it be paid to? National Revenue Fund

Sec 175 68

Shareholders meetings

Minimum notice in writing stating date, time, place and purpose. Also include a copy of any proposed resolution

Public Company & NPC: 15 business days One shareholder: no notice

Default quorum

25% of votes AND

If no quorum within one hour

Extend in exceptional circumstances Other: 0 business days May be changed by MOI Shorter notice if attended by all shareholders and waived 3 shareholders MOI may specify lower or higher percentage Postpone for one week No notice required unless meeting place is different Shareholders present at postponed meeting are deemed to be quorum Sec 62 & 64 69

SLIDE 24

10/12/2011 24

Shareholders meetings

Proxy

In writing, dated and signed by shareholder

Resolutions

Special: 75% but MOI may specify less (or more)

May be done electronically

Include in notice Valid for one year or longer period as specified Suspended if shareholder acts directly Ordinary: >50% but MOI may specify more Margin of 10% At expense of shareholder

70

Annual general meeting

Frequency

18 months after date

• f incorporation

Minimum business

Directors’ report Auditors’ report

Notice

Same period as other shareholders’ meetings

N/A to private companies

• f incorporation

Once every calendar year but no more than 15 months after previous AGM

p Audit committee report Election of directors Appointment of auditor Appointment audit committee

g Include financial statements Send by registered post

Round robin not allowed

Sec 61 71

Meetings

• Board is required by Act
• r MOI to refer a matter

to the shareholders

• Fill a vacancy on the

Board

• Required by MOI
• When AGM is required
• One or more written
• Ordinary and special

resolutions

• Unless required by Act

to be approved by meeting e.g. AGM

Round robin resolutions

demands are delivered which describes the purpose of the meeting and signed by 10% of shareholders

• MOI may specify lower

percentage

Shareholder's meeting required when:

g g

• Voted on in writing

within 20 business days

• Statement to

shareholders within 10 business days

Sec 60 & 61 72

SLIDE 25

10/12/2011 25

Business rescue

Resolution

Resolution by Board Publish notice of resolution to each affected within 5 business days and appoint rescue practitioner File notice of appointment of practitioner within 2 business days Publish notice appointment to each affected person within 5 business days

May not begin liquidation proceedings, until resolution lapsed or rescue proceedings ended

Sec 129 73

Business rescue

General moratorium

• No legal proceedings
• No enforcement action
• No proceedings against

any property G t t

Unless

• Written consent of

practitioner

• Court
• Set-off against any

claim in legal

Protection of property

• May only dispose:
• In ordinary course of

business

• Fair value

I l t ti f

• Guarantee or surety

may not be enforced except with permission

• f court

claim in legal proceedings

• Criminal proceedings

against company or director

• Property in fiduciary

capacity

• Implementation of

business rescue plan as approved

Sec 133 & 134 74

Business rescue

Effect on employees

Same terms and conditions Contract with employee may not be suspended Preferred unsecured creditors

Practitioner may:

Entirely, partially or conditionally suspend any

• bligation

Apply to a court to entirely, partially or conditionally cancel an agreement May only claim damages

75

SLIDE 26

10/12/2011 26

Business rescue: minimum qualifications

Large companies with “PIS” > 500 (except “SOC”)

• Member in good standing of legal, accounting or business

management profession

• Licensed by Commission
• Not subject to order of probation
• Not disqualified from being director
• No other relationship with company or person related to

company company

• Must have 10 years experience

Medium company: public company with “PIS” < 500

• r other company with

“PIS” between 100 and 500

• Same as above with 5

years experience

Small company with “PIS” < 100

• Junior practitioner with limited

experience sufficient

Sec 138 76

Thank you

Call Centre 086 101 0001 086 101 0001 www.fasset.org.za

77