On Friday 16 March 2007 the Trade and Industry Portfolio Committee (the “Portfolio Committee”) of Parliament sat for the first time to discuss the new Companies Bill (the “Bill”) which has recently been published for comment. Rian Geldenhuys went to the meeting in order to ensure that we stay as close as possible to the most prominent piece of legislation for corporate lawyers in some years.

At the meeting it transpired that this was the Portfolio Committee’s first introduction to the Bill, which is unusually early but the Department of Trade and Industry (“dti”) and the Portfolio Committee deemed it necessary to devote a lot of attention to our proposed revised corporate regulatory format.

Essentially the purpose of the meeting was for dti to give a high level overview of the Bill to the Portfolio Committee in order that they may drive the process with adequate knowledge of the issues. It was again confirmed by dti that one of the aims of the Bill is to lessen the administrative burden on smaller companies and to make it easier to start a small company. However special measures have been taken to ensure that large companies will be better regulated to ensure transparency and to attempt to avoid corporate scandals. The Bill would therefore seek to make the regulatory requirements more flexible in order to attract investment.

On a corporate finance side the presentation highlighted that the concepts of nominal capital and par value would be abolished. Furthermore a company would be allowed to give financial assistance to acquire its own shares solvency and liquidity requirements as well as a shareholders’ resolution approving such assistance. Debenture holders would also be given better protection that what they currently enjoy. Distributions (whatever the form may be, such as dividends, share buy back and redemptions) would be subject to the same test, namely that of solvency and liquidity.
Generally the Bill confirms what shareholders have been regulating in their shareholders agreements for years, such as meeting via electronic communication devices and allowing decisions to be taken other than at meetings. It also clear up confusion surrounding directors’ duties as its sets out all the duties and supplements it by addressing conflicts of interest which directors may have and directors’ liability.

Merger and acquisitions would also be affected by the Bill, notably by requiring that a court confirms the sale or amalgamation of substantially all the assets of an undertaking only if at least 15% of the shareholders are opposed or if there was a procedural irregularity. This is supported by an array of appropriate remedies for the minority shareholders. The presentation also emphasised the new business rescue regime.

By Rian Geldenhuys

© Trade Law Chambers 2007