Public offerings of company securities: a closer look at certain aspects of chapter 4 of the Companies Act 71 of 2008 JACQUELINE YEATS*

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1 Public offerings of company securities: a closer look at certain aspects of chapter 4 of the Companies Act 71 of 2008 JACQUELINE YEATS* Chapter 4 of the Companies Act 71 of 2008 deals with public offerings of company securities and introduces fundamental changes to this area of company law. Section 99 places restrictions on offers to the public of the securities of a company and also prescribes certain requirements (most notably the issue of a prospectus) in this regard. The section draws new distinctions between the primary and secondary markets, as well as listed and unlisted securities. These distinctions provide legal clarity and certainty as to the relevant requirements, but are also aimed at supplying would-be investors with the information they require to make informed investment decisions without placing the offeror under an unreasonable or unnecessary administrative and financial burden. The fact that separate provision is made for offers pertaining to listed and unlisted securities should provide prospective investors with the requisite protection without unnecessary duplication or overregulation in terms of compliance with stock exchange and company law requirements. The drafting of the new section also provides clarity on legal problems which currently exist in relation to the definition of offers to the public and employee share schemes. Potential liability for untrue statements in a prospectus has been extended but largely decriminalised. Finally, the layout and structure of this section of the legislation as a whole has been simplified and the improved definitions and legal framework should provide improved and more certain guidelines in this area of law both for companies and the courts. I INTRODUCTION Chapter 4 of the Companies Act 71 of 2008 (hereinafter the Act ) deals with public offerings of company securities and introduces some fundamental changes to this area of South African company law. The objective of this article is to examine certain of the new and amended provisions of the Act and to comment on how, if at all, these changes are likely to * BA LLB LLM (US), Lecturer in the Department of Commercial Law, University of Cape Town, Cape Town. 117

2 118 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY impact on or improve the legal landscape relating to public offers 1 when the Act comes into operation. 2 II GENERAL RESTRICTIONS The provisions that dictate in which circumstances the restrictions of chapter 4 will apply are to be found in s 99 of the Act. Briefly, a person must not offer to the public any securities of any person unless the second person is a company and, if a foreign company, a copy of its Memorandum of Incorporation has been filed at least 90 days prior to the public offer being made. Furthermore, the section specifically provides that an initial public offering requires a prospectus. Section 99(3) then proceeds to draw a distinction between the primary and secondary markets, as well as the securities of a listed entity and the securities of an unlisted entity. These distinctions are new ones in the context of South African company law in so far as it relates to public offers and go a long way toward clarifying the ambit and application of the restrictions in this regard. Thus, an initial public offering ( IPO ) (which is also a new definition in this specific legislation) means an offer to the public of any securities of a company where no securities of that company have previously been offered to the public or where all the securities of that company previously the subject of an offer to the public have subsequently been re-acquired by the company. 3 There can thus be no doubt as to what is required of a company in these circumstances; a prospectus must be produced. Primary offers (offers made to the public by a company of its own securities or the securities of a company in the same group or of the securities of a proposed merger or amalgamation partner), 4 are divided into offers of listed securities and offers of unlisted securities. The former offers require compliance with the rules of the relevant exchange and the latter offers require a prospectus which satisfies the requirements of s 100 of the Act. Secondary offers (offers made for sale to the public of any securities of a company or its subsidiary and which are made by or on behalf of a person other than that company or its subsidiary) are also, by implication, divided into offers for the sale of listed securities and offers for the sale of unlisted securities. The former type of offer is dealt with by the definition of offer to the public as contained in s 95(h)(ii)(bb) which stipulates that a 1 As it is currently regulated by chapter VI of the Companies Act 61 of In terms of s 225 of the legislation, the Act will come into operation on a date fixed by the President by proclamation in the Gazette, which may not be earlier than one year following the date on which the President assented to the Act. The President assented to the Act on 8 April Section 95(1)(e). 4 Section 95(1)(i).

3 PUBLIC OFFERINGS OF COMPANY SECURITIES 119 secondary offer effected through an exchange is not an offer to the public (and the attendant requirements therefore become irrelevant). However, the Act requires the latter type of secondary offer to be accompanied by either the prospectus which accompanied the primary offering, appropriately updated, or a written statement that complies with the requirements of s 101(4) (6). 5 The written statement is essentially a synopsis of the state of affairs of the company and the particulars of the offer. These distinctions not only provide legal clarity and certainty as to the relevant requirements, but are also aimed at supplying would-be investors with as much information as they require in order to make informed investment decisions without placing the primary or secondary offeror under unreasonable or unnecessary administrative and financial burdens in the process. Similarly, the fact that separate provision is made for offers pertaining to listed and unlisted securities should provide prospective investors with the requisite protection without unnecessary duplication or over-regulation in terms of compliance with stock exchange and company law requirements. III WHAT CONSTITUTES AN OFFER TO THE PUBLIC? Section 95(h) of the Act states that an offer to the public includes an offer of securities to be issued by a company to any section of the public, whether selected as holders of that company s securities, as clients of the person issuing the prospectus, as the holders of any particular class of property, or in any other manner, but does not include an offer made in any of the circumstances contemplated in s 96 or a secondary offer effected through an exchange. Section 96(1) describes and defines offers that are not considered to be offers to the public and this section will be discussed in more detail in paragraph IV below. The definition of offer to the public in the Act is substantially similar to the definition which appears in the current Companies Act 6 ( the 1973 Act ), save that the original definition contained in the 1973 Act does not include the holders of any particular class of property or a specific reference to the section itemising offers that do not constitute offers to the public in terms of the Act. 7 One of the most vexed and challenging questions in this area of company law to date has been the question of whether an offer qualifies as an offer to the public (and therefore must meet the prescribed prospectus requirements) if it is an offer which does not fall squarely into one of the specifically exempted categories of offers in s 144 of the 1973 Act, but exhibits characteristics which make it difficult to determine whether such an offer is public or private in nature and, consequently, whether the 5 Section 101(2). 6 Act 61 of Ibid s 144.

4 120 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY offerees require legislative protection. The most recent case in this regard is that of Gold Fields v Harmony Gold Mining Co Ltd. 8 In this case the Court was faced with two fundamental legal issues arising from an offer made by Harmony (a public mining company) to all the shareholders of Gold Fields (also a public mining company) in order that the former could acquire control of the latter. The content of the offer, simply put, was that Harmony offered to issue and exchange 1,275 Harmony shares for 1 Gold Fields share and that the offer was made only to persons who were able to deliver Gold Fields shares. This entitled the Gold Fields shareholder in due course to be allotted new shares in Harmony. Gold Fields contended that the Harmony offer constituted an offer to the public for the subscription of shares as contemplated by s 145 of the 1973 Act which, as such, was prohibited because it was not accompanied by a prospectus as required by the legislation. The first issue to be decided by the Court centred on the question of whether a share exchange as contemplated qualified as an offer for the subscription of shares as s 145(1) of the 1973 Act makes specific mention of the fact that no person is permitted to make any offer to the public for the subscription of shares unless it is accompanied by a prospectus complying with the requirements of this Act.... Nugent JA came to the conclusion that the term subscription was not limited to the taking up of shares for cash and relied on, inter alia, Government Stocks and Others Securities Investment Co Ltd and Others v Christopher 9 to rule that the word subscription as used in the 1973 Act is not limited to an undertaking to take up shares for cash and that, accordingly, the offer which was structured as a share exchange would also fall within the ambit of the section. It is gratifying to note that s 99 of the Act puts paid to this debate as no specific mention is made of subscription when the section refers to initial public offerings, primary offers or secondary offers. 10 The definitions of these various terms in s 95 of the Act, similarly, make no mention of the term subscription and refer merely to an offer of securities. Accordingly this issue should not need to be addressed by our courts again in the context of public offers. The second question, and arguably the more complex one in the Gold Fields decision, was whether the offer as described above, being essentially an offer to a limited (albeit it large and ever-changing) group of offerees should be construed to be an offer to the public and, by implication, that the intended offerees were entitled to the protection of a prospectus. (As is the case in the 1973 Act, the definition of an offer to the public in the Act includes an offer to a section of the public being a group (2) SA 506 (SCA). 9 [1956] 1 All ER 490 (CH). 10 See s 99(2) and (3).

5 PUBLIC OFFERINGS OF COMPANY SECURITIES 121 smaller than the public at large but qualifying as an offer which is by its nature an offer to the public). In deciding this question the Court remarked that: an offer that aims to acquire specific private property would not achieve its purpose if it was made to the public for no reason but that the property is in private hands. The offer in the present case is in that category. It is not made to the public but to shareholders in Gold Fields who are not, in that capacity, a mere section of the public at large. 11 This decision has been the subject of some academic criticism. 12 It would appear that in future, by virtue of the definition of offer to the public contained in s 95(1)(h)(i) of the Act, such an offer would qualify as a public offer. This is because the definition in question states that an offer to the public includes an offer of securities to be issued by a company to any section of the public whether selected as, inter alia, the holders of any particular class of property or in any other manner. This is a welcome clarification of the legal position in this regard. Of course, save for the specific exemptions set out in s 96(1) of the Act and discussed below, the possibility still exists that an offer may qualify as an offer to the public even though it is made to a limited group of persons because it is an offer to a section of the public as contemplated by the definition in s 95(1)(h). Whether this is the case or not in a specific set of circumstances will no doubt remain a difficult legal question to answer. However, this is certainly not a judicial problem limited to South African company law, and each case will need to be decided on its merits to the extent that a particular offer does not constitute an obviously public or obviously exempted or obviously private offer. IV WHAT DOES NOT CONSTITUTE AN OFFER TO THE PUBLIC? As is the case in s 144 of the 1973 Act, s 96 of the Act lists a number of instances in which offers made are deemed not be offers to the public and are therefore not expected to meet the prospectus or other requirements of chapter 4. The relevant section in the Act contains principally the same exemptions as those listed in s 144 of the 1973 Act. However, some of these have been updated as regards the relevant legislation or institutions referred to in the exemption. 13 Two interesting additions to the category of exemp- 11 At 510, para For a detailed discussion of the case in general, comparable case law in other jurisdictions and particularly criticism of the SCA judgment, see MF Cassim Gold Fields v Harmony: A Lost Opportunity to Clarify Section 145 of the Companies Act 2005 SALJ See s 96(1)(a).

6 122 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY tions are persons whose ordinary business, or part of whose ordinary business, is to deal in securities, whether as principals or agents and the Public Investment Corporation. Presumably the rationale is to avoid the requirement for a prospectus where approaches are being made to brokers or investment firms to assess potential demand as part of a process of book-building prior to making a public offer. It is not clear what the rationale is behind the exemption for the PIC or a person or entity regulated by the Reserve Bank of South Africa. Section 96(1)(c) of the Act exempts non-renounceable offers made only to existing holders of the company securities or persons related to existing holders of the company s securities. It is also not entirely clear what is contemplated by the term related to in this subsection. The term is used again in s 96(1)(e) where offers made only to directors or prescribed officers of the company or a person related to a director or prescribed officer are exempted. The corresponding section in the 1973 Act refers to offers to directors or officers of the company, or any close relative of such director or officer. 14 It would seem, therefore, that related to in this context must be interpreted with reference to the definition of that term as set out in s 2(1) of the Act. Section 2(1) contains a detailed definition as to when individuals are considered to be related (which is linked to natural or adopted consanguinity or affinity) and when individuals and juristic persons are considered to be related (where a relationship is linked to control of the one by the other). At first blush it would seem that this considerably expands the network of permissible offerees in the context of a non-renounceable, exempted offer. Furthermore, it may be expensive and time-consuming to determine whether certain (especially juristic) persons are related or not as defined in the Act. The same observation applies to the exemption in relation to directors or prescribed officers of the company contained in s 96(1)(e) of the Act. In terms of s 96(1)(b)of the Act, an offer will not be an offer to the public if the total contemplated acquisition cost of the securities for any single addressee is equal to or greater than the amount prescribed by the Minister by notice in the Gazette, which amount must be at least R This particular exemption appears in the 1973 Act as s 144(b). Similarly, single once-off offers accepted by maximum of 50 persons acting as principals are not to be construed as offers to the public provided that they meet the additional requirements set out in s 96(1)(g) of the Act. In essence this exemption is the same as the exemption in s 144(c) of the 1973 Act, except for the fact that the exemption in the Act contemplates the possibility that the exempted offer could be one of a series of offers, which series must nevertheless comply with the prescribed 14 See s 144(f) of the 1973 Act. 15 See s 96(2)(a) of the Act.

7 PUBLIC OFFERINGS OF COMPANY SECURITIES 123 limitations and requirements. There is, however, an additional requirement, which appears in the Act in relation to this exemption, being the requirement that no similar offer or offer in a series of offers must have been made by the company within the period prescribed in terms of s 96(2)(b). In terms of the latter subsection, the Minister, by notice in the Gazette, may prescribe a minimum period for the purposes of the said subsection which must not be less than six months. This new provision is rather interesting. Is the intention here that an offer (or one offer in a series of offers) can be made provided that it qualifies as regards the maximum number of principals and minimum subscription price and that this will not be construed as an offer to the public even if numerous subsequent offers (each also complying with the prescribed requirements) are made in this fashion provided that there is a period of at least six months between such offers? If so, it creates the (new) possibility, albeit a convoluted and drawn-out one, of making an offer to the public that exceeds the minimum and maximum requirements prescribed internally in the subsection over a period of time but which does not require the issue of a prospectus if properly structured from a timing perspective. Exempted offers also include offers pertaining to employee share schemes that satisfy the requirements of s 97 of the Act. This is the equivalent of the s 144A employee share scheme definition in the 1973 Act. This amendment will be dealt with under a separate heading below, as the changes contained in the Act appear to settle questions of law which have previously cropped up in practice regarding offers of shares by foreign companies and the requirement for a prospectus. V EMPLOYEE SHARE SCHEMES One of the problems faced by legal practitioners regarding public offers under the current company law regime relates to employee share schemes conducted by foreign clients to incentivise South African employees. Typically the conundrum would present as follows: Company A is a foreign company which conducts business through a South African subsidiary which is incorporated in South Africa. Company A is listed on a foreign exchange but the South African subsidiary is a private company. Employees of the South African subsidiary (and, more often than not, employees of similar operating subsidiaries in many foreign countries in which the group operates) are incentivised by means of various share schemes. Although the details and mechanics of these plans may vary from country to country, the common basis of the plans is that employees in the various foreign countries are incentivised by being offered the opportunity to acquire shares in the listed holding company, Company A. The critical issue is whether such offers to eligible employees are offers to the public in terms of chapter VI of the 1973 Act. If so, it is highly unlikely that Company A will proceed with the share offers if it is required

8 124 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY to go to the expense and effort of issuing a prospectus and otherwise complying with the requirements of s 145 and s 146 of the 1973 Act. 16 The problem is that under the typical structure as set out above, the scheme does not fall within the exception created by s 144A of the 1973 Act. Section 144(g) provides that an offer for the sale or subscription of shares will not be construed as an offer to the public if it is an employee share scheme as contemplated in s 144A. In s 144A employee share scheme is defined as a scheme established by a company for the purpose of offering participation therein to employees of the company or of its subsidiary either by means of a sale of shares or by the grant of options on shares in the company solely to bona fide employees of the company or of its subsidiary. A company is defined in s 1(1) of the 1973 Act as meaning a company incorporated under chapter VI of the Act and includes any body which immediately prior to the commencement of the (1973) Act was a company in terms of any law repealed by the Act. In s 142(1) of the 1973 Act the term company is defined to mean, for purposes of chapter VI of that Act, as including an external company. The term external company is defined in s 1(1) of the 1973 Act as a (foreign) company which has lodged its memorandum with the Registrar or which has established a place of business in the Republic. By definition Company A does not qualify as either a company or an external company within the meaning of the respective definitions. Accordingly the share scheme cannot qualify as an employee share scheme in terms of the s 144A(1) definition (the scheme has not been established by a company within the meaning of the 1973 Act) and as a result cannot fall within the exception listed in s 144(g) of the 1973 Act. As such a prospectus will be required unless it can be shown that the share scheme does not otherwise qualify as an offer to the public in terms of s 142(1) of the 1973 Act, ie that it is by its very nature a non-public offer. The case law in this regard (both South African and foreign) has proved complex and unpredictable in its application 17 and, accordingly, few foreign listed entities were willing to take this legally uncertain route and chose to incentivise South African employees in more straightforward ways. 18 This could not have been the intention of the legislature and in 16 It was apparently this kind of consideration that motivated the addition of s 144A of the 1973 Act. See Blackman et al Commentary on the Companies Act vol 1 at See Blackman et al Commentary on the Companies Act vol 1 at and the cases cited there. 18 The determination as to whether such an offer is public or private in nature, notwithstanding the fact that it does not comply with the technical requirement for the relevant exemption, is further complicated by the fact that there are often very large numbers of employees involved in such schemes and that, depending on the terms of a particular scheme, persons entitled to be offered shares may no longer be employees of the company.

9 PUBLIC OFFERINGS OF COMPANY SECURITIES 125 fact often the very purpose of the s 144(g) exception (ie to facilitate employee share schemes) was defeated by this technical drafting error. This anomaly has been resolved by the drafters of the Act. Section 96(1)(f) determines that an offer is not an offer to the public if it pertains to an employee share scheme that satisfies the requirements of s 97. Section 97, in turn, refers to the appointment of a compliance officer and details to be disclosed in the annual financial statements of the company as well as certain specific filing obligations. Furthermore, s 95(1)(a) specifically provides that in chapter 4 company includes a foreign company, which, in turn, is defined in s 1 of the Act as an entity incorporated outside the Republic, irrespective of whether it is a profit or non-profit entity or whether it is carrying on profit or non-profit activities within the Republic. This, together with the fact that the reference to the establishment of a scheme by a company together with the use of the more general wording pertains to in s 96(1)(f) should now make it possible for foreign companies to offer South African employees shares in an offshore listed holding company in terms of an employee share scheme (as originally intended) without raising concerns regarding the need for a prospectus. As an aside, s 144A of the 1973 Act, although it stipulates that a compliance officer has to be appointed and allocates certain duties to that person, contains no provision or sanction as to what the repercussions would be if this did not take place. Accordingly it is not uncommon for companies to conduct employee share schemes without appointing such a person. Section 97(1) of the Act eliminates this problem by stating clearly that an employee share scheme qualifies for the exemptions referred to in the subsection if, inter alia, the company has appointed a compliance officer and the compliance officer has complied with the requirements of the section. The implication is clear if no compliance officer is appointed, or if he does not properly perform his duties, the company will not qualify for the exemptions granted in these circumstances, most notably for current purposes, the exemption from complying with the prospectus requirements. VI PROSPECTUS REQUIREMENTS Once it has been determined that an offer is an offer to the public and that it must be accompanied by a prospectus, s 100 sets out the required standards of compliance. Section 100(1) (a new section) specifically states that the section does not apply to listed securities except in so far as the listed securities are the subject of an IPO. 19 This is in accordance with the definitions contained in s 95 and s 99(3), which, read together, make a 19 Supra (n 18).

10 126 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY primary offering of listed securities subject to the rules of the exchange and deem a secondary offering of listed securities (effected through an exchange) not to be a public offer, which therefore does not require a prospectus. An interesting aspect of this section in the Act is that, whereas the 1973 Act 20 as well as a previous draft version of the Act 21 both refer to the fact that the prospectus must adhere to the specifications of Schedule 3, the Act contains no such reference. Schedule 3 to the Act contains very detailed prescriptive provisions as to matters which must be stated in a prospectus in addition to those specified in the Act. Schedule 3 to a previous version of the provision contained in a draft Bill 22 was entitled Requirements Concerning Offering of Securities and contained similar information and requirements to the existing Schedule The Act now, however, merely provides (in s 100(2)(b) thereof) that a prospectus must adhere to the prescribed specifications. There seems to be no further reference in chapter 4 to what the prescribed specifications are or where these may be found. In terms of s 1 of the Act, prescribed means determined, stipulated, required, authorised, permitted or otherwise regulated by a regulation or notice made in terms of the Act. Section 223 deals with the authority of the Minister to make regulations under the Act and the procedure to be followed in this regard. The logical conclusion to be drawn from this is therefore that the Minister will, in due course, make regulations that deal in detail with the prescribed content and form of a prospectus. This being the case, it is almost certain that the regulations will be drafted so as to simplify and modernise the law in this regard and, where appropriate, be synchronised with existing legal requirements to avoid unnecessary regulatory and administrative duplication, eg in the interaction between the JSE Listings Requirements and the prospectus requirements, which both apply to an IPO. VII LIABILITY AND RESPONSIBILITY FOR UNTRUE STATEMENTS Section 104 of the Act deals with liability for untrue statements in the prospectus. The distinction between subscription and sale which is to be found in s 160 of the 1973 Act 24 has been removed and the section now refers to subscription or sale. Thus, while in terms of the 1973 Act persons who fall within the ambit of the categories set out in s 160(1)(a)- 20 See s See Companies Bill, 2008, Final Draft dated 27 January Ibid 23 Ibid. 24 See s 160(1) and (2).

11 PUBLIC OFFERINGS OF COMPANY SECURITIES 127 (e) 25 are liable whether the offer was for sale or subscription, a person who made the said offer or who was deemed to have authorised the issue of such prospectus will acquire liability in terms of the section only in the case of an offer to the public for the sale of shares. 26 In the Act this distinction has been abolished and all categories of persons may acquire liability in cases of sale or subscription. These persons will be liable to compensate any person who acquired securities on the faith of the prospectus for any loss or damage sustained as a result of any untrue statement in the prospectus. Furthermore, a new s104(2) extends potential liability in the sense that it specifically provides that the liability contemplated in the section is in addition to the liability of a director of the company, as set out in s 77(3)(d)(ii). 27 Thus, the new provision as contained in the Act potentially extends not only the ambit of liability as far as various persons involved with the company are concerned, but also the extent of potential liability as far as directors of the company are concerned. The defences available are set out in s 104(3). In many other respects the provisions of this section of the Act are directly comparable or the same as those contained in the 1973 Act and any legal precedent in this regard should therefore continue to provide guidance in an interpretation of these sections. VIII CRIMINAL LIABILITY In the Act the references to criminal liability for untrue statements contained in a prospectus which appeared in s 162 of the 1973 Act have been removed and instead the person referred to in s 104(1) or (2) 28 is held to be equally responsible in terms of the enforcement provisions of 25 These include a person who is a director of the company at the time of issue of the prospectus, a person who becomes a director at any time between the issue of the prospectus and the holding of the first general meeting of the company at which directors are elected or appointed, a person who with his authority is named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time; a person who is a promoter of the company or a person who has authorised the issue of the prospectus. 26 See s 160(2). 27 The relevant parts of the section provide that a director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having signed, consented to, or authorised, the publication of a prospectus, or a written statement contemplated in s 101, that contained (aa) an untrue statement as defined and described in s 95; or (bb) a statement to the effect that a person had consented to be a director of the company, when no such consent had been given, despite knowing that the statement was false, misleading or untrue, as the case may be, but the provisions of s 104(3), read with the changes required by the context, apply to limit the liability of a director in terms of this paragraph. 28 See s 104(1) and (2). These persons are: every person who becomes a director of the company before the issuing of the prospectus and the holding of the first general meeting of the company at which directors are elected or appointed, every person who has consented to be named in the prospectus as a director, or as having agreed to become a director either immediately or after an interval of time, every person who is a promoter of the company or

12 128 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY the Act for the untrue statement. The enforcement provisions referred to are presumably those contained in chapter 7 of the Act, which deals with remedies and enforcement generally. It is not yet entirely clear how s 106 will operate in relation to those provisions, but it will be interesting to observe to what extent, and how effectively, additional relief can be sought or pressure brought to bear on guilty parties in terms of those provisions of the new legislation. The legislated approach is certainly in line with the stated policy of the drafters to decriminalise company law. In the Explanatory Memorandum to the Bill the relevant approach and provisions are summarised as follows: 29 Generally, the Act uses a system of administrative enforcement in place of criminal sanctions to ensure compliance with the Act. The Commission or Panel, may receive complaints from any stakeholder, or may initiate a complaint itself, or act on a matter as directed by the Minister. Following an investigation into a complaint, the Commission or Panel may (a) end the matter; (b) urge the parties to attempt voluntary alternative resolution of their dispute; (c) advise the complainant of any right they may have to seek a remedy in court; (d) commence proceeding in a court on behalf of a complainant, if the complainant so requests; (e) refer the matter to another regulator, if there is a possibility that the (f) matter falls within their jurisdiction; or issue a compliance notice, but only in respect of a matter for which the complainant does not otherwise have a remedy in a court. A compliance order may be issued against a company or against an individual if the individual was implicated in the contravention of the Act. A person who has been issued a compliance notice may of course challenge it before the Companies Tribunal, and in court, but failing that, is obliged to satisfy the conditions of the notice. If they fail to do so, the Commission may either apply to a court for an administrative fine, or refer the failure to the National Prosecuting Authority as an offence. In the case of a recidivist company that has failed to comply, been fined, and continues to contravene the Act, the Commission or Panel may apply to a court for an order dissolving the company. Finally, to improve corporate accountability, the draft proposes that it will be an offence, punishable by a fine or up to 10 years imprisonment, for a person to sign or agree to a false or misleading financial statements or prospectus, or to be reckless in the conduct of a company s business. To expand on the last statement in the portion of the Act quoted above, every person who authorised the issue of the prospectus or who is, under the Act, deemed to have done so or every person who has made that offer to the public. 29 Companies Bill, 2008 [b61d 2008] 193.

13 PUBLIC OFFERINGS OF COMPANY SECURITIES 129 s 214(1)(d)(ii) of the Act states that a person is guilty of an offence if the person is a party to the preparation, approval, dissemination or publication of a prospectus, or a written statement contemplated in s 101, that contained an untrue statement as defined and described in s 95. Section 214(2), in turn, provides that a person will be a party to the preparation of a document if the document includes or is otherwise based on a scheme, structure or form of words or numbers devised, prepared or recommended by that person; and the scheme, structure or form of words is of such a nature that the person knew, or ought reasonably to have known, that its inclusion or other use in connection with the preparation of the document would cause it to be false or misleading. Finally, in terms of s 216 of the Act, any person convicted of an offence in the case of a contravention relating to an untrue statement as described above is liable to a fine or imprisonment for a maximum period of 12 months or both. If these all sections are read together, it would seem therefore that a person who wrongfully makes an untrue statement in a prospectus could be held liable in terms of s 104, s 77(3)(d)(ii) (if that person is a director), s 106 and s 214 read with s 216, that is to say, held liable for loss or damages suffered as a result of the untrue statement, held responsible in terms of the enforcement provisions of the Act (whatever form this may take) and (notwithstanding the decriminalisation of almost all the provisions of the Act) be guilty of an offence and thus liable to a fine and/or imprisonment a veritable plethora of consequences. IX CONCLUSION The aim of the drafters of the Act in relation to Chapter 4 was apparently to modernise and simplify this area of law and it appears that this has been achieved to a significant extent. Not only have the layout and structure of the sections been improved and become far easier to navigate, but certain of the core concepts in the sections (most notably the distinctions so vividly drawn between listed and unlisted entities and the primary and secondary markets) are now lucidly and sensibly differentiated from one another as regards the particular requirements of investors in those circumstances. As a result of this legislative rationalisation process, it appears that there will be far less unnecessary duplication and wasted costs incurred in the process of making offers to the public whilst the necessary standards of protection and regulation will still be maintained. This is borne out by the maintenance (and in some sense, enhancement) of the potential liability and responsibility of those persons involved in the preparation of a prospectus. In addition, vexing practical issues, such as the problems encountered with share incentive schemes conducted by foreign companies and (private) offers to a group of shareholders in another listed entity appear to have been addressed and resolved.

14 130 MODERN COMPANY LAW FOR A COMPETITIVE SOUTH AFRICAN ECONOMY Although this area of law may always present some challenging legal questions (such as what exactly constitutes an offer to the public), these are not questions which can be definitively dealt with through legislative intervention. However, the new and improved framework and content of chapter 4 should provide companies and the courts with a clearer and more certain foundation from which to operate and to make these difficult legal decisions.