THE COMPANIES ACT OVERVIEW

Transcription

1 THE COMPANIES ACT OVERVIEW 1

2 MISSION SIMPLIFICATION THE LAW SHOULD PROVIDE FOR A COMPANY STRUCTURE THAT REFLECTS THE CHARACTERISTICS OF CLOSE CORPORATIONS AS ONE OF THE AVAILABLE OPTIONS. THE LAW SHOULD ESTABLISH A SIMPLE AND EASILY MAINTAINED REGIME FOR NON-PROFIT COMPANIES. CO-OPERATIVES AND PARTNERSHIPS SHOULD NOT BE ADDRESSED IN THE REFORMED COMPANY LAW. FLEXIBILITY COMPANY LAW SHOULD PROVIDE FOR 'AN APPROPRIATE DIVERSITY OF CORPORATE STRUCTURES'. THE DISTINCTION BETWEEN LISTED AND UNLISTED COMPANIES SHOULD BE RETAINED. 2

3 CORPORATE EFFICIENCY THERE SHOULD BE CLARIFICATION OF BOARD STRUCTURES DIRECTORS DUTIES AND RESPONSIBILITIES MINORITY SHAREHOLDERS SHOULD NOT BE LOCKED INTO COMPANIES JUDICAIL MANAGEMENT SYSTEM SHOULD BE REPLACED WITH A MORE EFFECTIVE AND EFFICIENT SYSTEM TRANSPARENCY COMPANY LAW SHOULD ENSURE PROPER RECOGNITION OF DIRECTOR ACCOUNTABILITY AND APPROPRIATE PARTICIPATION OF OTHER STAEHOLDERS THE LAW SHOULD PROTEFCT SHRAREHOLDERS RIGHTS AND PROVIDE FOR ENHANCED MINORITY PROTECTIONS MINIMUM ACCOUNTING STANDARDS SHOULD BE REQUIRED 3

4 PREDICTABLE REGULATION COMPANY LAW SANCTIONS SHOULD BE DECRIMINALISED WHERE POSSIBLE. COMPANY LAW SHOULD BE ENFORCED THROUGH APPROPRIATE BODIES AND MECHANISMS EITHER EXISTING OR NEWLY INTRODUCED. COMPANY LAW SHOULD STRIKE A CAREFUL BALANCE BETWEEN ADEQUATE DISCLOSURE I INTERESTS OF TRANSPARENCY AND OVER- REGULATION 4

5 PURPOSE OF THE ACT PROMOTE COMPLIANCE WITH THE BILL OF RIGHTS AS PROVIDED FOR IN THE CONSTITUTION THE APPLICATION OF COMPANY LAW; PROMOTE THE DEVELOPMENT OF THE SOUTH AFRICAN ECONOMY BY ENCOURAGING ENTREPRENEURSHIP AND ENTERPRISE EFFICIENCY; CREATING FLEXIBILITY AND SIMPLICITY IN THE FORMATION AND MAINTENANCE OF COMPANIES; ENCOURAGING TRANSPARENCY AND HIGH STANDARS OF CORPORATE GOVERNANCE A PROPRIATE,GIVEN THE SIGNIFICANT ROLE OF ENTERPRISES WITHIN THE SOCIAL AND ECOR LIFE OF THE NATION; PROMOTING INNOVATION AND INVESTMENT IN THE SOUTH AFRICAN MARKETS; RE-AFFIRM THE CONCEPT OF THE COMPANY AS A MEANS OF ACHIEVING ECONOMIC SOCIAL BENEFITS; CONTINUE TO PROVIDE FOR THE CREATION AND USE OF COMPANIES IN A MANNER ENHANCES THE ECONOMIC WELFARE OF SOUTH AFRICA AS A PARTNER WITHIN THE ECONOMY; BALANCING OF THE RIGHTS OF SHAREHOLDERS AND DIRECTORS 5

6 LEGAL PERSONALITY / JURISTIC PERSON COMPANY IS REGARDED AS A SEPARATE LEGAL PERSON IT IS SEEN AS A PERSON IN ITS OWN RIGHT AND CAN SUE AND BE SUED. THIS REMAINS UNAFFECTED. DADOO V KRUGERDORP MUNICIPALITY SALOMON V SALOMON COMPANY MANAGED ON A DAY TO DAY TO BASIS BY ITS DIRECTORS. ACT STATES THAT THE BUSINESS AND AFFAIRS OF THE COMPANY MUST BE MANAGED BY OR UNDER THE DIRECTION OF ITS BOARD OF DIRECTORS. SHAREHOLDERS OWN THE SHARES IN THE COMPANY THEY DO NOT OWN THE ASSETS OF THE COMPANY. SO HOW DOES IT WORK IN RELATION TO DIRECTORS AND SHAREHOLDERS? JEALOUSLY GUARDED LIMITED LIABILITY 6

7 WHO IS A DIRECTOR THE ACT DEFINES A DIRECTOR AS- A MEMBER OF THE BOARD OF THE COMPANY CONTEMPLATED IN SECTION 66, OR AN ALTERNATE DIRECTOR OF A COMPANY AND INCLUDES ANY PERSON OCCUPYING THE POSITION OF A DIRECTOR OR ALTERNATE DIRECTOR, BY WHATEVER NAME DESIGNATED THE USE OF THE WORD INCLUDES IN THE ABOVE DEFINITION IS INCLUSIVE AND NOT EXHAUSTIVE. THE PRACTICAL EFFECT OF THIS IS THAT FORMALITIES ARE NOT THE ALL IMPORTANT FACTOR IN DETERMINING WHO IS A DIRECTOR OF A PARTICULAR COMPANY. THE DEFINITION THEREFORE APPLIES TO ALL PERSONS WHO ARE FORMALLY APPOINTED AS DIRECTORS AND ALL PERSONS WHO ACT AS DIRECTORS EVEN IF THEY ARE NOT FORMALLY APPOINTED. IT IS WHAT YOU DO THAT WILL DETERMINES AS TO WHETHER OR NOT YOU WILL ULTIMATELY BE REGARDED AS A DIRECTOR. THE USAGE OF THE WORDS BY WHATEVER NAME DESIGNATED IS A CLEAR INDICATION THAT IT DOES NOT MATTER WHAT YOUR DESIGNATION MAY BE IT IS WHAT YOU DO THAT DETERMINES WHETHER YOU ARE OR WILL BE REGARDED AS A DIRECTOR. 7

8 DIRECTORS CONTINUED IN TERMS OF SECTION 66 DIRECTORS MAY BE:- APPOINTED BY ANY PERSON NAMED IN THE MEMORANDUM OF INCORPORATION; APPOINTED EX OFFICIO, THIS WOULD MEAN THAT IF IN THE MEMORANDUM OF INCORPORATION IT WAS SPECIFIED THAT A SPECIFIC DESIGNATION WITHIN THE COMPANY WERE TO BE OCCUPIED THAT PERSON WOULD BE A DIRECTOR; A DIRECTOR ELECTED BY THE SHAREHOLDERS; ALTERNATE DIRECTORS; A DIRECTOR APPOINTED BY THE SHAREHOLDERS. AT LEAST 50% OF THE DIRECTORS MUST BE APPOINTED BY THE SHAREHOLDERS. WHO ELSE CAN APPOINT DIRECTORS OTHER TYPES OF DIRECTORS:- NOMINEE DIRECTORS; PUPPET DIRECTORS; SHADOW DIRECTOR 8

9 PRESCRIBED OFFICERS A PRESECRIBED OFFICER IS DEFINED AS THE HOLDER OF AN OFFICE, WITHIN A COMPANY, THAT HAS BEEN DESIGNATED BY THE MINISTERIN TERMS OF SECTION 66 (10) OF THE ACT. SECTION 66 (10) THEN REFERS YOU TO THE REGULATIONS. REGULATION 38 STATES THAT A PRESCRIBED OFFICER INCLUDES EVERY PERSON, BY WHATEVER TITLE THE OFFICE IS DESIGNATED, THAT: HAS GENERAL EXECUTIVE AUTHORITY OVER THE WHOLE OR A SIGNIFICANT PORTION OF THE BUSINESS AND ACTIVITIES OF THE COMPANY; OR REGULARLY PARTICIPATES TO A MATERIAL DEGREE IN THE EXERCISE OF GENERAL EXECUTIVE CONTROL OVER THE MANAGEMENT OF THE WHOLE OR A SIGNICANT PORTION OF THE BUSINESS AND ACTIVITIES OF THE COMPANY. IT DOES NOT MATTER WHAT DESIGNATION IS GIVEN TO THAT PERSON. 9

10 PRESCIBED OFFICER CONTINUED EXAMPLES OF PRESCRIBED OFFICERS :- PERSON RESPONSIBLE FOR THE MANAGEMENT OF THE LEGAL AFFAIRS; CHIEF FINANCIAL OFFICER. IT WOULD SEEM THAT A WIDE GROUP OF PEOPLE CAN AND WILL FALL INTO THE CATERGORY OF PRESCRIBED OFFICER. THE SIGNIFICANE OF THE ABOVE CAN NOT BE OVEREMPHASISED IN THAT PRESCRIBED OFFICERS ARE SUBJECT TO CERTAIN STRICT DUTIES AND LEVELS OF ACCOUNTABILITY ASSOCIATED WITH DIRTECTORS. THE CURRENT DEFINITIONS OF PRESCRIBED OFFICER SHOULD BE COMPARED WITH PREVIOUS DEFINITIONS. 1 0

11 SOME MORE INTERESTING FACTS ABOUT DIRECTORS MANAGING DIRECTOR/CEO o THESE ARE BY FAR THE CLEVEREST PEOPLE IN ANY ORGANIZATION. o CEO IS SEEN AS BEING THE DIRECT REPRESENTATIVE OF THE BOARD OF DIRECTORS. o CEO IS ABLE TO BIND THE COMPANY. EXECUTIVE/NON EXECUTIVE DIRECTORS o NO DISTINTION IN TERMS OF THE ACT. COMPANY SECRETARY o NO LONGER A HUMBLKE ROLE OF TAKING MINUTES. BECOME A VERY IMPORTANT AND VERY RESPONSIBLE ROLE. o NOT REQUIRED IN A PRIVATE COMPANY. 11

12 INELIGIBILITY AND DISQUALIFICATION OF PERSONS TO BE DIRECTOR OR PRESCRIBED OFFICER IN THIS SECTION, DIRECTOR INCLUDES AN ALTERNATE DIRECTOR, AND (A) A PRESCRIBED OFFICER; OR (B) A PERSON WHO IS A MEMBER OF A COMMITTEE OF A BOARD OF A COMPANY, OR OF THE AUDIT COMMITTEE OF A COMPANY, IRRESPECTIVE OF WHETHER OR NOT THE PERSON IS ALSO A MEMBER OF THE COMPANY S BOARD. A PERSON WHO IS INELIGIBLE OR DISQUALIFIED, AS SET OUT IN THIS SECTION, MUST NOT ACT AS A DIRECTOR OF A COMPANY. A PERSON IS INELIGIBLE TO BE A DIRECTOR OF A COMPANY IF THE PERSON (A) IS A JURISTIC PERSON; (B) IS AN UNEMANCIPATED MINOR, OR IS UNDER A SIMILAR LEGAL DISABILITY; OR (C) DOES NOT SATISFY ANY QUALIFICATION SET OUT IN THE COMPANY S MEMORANDUM OF INCORPORATION. 1 2

13 DISQUALIFIED TO ACT AS DIRECTOR/PRESECRIBED OFFICER A PERSON IS DISQUALIFIED TO BE A DIRECTOR OF A COMPANY IF A COURT HAS PROHIBITED THAT PERSON TO BE A DIRECTOR, OR DECLARED THE PERSON TO BE DELINQUENT IN TERMS OF SECTION 162, IS AN UNREHABILITATED INSOLVENT; HAS BEEN REMOVED FROM AN OFFICE OF TRUST, ON THE GROUNDS OF MISCONDUCT INVOLVING DISHONESTY; OR HAS BEEN CONVICTED, IN THE REPUBLIC OR ELSEWHERE, AND IMPRISONED WITHOUT THE OPTION OF A FINE, OR FINED MORE THAN THE PRESCRIBED AMOUNT, FOR THEFT, FRAUD, FORGERY, PERJURY OR AN OFFENCE INVOLVING FRAUD, MISREPRESENTATION OR DISHONESTY; FIVE YEARS AFTER THE DATE OF REMOVAL FROM OFFICE, OR THE COMPLETION OF THE SENTENCE IMPOSED FOR THE RELEVANT OFFENCE, AS THE CASE MAY BE; OR THE COMMISSION MUST ESTABLISH AND MAINTAIN IN THE PRESCRIBED MANNER A PUBLIC REGISTER OF PERSONS WHO ARE DISQUALIFIED FROM SERVING AS A DIRECTOR, 13

14 REMOVAL OF DIRECTORS DIRECTORS MAY BE REMOVED B Y THOSE WHO APPOINTED THEM IF A COMPANY HAS MORE THAN TWO DIRECTORS, AND A SHAREHOLDER OR DIRECTOR HAS ALLEGED THAT A DIRECTOR OF THE COMPANY HAS BECOME: INELIGIBLE OR DISQUALIFIED INCAPACITATED TO THE EXTENT THAT THE DIRECTOR IS UNABLE TO PERFORM THE FUNCTIONS OF A DIRECTOR, AND IS UNLIKELY TO REGAIN THAT CAPACITY WITHIN A REASONABLE TIME; OR HAS NEGLECTED, OR BEEN DERELICT IN THE PERFORMANCE OF, THE FUNCTIONS OF DIRECTOR. THEN THE BOARD MUST DETERMINE THE MATTER ON RESOLUTION. DIRECTOR CAN REVIEW THE DECSION OF THE BOARD. 14

15 BOARD COMMITTEES AND LOADED VOTING RIGHTS o o o o THESE MAY BE FORMED BUT ARE NOT REQUIRED FOR PRIVATE COMPANIES. ONCE FORMED THE COMMITTEE MAY PERFORM SUCH ROLE AND FUNCTION AS MAY BE DELEGATED TO IT. SECTION 73 (5) ( C) POVIDES FOR THE FACT THAT A DIRECTOR MAY EXCERISE MORE THAN A SINGLE VOTE AT A BOARD MEETING. NO PRESCRIBED NUMBER OF BOARD MEETINGS IS PROVIDED FOR IN THE ACT. 1 5

16 CORPORATE GOVERNANCE/KING REPORT THE KING CODE IS NOW APPLICABLE TO ALL COMPANIES. OPERATES ON APPLY OR EXPLAIN BASIS. IN SHORT ALL COMPANIES SHOULD COMPLY WITH THE KING CODE AND IF THE DO NOT THEN THEY SHOULD EXPLAIN WHY THEY DO NOT COMPLY. NO PENALTY FOR NOT COMPLYING KING CODE PROVIDES GUIDANCE IN RELATION TO A NUMBER OF ISSUES SUCH AS: ETHICAL LEADEERSHIP; GOVERNANACE OF INFORMATION TECHNOLOGY; STAKEHOLDER RELATIONS SUPPORTS THE VIEW OF CORPORATE 16

17 THE TEETH BEHIND CORPORATE GOVERNANCE FIDUCIARY DUTIES IN TERMS OF THE OLD ACT WERE THE FIDUCIARY DUTIES OWED BY THE DIRECTORS OF THE COMPANY TO THE COMPANY AND TO ALL OF THE SHAREHOLDERS. THESE DUTIES OF WERE SET OUT IN OUR COMMON LAW. REQUIRED DIRECTORS ALWAYS TO ACT IN BEST INTEREST OF THE COMPANY. REQUIRED DIRECTORS TO ACT WITH CARE AND SKILL. EXAMPLES:- NOT COMPETE WITH THE COMPANY; NOT MAKE SECRET PROFITS; ACT IN BEST INTEREST OF THE COMPNY; USE POWERS FOR A PROPER PURPOSE; DO NOT EXCEEED POWERS CORPORATE OPPURTUNITIES; 17

18 THE NEW ACT THE FIDUCIARY DUTIES ARE NOW TO A LARGE EXTENT CODIFIED AND SPECIFICALLY SATED THAT THEY APPLY TO PRESCRIBED OFFICERS S 75 OF THE ACT: PERSONAL FINANCIAL INTEREST A DIRECTOR WHO HAS A PERSONAL FINANCIAL INTEREST IN A MATTER TO BE CONSIDERED AT A MEETING OF THE BOARD (OR KNOWS THAT A RELATED PERSON HAS A PERSONAL FINANCIAL INTEREST): MUST DISCLOSE THIS INTEREST AT THE MEETING; MUST DISCLOSE MATERIAL INFORMATION KNOWN TO THE DIRECTOR AND MAY DISCLOSE ANY OBSERVATIONS OR INSIGHTS IF SO REQUESTED BY OTHER DIRECTORS; MUST IMMEDIATELY LEAVE THE MEETING AFTER MAKING THE DISCLOSURES CONTEMPLATED ABOVE; MUST NOT TAKE PART IN THE CONSIDERATION OF THE MATTER; AND MUST NOT EXECUTE ANY DOCUMENT IN RELATION TO THE MATTER UNLESS SO DIRECTED BY THE BOARD. 18

19 RELATED PERSON FOR ALL PURPOSES OF THIS ACT AN INDIVIDUAL IS RELATED TO ANOTHER INDIVIDUAL IF THEY (I) ARE MARRIED, OR LIVE TOGETHER IN A RELATIONSHIP SIMILAR TO A MARRIAGE; OR (II) ARE SEPARATED BY NO MORE THAN TWO DEGREES OF NATURAL OR ADOPTED CONSANGUINITY OR AFFINITY; AN INDIVIDUAL IS RELATED TO A JURISTIC PERSON IF THE INDIVIDUAL DIRECTLY OR INDIRECTLY CONTROLS THE JURISTIC PERSON. A JURISTIC PERSON IS RELATED TO ANOTHER JURISTIC PERSON IF: (i) EITHER OF THEM DIRECTLY OR INDIRECTLY CONTROLS THE OTHER, OR THE BUSINESS OF THE OTHER, (II) EITHER IS A SUBSIDIARY OF THE OTHER; OR (III) A PERSON DIRECTLY OR INDIRECTLY CONTROLS EACH OF THEM, OR THE BUSINESS OF EACH OF THEM. PRACTICAL IMPLICATION: A POLICY ON THE DISCLOSURE OF PERSONAL FINANCIAL INTEREST, BASED ON THE RELEVANT PROVISIONS OF THE ACT, NEED TO BE ADOPTED BY THE BOARD TO AVOID ANY UNCERTAINTY, MISUNDERSTANDINGS OR POTENTIAL DISPUTES. 19

20 STANDARDS OF DIRECTORS CONDUCT OF PARTICULAR IMPORTANCE IN THIS ACT IS SECTION 76 (STANDARDS OF DIRECTORS CONDUCT). SECTION 76 SETS THE FOLLOWING STANDARDS FOR DIRECTORS AND OFFICERS CONDUCT: NOT TO USE THE POSITION OR INFORMATION OBTAINED IN THAT CAPACITY FOR PERSONAL (OR THIRD PARTY) GAIN OR TO HARM THE COMPANY; TO DISCLOSE ANY MATERIAL INFORMATION TO THE BOARD, UNLESS IT IS IN THE PUBLIC DOMAIN OR THE INDIVIDUAL IS PREVENTED FROM DISCLOSURE BASED ON A CONTRACTUAL OR ETHICAL OBLIGATION; TO AT ALL TIMES ACT: IN THE BEST INTEREST OF THE COMPANY; AND IN GOOD FAITH AND FOR A PROPER PURPOSE; WITH DUE CARE, SKILL AND DILIGENCE. THE ABOVE IS A CODIFICATION OF THE FIDUCIARY DUTIES OF ALL THOSE APPOINTED IN A POSITION OF TRUST, INCLUDING DIRECTORS AND OFFICERS, AS FOUND IN OUR COMMON LAW. THESE DUTIES HAVE ALWAYS BEEN THERE BUT THE INCLUSION THEREOF IN THE ACT MEANS THAT A FAILURE IN THESE DUTIES MAY NOW ALSO CONSTITUTE A CRIMINAL OFFENCE WITH THE RELEVANT SANCTIONS AS SET OUT IN THE ACT. 20

21 BUSINESS JUDGEMENT RULE THE US BUSINESS JUDGEMENT RULE HAS BEEN INCLUDED IN SECTION 76(4) OF THE ACT WHICH STATES THAT A DIRECTOR WILL HAVE SATISFIED THE ABOVE OBLIGATIONS (DUTIES) IF: THE PERSON HAS TAKEN REASONABLY DILIGENT STEPS TO BECOME INFORMED ABOUT THE SUBJECT MATTER/S; AND DOES NOT HAVE A PERSONAL FINANCIAL INTEREST IN THE SUBJECT MATTER OF THE DECISION AND NO REASONABLE BASIS TO KNOW OF A RELATED PERSON S INTEREST; OR THE PERSON HAS DISCLOSED THE INTEREST IN TERMS OF SECTION 75; AND THE PERSON HAD A RATIONAL BASIS FOR BELIEVING, AND DID BELIEVE, THAT THE DECISION/S WAS IN THE BEST INTEREST OF THE COMPANY. COMBINATION OF AN OBJECTIVE AND SUBJECTIVE TEST. IT SHOULD ALSO BE NOTED THAT KNOWINGLY IS DEFINED IN THE ACT TO NOT ONLY INCLUDE A SITUATION WHERE AN INDIVIDUAL DID IN FACT HAVE KNOWLEDGE OF A CERTAIN MATTER, BUT ALSO WHERE THE INDIVIDUAL OUGHT TO HAVE KNOWN BY FULFILLING HIS DUTIES TO THE COMPANY. SHAREHOLDERS NO FIDUCIARY DUTIES. 21

22 LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS SECTION 77 PROVIDES FOR DIRECTORS AND OFFICERS TO BE PERSONALLY LIABLE FOR ALL LOSS OR DAMAGES SUFFERED BY THE COMPANY IN THE EVENT OF SUCH A PERSON: FAILING TO COMPLY WITH THE PROVISIONS OF S75 (DISCLOSURE OF PERSONAL FINANCIAL INTERESTS) AND S76 (STANDARD OF CONDUCT); A DIRECTOR OF A COMPANY IS LIABLE FOR ANY LOSS, DAMAGES OR COSTS SUSTAINED BY THE 30 COMPANY AS A DIRECT OR INDIRECT CONSEQUENCE OF THE DIRECTOR HAVING; o o ACTED IN THE NAME OF THE COMPANY, SIGNED ANYTHING ON BEHALF OF THE COMPANY, OR PURPORTED TO BIND THE COMPANY OR AUTHORISE THE TAKING OF ANY ACTION BY OR ON BEHALF OF THE COMPANY, DESPITE KNOWING THAT THE DIRECTOR LACKED THE AUTHORITY TO DO ACQUIESCED IN THE CARRYING ON OF THE COMPANY S BUSINESS DESPITE KNOWING THAT IT WAS BEING CONDUCTED IN A MANNER PROHIBITED BY SECTION 22(1); ( SECTION 22 A COMPANY MUST NOT CARRY ON ITS BUSINESS RECKLESSLY, WITH GROSS NEGLIGENCE, WITH INTENT TO DEFRAUD ANY PERSON OR FOR ANY FRAUDULENT PURPOSE) 22

23 o o o o BEEN A PARTY TO AN ACT OR OMISSION BY THE COMPANY DESPITE KNOWING THAT THE ACT OR OMISSION WAS CALCULATED TO DEFRAUD A CREDITOR, EMPLOYEE OR SHAREHOLDER OF THE COMPANY, OR HAD ANOTHER FRAUDULENT PURPOSE; SIGNED, CONSENTED TO, OR AUTHORISED, THE PUBLICATION OF ANY FINANCIAL STATEMENTS THAT WERE FALSE OR MISLEADING IN A MATERIAL RESPECT; A RESOLUTION APPROVING A DISTRIBUTION, DESPITE KNOWING THAT THE DISTRIBUTION WAS CONTRARY TO SECTION 46; THE ACQUISITION BY THE COMPANY OF ANY OF ITS SHARES, OR THE SHARES OF ITS HOLDING COMPANY, DESPITE KNOWING THAT THE ACQUISITION WAS CONTRARY TO THE ACT. ABSTAINING IS SEEN AS A YES VOTE. LIABILITY IS JOINT AND SEVERAL. IN ADDITION TO THE POSSIBLE PERSONAL FINANCIAL LIABILITY AS REFERRED TO ABOVE, CERTAIN CONTRAVENTIONS SUCH AS BEING PARTY TO THE FALSIFICATION OF ANY ACCOUNTING RECORDS OF A COMPANY COULD POTENTIALLY RESULT IN A CRIMINAL OFFENCE, PUNISHABLE BY A FINE AND/OR IMPRISONMENT OF A MAXIMUM OF 10 YEARS (SEE S214 AND S216). OTHER CONTRAVENTIONS OF THE ACT COULD BE PUNISHABLE BY A FINE AND/OR IMPRISONMENT OF UP TO 12 MONTHS. 23

24 INDEMNIFICATION OF DIRECTORS AND PRESCRIBED OFFICERS AS A GENERAL RULE, THE AFOREMENTIONED INDIVIDUALS MAY NOTBE RELIEVED OF A DUTY CONTEMPLATED IN S75 OR S76 OR OF LIABILITY AS PROVIDED FOR IN S77. IN ADDITION, THE LEGAL CONSEQUENCES ARISING FROM AN ACT OR OMISSION MAY NOT BE NEGATED, LIMITED OR RESTRICTED IF THE SAID ACT OR OMISSION CONSTITUTES WILFUL MISCONDUCT OR WILFUL BREACH OF TRUST. COMPANIES ARE ALSO NOT ALLOWED UNDER ANY CIRCUMSTANCES, WHETHER DIRECTLY OR INDIRECTLY, TO PAY A FINE IMPOSED ON A DIRECTOR WHO HAS BEEN CONVICTED OF ANY OFFENCE IN TERMS OF ANY NATIONAL LEGISLATION. SPECIFICALLY NO INDEMNITY MAY BE GIVEN IN RESPECT OF IN TERMS OF SECTION 77(3) (A) (ACTING WITHOUT AUTHORITY), (B) (RECKLESS TRADING) OR (C) (INTENT TO DEFRAUD); OR FROM WILLFUL MISCONDUCT OR WILLFUL BREACH OF TRUST; ANY FINE. 24

25 SECTION 162 AND ITS IMPLICATIONS A COMPANY, A SHAREHOLDER, DIRECTOR, COMPANY SECRETARY OR PRESCRIBED OFFICER OF A COMPANY, A REGISTERED TRADE UNION THAT REPRESENTS EMPLOYEES OF THE COMPANY OR ANOTHER REPRESENTATIVE OF THE EMPLOYEES OF A COMPANY MAY APPLY TO A COURT FOR A ORDER DECLARING A PERSON WHO IS A DIRECTOR DELINQUENT OR UNDER PROBATION THE COURT MAY MAKE AN ORDER IN RELATION TO THE ABOVE IF WHILE A DIRECTOR, THE DIRECTOR: (I) (ii) (iii) (iv) (v) GROSSLY ABUSED THE POSITION OF DIRECTOR; TOOK PERSONAL ADVANTAGE OF INFORMATION OR AN OPPORTUNITY, INTENTIONALLY, OR BY GROSS NEGLIGENCE, INFLICTED HARM UPON THE COMPANY OR A SUBSIDIARY OF THE COMPANY, ACTED IN A MANNER THAT AMOUNTED TO GROSS NEGLIGENCE, WILFUL MISCONDUCT OR BREACH OF TRUST IN RELATION TO THE PERFORMANCE OF THE DIRECTOR S FUNCTIONS WITHIN, AND DUTIES TO, THE COMPANY. 25

26 DELINQUENCY A DECLARATION OF DELINQUENCY MAY BE UNCONDITIONAL, AND SUBSIST FOR THE LIFETIME OF THE PERSON DECLARED DELINQUENT OF MAY BE MADE SUBJECT TO ANY CONDITIONS THE COURT CONSIDERS APPROPRIATE. THESE MAY INCLUDE CONDITIONS LIMITING THE APPLICATION OF THE DECLARATION TO ONE OR MORE PARTICULAR CATEGORIES OF COMPANIES AS WELL AS TIME LIMITATIONS. THE DECLARATION CAN OBVIOUSLY BE CHALLENGED BY THE DIRECTOR. 26

27 RELIEF FROM OPPRESSIVE CONDUCT A SHAREHOLDER OR A DIRECTOR OF A COMPANY MAY APPLY TO A COURT FOR RELIEF IF: (a) ANY ACT OR OMISSION OF THE COMPANY, OR A RELATED PERSON, HAS HAD A RESULT THAT IS OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO, OR THAT UNFAIRLY DISREGARDS THE INTERESTS OF, THE APPLICANT; (b) THE BUSINESS OF THE COMPANY, OR A RELATED PERSON, IS BEING OR HAS BEEN CARRIED ON OR CONDUCTED IN A MANNER THAT IS OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO, OR THAT UNFAIRLY DISREGARDS THE INTERESTS OF, THE APPLICANT; OR (c) THE POWERS OF A DIRECTOR OR PRESCRIBED OFFICER OF THE COMPANY, OR A PERSON RELATED TO THE COMPANY, ARE BEING OR HAVE BEEN EXERCISED IN A MANNER THAT IS OPPRESSIVE OR UNFAIRLY PREJUDICIAL TO, OR THAT UNFAIRLY DISREGARDS THE INTERESTS OF, THE APPLICANT. 27

28 COURT CAN ORDER AN ORDER RESTRAINING THE CONDUCT COMPLAINED OF; AN ORDER APPOINTING A LIQUIDATOR, IF THE COMPANY APPEARS TO BE INSOLVENT; AN ORDER PLACING THE COMPANY UNDER SUPERVISION AND COMMENCING BUSINESS RESCUE PROCEEDINGS; AN ORDER TO REGULATE THE COMPANY S AFFAIRS BY DIRECTING THE COMPANY TO AMEND ITS MEMORANDUM OF INCORPORATION; AN ORDER DIRECTING AN ISSUE OR EXCHANGE OF SHARES; AN ORDER (I) APPOINTING DIRECTORS IN PLACE OF OR IN ADDITION TO ALL OR ANY OF THE DIRECTORS THEN IN OFFICE; OR (II) DECLARING ANY PERSON DELINQUENT OR UNDER PROBATION, 28

29 AN ORDER VARYING OR SETTING ASIDE A TRANSACTION OR AN AGREEMENT TO WHICH THE COMPANY IS A PARTY AND COMPENSATING THE COMPANY OR ANY OTHER PARTY TO THE TRANSACTION OR AGREEMENT; AN ORDER REQUIRING THE COMPANY, WITHIN A TIME SPECIFIED BY THE COURT, TO PRODUCE TO THE COURT OR AN INTERESTED PERSON, FINANCIAL STATEMENTS IN A FORM REQUIRED BY THIS ACT, OR AN ACCOUNTING IN ANY OTHER FORM THE COURT MAY DETERMINE; AN ORDER TO PAY COMPENSATION TO AN AGGRIEVED PERSON, SUBJECT TO ANY OTHER LAW ENTITLING THAT PERSON TO COMPENSATION. 29

30 AND STILL MORE RIGHTS IN TERMS OF SECTIONS 165 AND 164 A PERSON MAY SERVE A DEMAND UPON A COMPANY TO COMMENCE OR CONTINUE LEGAL PROCEEDINGS, OR TAKE RELATED STEPS, TO PROTECT THE LEGAL INTERESTS OF THE COMPANY IF THE PERSON: (a) IS A SHAREHOLDER OR A PERSON ENTITLED TO BE REGISTERED AS A SHAREHOLDER, OF THE COMPANY OR OF A RELATED COMPANY; (b) IS A DIRECTOR OR PRESCRIBED OFFICER OF THE COMPANY OR OF A RELATED COMPANY; (c) IS A REGISTERED TRADE UNION THAT REPRESENTS EMPLOYEES OF THE COMPANY, OR ANOTHER REPRESENTATIVE OF EMPLOYEES OF THE COMPANY; OR (d) HAS BEEN GRANTED LEAVE OF THE COURT TO DO SO, WHICH MAY BE GRANTED ONLY IF THE COURT IS SATISFIED THAT IT IS NECESSARY OR EXPEDIENT TO DO SO TO PROTECT A LEGAL RIGHT OF THAT OTHER PERSON.. 30

31 A COMPANY THAT HAS BEEN SERVED WITH A DEMAND IN TERMS OF SUBSECTION (2) MAY APPLY WITHIN 15 BUSINESS DAYS TO A COURT TO SET ASIDE THE DEMAND ONLY ON THE GROUNDS THAT IT IS FRIVOLOUS, VEXATIOUS OR WITHOUT MERIT. IF A COMPANY DOES NOT MAKE AN APPLICATION CONTEMPLATED IN SUBSECTION (3), OR THE COURT DOES NOT SET ASIDE THE DEMAND IN TERMS OF THAT SUBSECTION, THE COMPANY MUST APPOINT AN INDEPENDENT AND IMPARTIAL PERSON OR COMMITTEE TO INVESTIGATE THE DEMAND, AND REPORT TO THE BOARD ON ANY FACTS OR CIRCUMSTANCES THAT MAY GAVE RISE TO A CAUSE OF ACTION CONTEMPLATED IN THE DEMAND. A PERSON WHO HAS MADE A DEMAND IN TERMS OF THIS SECTION MAY APPLY TO A COURT FOR LEAVE TO BRING OR CONTINUE PROCEEDINGS IN THE NAME AND ON BEHALF OF THE COMPANY SECTION 164 PROVIDES FOR THE APPRAISAL RIGHTS OF MINORITY SHAREHOLDERS. IN SHORT MINORITY SHAREHOLDERS CAN NOW IN CERTAIN CIRCUMSTANCES FORCE THE MAJORITY TO ACQUIRE THEIR SHARES. 31

32 WHAT TO WATCH OUT FOR SECTION 20 OF THE ACT COMPANY CAN DO ANYTHING NOT LIMITED INSOFAR AS THIRD PARTIES; PIERCE THE CORPORATE VEIL; WATCH OUT FOR RF COMPANIES; WHAT IS MEMORANDUM OF ASSOCIATION; RULES OF THE COMPANY SHAREHOLDERS AGREEMENT TYPES OF COMPANIES SHARES PAR VALUE AND NO PAR VALUE CORPORATE RESCUE 32