"We are almost three years into the new Companies Act, and we felt there was a need to host an unscripted and interactive discussion with clients about areas where the new Companies Act impacted most on their businesses," Van der Westhuizen said.
He gave an overview of the new Companies Act which now governs all corporate entities in South Africa and which adopts a stakeholder approach as opposed to a shareholder approach, with the term stakeholder now meaning a much wider group including, among others, employees, creditors and the environment.
He also highlighted some of the key issues raised by the new Act which were of specific interest to clients, the main one being director liability and the perception that directors now have greater personal liability than before.
"The new Act has, to a large extent, decriminalised transgressions, but it has also codified the old common law duties of directors," Van der Westhuizen said. "Their duty is now towards the company, with most of their liabilities being for losses that the company has suffered. The new Act has also introduced solvency and liquidity tests as a replacement for the old capital maintenance rule."
Van der Westhuizen touched on the need to determine who is a prescribed officer in an organisation. This is a new term introduced by the Act, which applies to people who are in executive positions, but who are not directors, yet have the same duties and liabilities as directors.
Social and ethics committees appear to be an obstacle for many private companies, Van der Westhuizen said. "My belief is that, if your socio-economic footprint is so big that you affect various stakeholders, it is a good thing to have such a committee. The issue is that you must have a non-executive director sitting on the committee, and private companies tend not to have those."
The Act raises the question whether there is any benefit in keeping closed corporations (CCs). "I don't think there is any benefit in keeping CCs and my advice would be to convert them to private companies," Van der Westhuizen said.
"The same rules apply to both, but in a CC all members have the liabilities of a director; it is not possible to be an owner in a CC without also being regarded as involved in management. A company provides that opportunity by separating shareholders from directors. Also, a CC always has 100% of interest issued, and the only way to acquire an interest in an establish CC is by acquiring it from an existing member. A company can issue more shares and raise capital by doing so."
On the subject of the Memorandum of Incorporation, Van der Westhuizen explained the importance of preparing this correctly. "This is effectively the document in which a company tailor-makes the corporate governance principles and rules that will apply to them by altering the default terms of the Act capable of amendment. In doing so a company makes use of the opportunities and benefits provided by the new Act ensuring that it suits their specific needs. It is essential that this document is precise and that it includes the correct terminology to avoid problems down the line."
