Pace of Companies Act changes creating confusion – lawyer

Rian Geldenhuys, a director of law firm Floors, told Business Report the amendments in Sections 38 and 228 of the Companies Act were contained in the Corporate Laws Amendment Act, which was signed into law by President Thabo Mbeki on April 11 and gazetted on April 17. The new Act is an interim measure, ahead of a sweeping revision of the Companies Act that is expected to replace the existing 34-year old Act by 2009. However, the amendments have not yet been implemented. Most of the amendments gazetted related to audit requirements and could not be implemented until the creation of a reporting council and an investigation panel, said Fungal Sibanda, Chief Director of Policy and Legislation at the Department of Trade and Industry. However, there is no reason for this to delay the implementation of sections 38 and 228. Meanwhile, notes the report, the process of reforming the Companies Act, which started in November 2004, is falling behind schedule. Full report in Business Report

Sections 38 228 are also the subject of an interview on Classic Business Day. Christo Els, of Webber Wentzel Bowens, says changes to these sections pave the way for companies to provide financial assistance to buyers of their shares, and closes a loophole that allows for the sale of a business with only the approval of a simple majority. He notes that the changes would have had an effect on the recent Shoprite merger as approval was required from only 50% of the shareholders. Changes to the Act will require a 75% approval. Referring to Section 38, which requires the board to be satisfied that liquidity and solvency tests are met for a company to be granted permission for financial assistance, Els says there is some ambiguity and the section needs to be interpreted a little narrower – with the transaction referring to the actual acquisition of the shares, and not the financial assistance per se. In this way it would be much easier for a board to come to the view that the company will be solvent and liquid subsequent thereto. This may yet be tested later in our courts, he notes, and then there will be some guidelines as to what the legislature means. Transcript of Classic Business Day interview