Corporate Laws Amendment Act 24 of 2006
Article by Dee Leboela, 18 January 2008
Important changes to the Companies Act 61 of 1973 came into effect on 14 December 2007 with the commencement of the Corporate Laws Amendment Act 24 of 2006 (“the Act”).
Companies are now classified as widely held and limited interest companies. A company is a widely held company if its articles provide for the unrestricted transfer of shares; it can offer its shares to the public; it decides by special resolution to be a widely held company or if it is a subsidiary of the aforesaid. The fact that a company is not widely held, qualifies it as a limited interest company.
A widely held company must appoint an audit committee whose function it is to nominate an auditor for the widely held company and to ensure compliance with the Act. This is not a requirement for limited interest companies.
Another important change is the introduction of a new exemption on the section 38 restriction on the provision of financial assistance. Companies are now no longer prohibited from giving financial assistance for the purchase of, or subscription for shares of that company or its holding company as long as the company’s board is satisfied that the solvency and liquidity tests are satisfied and the transaction for which financial assistance is to be given is sanctioned by a special resolution. Directors of that company must in addition, account for any contingent liabilities that may arise to the company, including any contingent liability resulting from the rendering of the assistance.
In terms of section 228 of the Companies Act, directors do not have the power to dispose the whole or greater part of the undertaking or assets of the company, save by a special resolution of its members. Previously, this could only be achieved by a general meeting of the company.
The Act places greater responsibility on directors and creates various offences and penalties for directors. Amongst others, these include joint and several liability of directors together with the company for failure to appoint an auditor within a specified time. Other offences include the issuing of incomplete or non-compliant financial statements, the publication of false or misleading reports and failure to comply or take reasonable steps to ensure compliance with the Act as to matters to be stated in the group financial statements.
The Act also establishes two juristic bodies, i.e. the Financial Reporting Standards Council and the Financial Reporting Investigations Panel.
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