Be aware of recent amendments to the Companies Act

There are many root causes of financial distress. While we are seeing the emergence of external disruptive forces beyond a company’s control, most of the root causes of financial distress are easily manageable.

One of the most common causes of financial distress is regulatory non-compliance. I recently read a legal update by Fluxmans Attorneys which discusses recent amendments to the Companies Act (71of 2008) that businesses need to be aware of.

Verification Rights

The article points out that the Regulations enable the Companies and Intellectual Property Commission (the Commission) to verify information that is filed with it, such as directors’ details and/or the name and registration number of a company (or external company). The Commission may, from time to time, request a company to file a certified copy of any document that had previously been filed with it.

A regulatory agency may now at any time verify any information and documentation filed with it. It no longer needs reasonable grounds for uncertainty before it can do so. In this regard, a regulatory agency may now request a certified copy of any document together with written confirmation that the documentation or information disclosed to the regulatory agency is truthful and complete and all such other supporting information or documentation which the regulatory agency may reasonably require for verification purposes.

A regulatory agency is also entitled to liaise with any person or entity (including any regulatory authority, foreign or international authority) and exchange information with such person or entity for the purposes of verifying any information filed with it.

Disclosure Requirements

The article adds that an affected company (which is defined to include a regulated company as set out in section 117(1)(i) of the Act and a private company that is controlled by or a subsidiary of a regulated company) will be required to establish and maintain a register (the beneficial register) of persons who hold a beneficial interest equal to or in excess of 5% of the total number of securities of that class of securities issued by such company.

The beneficial register must include full details of all beneficial owners which in the case of a natural person includes, such person’s full name, date of birth, identity/passport number, residential or postal address and email address (if available) and in the case of a juristic person, such juristic person’s name and registration number, business or postal address and email address (if available). The beneficial register must also provide confirmation as to the participation and extent of any beneficial owner’s beneficial interest.

Where any securities of a company (other than an affected company which will have a beneficial register for such purpose) are held by one person for the beneficial interest of another, that company must now also include in its securities register full details in respect of the beneficial owners and confirmation as to the scope of participation in and extent of ownership or effective control of the company by each such beneficial owner.

The article adds that the securities register of a company and the beneficial register (if applicable) of an affected company must be kept up to date. Should any information contained in the securities register of a company change, such company must update the securities register to reflect such changes as soon as practical but no later than 10 business days after the change. Should the change to the securities register consist of a change of any of the beneficial owners of the company (other than an affected company), such company must file with the Commission CoR Form 32B together with a copy of its updated securities register, within 10 business days after updating its securities register.

Should the information contained in the beneficial register of an affected company change, such affected company must update the beneficial register to reflect such changes as soon as practical but no later than 10 business days after receipt by the company of any notification pursuant to section 122(1) of the Act (informing the affected company of a substantial change to the holding of beneficial interests). Upon receipt of the aforesaid notice, an affected company is obliged to notify the Commission by filing with the Commission (i) a certified copy of such notice; (ii) completed CoR Form 121A; and (iii) a certified copy of such company’s updated beneficial register; within 10 business days after updating its beneficial register.

The article points out that a company must now when filing its annual return with the Commission, also file a copy of such company’s security register. An affected company must also file a copy of its beneficial register together with its annual return.

Companies (including external companies) are required to keep the Commission informed insofar as there are any changes to its (i) name; (ii) legal type and status; (iii) constitutional or founding documents; and/or (iv) full names of any directors; by filing the applicable CoR form with the Commission (or where no CoR form exists, written notice together with certified copies of all supporting documentation in such manner and form as prescribed by the Commission), within 10 business days of the amendment being effected. Notification of any change to the registered office of a company or external company must be made in the same manner as contemplated above, save that the Commission must be notified at least 10 businesses days before the change has been effected.

Any failure by a company (including an external company) to file the applicable CoR form timeously, notifying the Commission of a change of information, as required by the Act and the Companies Regulations, will constitute non-compliance by such company under the Act and the Companies Regulations.

Access to and Storage of Information

the article adds that the Commission must keep proper files and records of information it requires for verification purposes and records obtained pursuant to a notification in terms of section 122 of the Act, for a period of 5 years after the relevant company (or external company) has been dissolved.

In respect of a company’s annual returns and other documentation filed with such returns, the Commission shall provide electronic access to any person to view copies of a company’s annual returns and shall provide electronic access to view copies of the documents filed together with an annual return to such persons (which the Commission has indicated includes law enforcement and competent authorities) and on such conditions as may be determined by the Commission after consultation with the Minister and the Financial Intelligence Centre.

The article points out that the Regulations include provisions relating to the manner in which an affected company is to keep its beneficial register and have aligned these provisions with the manner in which the securities register of a company is to be kept.

Adhere to this, and you will be well on your way to avoiding financial distress.

Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.