On 14 August 2023, a notice was published in the Government Gazette to introduce two Amendment Bills to the Companies Act 71 of 2008 (Companies Act).
The second of these amendment bills has its genesis in the recommendations made by the Zondo Commission of Enquiry into State Capture (Zondo Commission).
The first proposed amendment pertains to Sections 162(2) and 162(3) of the Companies Act, which presently provides that application may be made to court for a person to be declared delinquent or under probation if that person was a director of a company within a period of 24 months immediately preceding the application to court, if any of the circumstances in section 162(5) (based on which a director may be declared delinquent) or Section 162(7) (based on which a director may be placed on probation), apply.
Rationale
The rationale for the time bar in section 162 is clearly to ensure that persons who are directors and have conducted themselves in any manner which may justify a declaration of delinquency or being placed on probation do not avoid such consequences (i.e. an actual finding of delinquency or being placed on probation) by simply resigning as directors of the company in question.
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Consequent to the findings of the Zondo Commission, the Department of Trade, Industry and Competition (DTIC), through the Specialist Committee on Company Law, revisited the Draft Companies Amendment Bill of 2021 and determined that an extension to the time bar of 24 months as presently provided for in section 162 is warranted. It has accordingly been determined in the Second Amendment Bill that the period provided in section 162 should be extended from 24 months to 5 years. In addition, the Bill provides for the possibility of a court, on good cause shown, to extend the time period even beyond five years, should it be warranted in a specific case.
It is further proposed in the Bill that the legislation should be made retrospective in its effect, and accordingly, even if the conduct in question occurred prior to the extended period coming into effect, the director in question could be held to account and face a finding of delinquency or be placed on probation.
Section 77
The second proposed amendment pertains to Section 77 of the Companies Act. The section deals with personal liability in circumstances where directors or prescribed offices have breached their fiduciary and/or other duties of care.
Section 77 currently contains a time bar of three years by stipulating that any proceedings to recover losses, damages or costs from a person in terms of this section have to be commenced no more than three years after the act or omission that gave rise to the liability occurred. Whilst the explanatory summary to the Second Amendment Bill concedes that the period of three years is in line with international best practice, it nonetheless recommends that the section be amended to provide that a court may, on good cause shown, extend the period beyond three years so as to also cover acts or omissions which may have occurred in the period prior to the three-year cut-off point.
Lizelle Donaldson is a corporate and commercial law specialist at Fluxmans
