overview of policy on corporate law reform parliamentary committee cape town 20 august 2004

Overview of Policy on Corporate Law Reform

Parliamentary Committee

Cape Town

20 August 2004

Objective of Presentation

• To provide an overview of the corporate law review

• To inform parliament about public consultations on draft corporate law policy framework

• To update the portfolio committee on next steps

Summary• Policy document essentially sets out to address

3 issues:– Provides an improved platform for companies

to raise capital– Provides new definition of role of company

(including social aspects)– Defines split between primary and secondary

market for shares (clarification of roles)

Background to Policy • Review initiated in 1998 • Initial document prepared and presented to SACCL

in about 2000• Initial document rejected• Process reinitiated in 2002• Workshop with international and local experts in

June 2003• Project Manager appointed in September 2003• New document prepared and presented to various

international and local experts in December 2003• Workshop with SAC on 27/2/2004 – document

largely accepted with inputs

Chapter 1: Introduction • Objectives of company law

– Encouraging entrepreneurship and enterprise diversity by simplifying company formation

– Promoting investment and innovation – Promoting efficiency of firms and their management– Encouraging transparency and high standards of

corporate governance, recognizing broader social role of enterprises

– Encouraging compatibility and harmonsiation with best practice jurisdictions

• Set out scope of review

Chapter 2: Rationale for Reform

• Companies Act 30 years old – internationally, company laws have been reviewed

• Changed political, economic and social environment

• Changed global and corporate environment• Corporate failures and scandals in SA and

internationally• Current law excessively formalistic, increasing cost

of company formation and maintenance and eliciting sham compliance

Chapter 3: General Principles

• Scope of company law – fundamental question: “In whose interest should the company be run?”– Moves away from traditional company law principles

defining only relationships with shareholders and directors and managers to more inclusive concept that recognizes broader public interest

– Public interest best regulated through specific laws, with company law facilitating interface through disclosure and optional board representation

• Simple, comprehensive and accessible legal framework– Single Act, simplified company formation, maximum

flexibility for companies with mandatory and optional rules

• Accountability and transparency• Harmonisation with other company laws

Chapter 4: More Detailed Guidelines

• Company formation– Introduces single corporate entity –

removes distinctions between Close Corporation, Private and Public Companies

– Mandatory rules and optional rules (90% opt out requirement for some mandatory)

– The bigger you are, the more obligations– Only distinction between listed and

unlisted companies– Simple registration of foreign firms –

accreditation system


• Corporate finance– US style balance sheet and liquidity test– Flexibility around type of shares– No nominee shareholding– Review of voting arrangements


• Corporate governance– Recommendations on CG to have regard to:– • the predominance of controlling

shareholder groups in South African companies– • the lack of shareholder activism as a

natural force for improving cg– • the separation of ownership from control

in listed companies and the consequent • need to bolster managerial accountability

standards for executive directors, and


– CG to be divided into 3 distinct areas;• Directors• Shareholders• Corporate Reporting/disclosure

Chapter 4: More Detailed Guidelines• Directors• (a) The structure of the board

including the establishment, where appropriate, of audit, executive, nomination and remuneration committees and the representation of some stakeholders in the board of directors;

Chapter 4: More Detailed Guidelines• (b) The roles and functions of the

Chairman and Chief Executive Officers;• (c) The roles and functions of the

executive directors;• (d) The roles and functions of the

non‑executive directors;

Shareholders• Make specific recommendations, inter‑alia, in

respect of• (a)The possible development of institutional

investors as a force for promoting shareholder democracy and good corporate governance;

Shareholders• (c) The development of a proxy system,

having regard to the rights of persons other than registered shareholders,

• (d) Restraints on controlling shareholders' voting,– Controlling shareholders’ interest– Transactions at arms length

Corporate Reporting/ Disclosure• Make specific recommendations in respect of‑ • (a) Reforming and strengthening Part XI of

CAT,• taking account of‑• • statements by big companies and

exclusion of other companies from compliance with filing provisions;

• (b) Non‑statutory disclosure requirements

Corporate Reporting/disclosure

• (c) Improving compliance with the accounting standards in accordance with the FRB and related legislation.;

• (d) The use of information technology to report and distribute, among others, annual reports,etc


• Mergers and takeovers– Maintain the existing division of power between

merger oversight namely:– (1)that SRP to continue examine M&As from the

pov of protecting minority shareholders and the credibility of the markets,and

– (2) the CA examines only the anti-competitive or public interest aspects of mergers

– New provision for mergers

More Detailed Guidelines

– Revision of corporate rescue provisions as part of broader corporate governance regime

More Detailed Guidelines• Administration and enforcement

– Greater involvement of state in enforcement– Combination of criminal, civil and

administrative penalties– Dispute resolution mechanism to enhance

redress– New institutional framework: – Current institutional fragmentation addressed

and roles clarified (DoJ, FSB, JSE, dti, CIPRO)

Proposed Institutional Framework

Companies and Intellectual Property Commission Education and awareness (small business, investors, corporates, promotion of shareholder activism, education of directors)Information collection and disseminationMonitoring and enforcement (including vetting of prospectuses and mergers and takeovers etc)Company registration (primarily electronic)

JSE & FSBAdvisory function

Regulation of securities trade

Competition and Companies TribunalDeals with mergers and takeovers and

other administrative penalties (Replaces current SRP)

Courts

Minister of Trade and Industry

Makes rules and regulations

Advisory Panel

Next Steps

• process)• •

Activity End Date

• Consultation with Nedlac • May – June 2004• Concurrent public consultation on the policy document• May – June 2004• Finalisation of policy framework• July 2004• Research into international and existing company law• January – September 2004• Review of legislative options & preparation of drafter’s memorandum• September – December 2004• Drafting of legislation and exposure draft• January – August 2005• Cabinet approval for publication• September 2005• Publication of exposure draft for public comment, including workshops and other public consultation • September – December 2005• Evaluation of comments & preparation of revision instructions to drafters• October - December 2005• Revision of Bill by drafters• October - December 2005• Submission of Bill to Parliament• January 2006• Proclamation of Bill by President• June 2006• Launch of new institutions• June 2006• •

Activity End Date

Consultation with Nedlac June- Sept 2004

Concurrent public consultation on the policy document

June-Sept 2004

Research into international and existing company law

January – September 2004

Next Steps

Activity End Date

Drafting of legislation and exposure draft

September – December 2004

Cabinet approval for publication

September 2005

Next StepsActivity End Date

Proclamation of Bill by President

June 2006

Launch of new institutions June 2006

Corporate Law Reform

Thank You

overview of policy on corporate law reform parliamentary committee cape town 20 august 2004

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