South Africa: DTIC consultation - draft Companies Amendment Bill, 2021

The Department of Trade, Industry and Competition is seeking views on the draft Companies Amendment Bill, 2021: see here. Amongst the many proposed changes are those concerning the disclosure of directors' remuneration and the role of shareholders in approving remuneration policy.

South Africa: the draft Conduct of Financial Institutions Bill

The National Treasury is seeking views on the draft Conduct of Financial Institutions Bill, following the introduction, less than a year ago, of two regulators - the Prudential Authority and the Financial Sector Conduct Authority - as part of the new twin peaks regulatory framework.

A copy of the draft Bill is available here (pdf). Chapter 3 of the Bill is titled "Culture and Governance" and this sets out the principles that financial institutions should follow, as well as requiring the adoption of a governance policy to ensure adherence to these principles. Published alongside the Bill are a policy paper and impact assessment: see, respectively, here (pdf) and here (pdf). An overview of the Bill, together with further information on how to submit a consultation response ahead of the 1 April deadline, is available here (pdf).

South Africa: Companies Amendment Bill published

The Department for Trade and Industry has published for public comment a draft of the Companies Amendment Bill: see here (pdf). The Bill will amend the current company law framework as found in the Companies Act, 2008 and Companies Regulations, 2011.

South Africa: unfair prejudice claims and beneficial shareholders

The Supreme Court of Appeal gave judgment last week in Smyth v Investec Bank Ltd (674/2016) [2017] ZASCA 147. A summary is available here (pdf). At issue was whether those owning shares beneficially through a nominee were able to seek relief under section 252 of the Companies Act 61 of 1973 (the unfair prejudice remedy).

Referring to section 103 (who are members of a company) of the Act, and authorities from other jurisdictions, the court unanimously held that the beneficial shareholders were unable to bring a claim under section 252: relief was available only to those whose names appeared in the register of members. The court also rejected the argument that the beneficial shareholders could, on the grounds that they had a direct and substantial interest in the section 252 proceedings, be joined as co-applicants.  Petse JA, delivering the judgment of the court, stated (para. [55]):

It was a simple matter for the appellants, if they wished to avail themselves of the remedy provided for in s 252 of the Act in their own names, to terminate the nomination of their respective nominees so as to procure the entry of their names in the register of ... members. Instead, they obdurately elected ‘to saddle what has proven to be an unruly horse’ by seeking to invoke the s 252 remedy in their own names as beneficial owners. They were ill-advised in doing so. As I see it, for as long as the nominees’ names remained in the register of members, the beneficial owners lacked a legal interest in the subject-matter of the litigation". 

South Africa: reviewing the Companies Act, 2008

Reports in the media suggest that the Department for Trade and Industry has begun a review of the Companies Act, 2008: see, for example, here.

South Africa: shareholders' derivative claims and good faith

The Supreme Court of Appeal gave judgment last week in Lazarus Mbethe v United Manganese of Kalahari (503/2016) [2017] ZASCA 67: see here or here (pdf). This is an important - and now leading - authority on the operation of the derivative action in South Africa under section 165 ("Derivative actions") of the Companies Act 71 of 2008. A short summary of the decision is available here (pdf). At issue was the good faith requirement imposed on the applicant under section 165(5)(b). The court held, amongst other things, that the requirement of good faith did not require the absence of a collateral purpose; however, any collateral purpose was relevant when considering (under section 165(5)(b)) whether the proceedings involved a serious question of material consequence to the company.

South Africa: unalterable provisions of the Companies Act and the appointment of proxies

Judgment was given last month by the Supreme Court of Appeal in Richard Du Plessis Barry v Clearwater Estates NPC and others (187/2016) [2017] ZASCA 11: see here or here (pdf). A press summary is available here (pdf). At issue was the validity of a provision in a company's memorandum of incorporation requiring notice to be served at least 48 hours before a general meeting where a shareholder wished to appoint a proxy.

Swain JA delivered the judgment (Leach, Willis, Mbha JJA and Schippers AJA concurring) and held that this provision was void because it was inconsistent with an unalterable provision of the Companies Act 2008 - section 58 - which stated that a proxy could be appointed at any time. It had been argued before the court that such a conclusion would impose practical difficulties on companies, to which Swain JA responded (para. [22]):

It was submitted that should a corporation be unable to regulate the submission of proxies by the imposition of a deadline before a meeting, general meetings of corporations, particularly large corporations, will become unworkable. The situation is postulated of a large company with thousands of shareholders being hamstrung by the submission of thousands of proxies on the day of a scheduled meeting ... If these practical difficulties are real and not simply apparent, their resolution lies not in a strained interpretation of the Act, but by legislative intervention".

South Africa: King IV Report on Corporate Governance for South Africa

The Institute of Directors in Southern Africa and King Committee on Corporate Governance in South Africa published the King IV Report and Code yesterday: see here (pdf). King IV adopts "apply and explain" and has, therefore, moved away from "apply or explain". A press summary is available here.

South Africa: King IV final report to be published next week

Earlier this year the Institute of Directors and King Committee published for public comment a draft version of the latest King Report and Code on corporate governance in South Africa (King IV): see here (pdf). The final version of the Report and Code will be published next week, on November 1, at the King IV conference.

South Africa: introducing the twin peaks financial regulatory framework - an update

The National Treasury has provided an update on the introduction of the twin peaks financial regulatory framework: see here (pdf). Legislation - the Financial Sector Regulation Bill (here, pdf) - is already before Parliament (its progress can be followed here). Revisions are proposed and are shown in an annotated copy of the Bill available here (pdf). An impact study has also been published: see here (pdf). Regulations concerning the over-the-counter derivatives market have also been published: see here. Further background information is available here.

South Africa: King IV Code and Report - sector supplements published

Earlier this year the Institute of Directors and King Committee published for public comment a draft version of the latest King Report and Code on corporate governance in South Africa (King IV): see here (pdf). The report set out the philosophy, principles, practices and outcomes that provide the benchmark for corporate governance in South Africa. The Code and Report are supported by a series of sector supplements, which have recently been published: see here. These cover, for example, the non-profit sector, state owned entities and SMEs. Comments on the supplements should be submitted by 11 July.

South Africa: prescription and the nature of derivative claims

The Supreme Court of Appeal gave judgment at the end of April in Off-Beat Holiday Club v Sanbonani Holiday Spa (20231/2014) [2016] ZASCA 62: see here, here (rtf) or here (pdf). The case is important (and interesting) because of its discussion of the nature of derivative claims under section 266 ("Initiation of proceedings on behalf of company by a member") of the Companies Act 61 of 1973 (now section 165 of the Companies Act 71 of 2008) and, in particular, whether such claims are subject to the Prescription Act 68 of 1969.

Mauritius: 'apply and explain' and a new governance code

The National Committee on Corporate Governance has published for public comment a draft of a new corporate governance code: see here (pdf). The code contains eight mandatory principles with supporting guidance and recommendations and, to quote from page six of the document containing the Code, it is:

Based on a philosophy of application coupled with disclosure, the Code employs an ‘apply-and-explain’ methodology. The Code of Corporate Governance for Mauritius is the first to adopt this new approach to corporate governance. This is a departure from the ‘comply-or-explain’ approach associated with the Cadbury Report in the UK (1992) and the ‘apply-or-explain’ approach associated with the Dutch Tabaksblat Code of Corporate Governance (2004) and the King III Report in South Africa (2009)."

A couple of comments (not intended, in any way, as criticism). First, a draft of South Africa's new corporate governance code - known as King IV - was published earlier this year and this adopts 'apply and explain'. Second, useful as these labels may be in describing an ethos or tradition, do they fully capture the way in which governance codes and frameworks operate in practice?  For example, is the approach proposed for Mauritius very different from that in the United Kingdom where Listing Rule 9.8.6 requires listed companies to apply the Main Principles of the UK Corporate Governance Code and to provide information about their compliance (or not) with the Code's provisions?

South Africa: draft King IV report and code on corporate governance published

The Institute of Directors and King Committee have published for public comment a draft version of the latest King Report and Code on corporate governance in South Africa (King IV): see here (pdf). The report sets out the philosophy, principles, practices and outcomes that provide the benchmark for corporate governance in South Africa.

The draft version states that no significant departures are proposed from the philosophical underpinnings of King III; a refining of concepts is instead outlined. This said, King IV is based on 'apply and explain', whereas King III was based on 'apply or explain'. The report makes clear that it is expected that companies will apply all of the principles in the King IV Code, with explanations provided of the practices that have been adopted in doing so. Whilst the principles are described as aspirations or ideals, they are regarded as basic to good governance.

South Africa: introducing 'twin peaks' - the Financial Sector Regulation Bill

The legislation that will introduce the twin peaks financial regulatory framework in South Africa has been introduced in Parliament. A copy of the Bill - the Financial Sector Regulation Bill - is available here (pdf) and its progress can be followed here. Further background information is available here.

South Africa: business rescue - arbitration and the moratorium on bringing legal proceedings

This year the Supreme Court of Appeal has heard several cases concerning the business rescue framework contained in the Companies Act 2008. Within this framework, section 133 of the Act imposes a moratorium on the bringing or continuing of legal proceedings, including enforcement action. Today, in Chetty v Hart (20323/14) [2015] ZASCA 112, the court held this moratorium applied to arbitration proceedings. A summary is available here (pdf).

Earlier this year, in Cloete Murray NO v FirstRand Bank Ltd (20104/2014) [2015] ZASCA 39, the court held that 'enforcement action' under section 133 did not include the cancellation of an agreement concluded prior to the start of the business rescue proceedings. A summary is available here (pdf).

South Africa: principles and policy proposals for the resolution of banks and other institutions

The South African National Treasury has published for consultation a position paper setting out principles and policy proposals for a strengthened framework for the resolution of banks and other financial institutions known as DRIs (designated resolution institutions): see here.

South Africa: King IV code - progress report

An update on the work being undertaken in South Africa to produce a new corporate governance code - to be known as King IV - has been published by the Institute of Directors: see here (pdf).

South Africa: Sharia law and mora interest

The Supreme Court of Appeal gave judgment last month in Lodhi 5 Properties Investments v Firstrand Bank Limited (170/14) [2015] ZASCA 72: see here (pdf). A summary of the decision is available here (pdf). The court held that a debtor was liable to pay mora interest in respect of its delayed payment of an outstanding debt to a bank, under a loan agreement governed by Sharia law. The court found that mora interest was not interest payable in respect of the loan of money: it was instead the damages that arose because of the debtor's failure to perform an obligation and was not, therefore, subject to the Sharia law prohibition on the charging of interest on loan debts.

South Africa: the King IV corporate governance code - terms of reference published

The terms of reference for the review of South Africa's corporate governance code have been published: see here (pdf). Further information about the review, which will lead to a new governance code to be known as 'King IV', is available here.