South Africa: President assents to laws advancing ease of doing business and corporate transparency

 

President Cyril Ramaphosa has signed into law amendments to the Companies Act of 2008 that promote the ease of doing business and impose greater corporate transparency on the earnings gap between the highest and lowest paid persons in a company.

The Companies Amendment Bill and Companies Second Amendment Bill referred to the President for assent jointly constitute initiatives by government to make the conduct of business less burdensome, to tighten the pursuit of delinquent directors or prescribed officers for wrongdoing, including state capture and address disparities in earnings.

The Companies Amendment Act as signed by the President streamlines company law to be clear, user-friendly and less burdensome on the conduct of business. This reform is important for the efficient and effective conduct of the domestic economy as well as the attraction of foreign investment.

The Act is also aimed at achieving equity between directors and senior management on the one hand, and shareholders and workers on the other hand.

In addition, the law addresses public concerns regarding high levels of inequalities in society by introducing better disclosure of senior executive remuneration and the reasonableness of the remuneration.

The law requires the preparation of a remuneration report by all public and State-owned companies in respect of the previous financial year.

This remuneration report must be accompanied by the company’s remuneration policy and an implementation report that must set out detail on the total remuneration received by each director and prescribed officer as well as the total remuneration for the employee with the highest and lowest total remuneration.

Among other indicators, companies must report the average and median total remuneration of all employees, and disclose the remuneration gap between the total remuneration of the top 5% highest paid employees, and the total remuneration of the bottom 5% lowest paid employees of the company.

Public and State-owned companies are now required to prepare and present a remuneration policy for shareholder approval.

Other provisions include the empowerment of a court to validate the creation, allotment or issue of shares, which would otherwise be invalid, upon application before the court by a company or any person who holds an interest in the company.

The law also requires paid shares to be transferred to a stakeholder and held in terms of stakeholder agreement, until fully paid.

These measures are directed at preventing unethical, reckless and criminal conduct in businesses that will impact negatively on shareholders, workers, clients and customers and the economy as a whole.

The Companies Second Amendment Act signed by President Ramaphosa contains a response by Government to one of the recommendations of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector, including Organs of State (State Capture Commission).

This law amends the Companies Act to extend the period during which proceedings may be launched to recover any loss, damages or costs for which a person may be held liable under the law.

The State Capture Commission recommended that Section 162 of the Companies Act be amended so as to ensure that an application for a declaration of delinquency may be brought even after two years on good cause shown.

While the recommendations applied to specific cases, the new law extends the time bar for declaring a director of a company a delinquent director, from 24 months to 60 months. It also gives the court the power to extend the period on good cause shown.

This provision ensures that directors and prescribed officers in companies can be held accountable for a significant period after they have committed alleged offences.

Distributed by APO Group on behalf of The Presidency of the Republic of South Africa.