The reality of the New Companies Act – Don’t be the April Fool

The New Companies Act 2008 becomes effective on 1 April 2011. Will you or the DTI be the April Fool? Unfortunately much was made about the two year grace period to implement the new Companies Act with little emphasis placed on the exceptions to this implementation period.

The following are some of the exceptions that need to be addressed come 1 April 2011, as you do not have two years to manage their impact on the way you do business:

Shareholder agreements Must be registered by 20 April 2011. Shareholder dispute.
Share capital Authorised capital may be insufficient.
Phantom scheme shareholders have wider protection.
Directors have authority to create and issue shares.
Tax consequences if convert to no par value shares.
Participants may demand payout of shares.
Shareholding could be diluted without knowledge.
Liquidity and Solvency test Working capital packs to be reviewed.
Contracts to be reviewed.
Business may have to go into business rescue proceedings.
Outstanding debts with clients could fall within business rescue proceedings – cash flow.
Directorship Review directorship.

Review key staff members

Educate directors and staff.

Review directors’ remuneration.

Unfit directors will be deemed to have resigned.
Staff could be classified as prescribed officers. Will they take on this additional responsibility?

Memorandum of Incorporation (MOI) now a binding contract with directors and prescribed officers. Directors and prescribed officers can be held jointly and severally liable.
May not be able to pay directors’ fees.
King III Review and apply King III where appropriate. King III basis for determining if a director acted in good faith and with care, skill and diligence expected.
Insurance Review directors insurance. Directors and prescribed officers will no longer be adequately covered by existing policies.
Audit Consider audit requirements. Audit may have to be completed if Memorandum and Articles (M&A) reviewed.
MOI Review Act and your M&A. Decisions and acts may be deemed invalid. Do not rely on current M&A as greater part will be governed by new Act.
Trade unions Understand trade union activism within business. Trade unions entitled to financial statements and may apply for company to be put into business rescue proceedings.

How will a gap analysis assist you?

All business owners are urged to perform a gap analysis to focus on the abovementioned provisions that will have an immediate effect on you as a business owner by identifying material risks.

The below diagram indicates how we would approach a gap analysis on your behalf.

After performing the gap analysis we will advise you on the best steps to take to mitigate your risks. This could involve amongst others in-house training, drafting a new MOI or drafting interim guidelines.

Please don’t be the April Fool! Contact us now to assist you to manage your potential business and personal risks.

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