What every CEO should consider regarding the implementation of the provisions of the Companies Act No. 71 of 2008

Our advice to the CEO would be the following:


Have a training session for all the appointed directors in the group including non-executive directors, independent non-executive directors and the chairman. Also inform all the referred persons about the changes regarding the constitutional documents, explain the, alterable provisions and non-alterable provisions.

Memorandum of Incorporation (“MOI”) and Rules:

Prepare new constitutional MOI’s for all the companies in the group. Consider the implementation of governance rules (which the MOI must allow for), which will provide more flexibility regarding the management of the business units, than rather having the MOI amended from time to time. The rules must conform to the new act and must be adopted at a general meeting. Rules can be amended without amending the MOI. A company’s Memorandum of Incorporation, and any rules of the company, is binding—

  • between the company and each shareholder;
  • between or among the shareholders of the company; and
  • between the company and each director or prescribed officer of the company or any other person serving the company as a member of the audit committee or as a member of a committee of the board, in the exercise of their respective functions within the company.

It is better to conform than to rely on the transitional provisions, the problem with it is that the new Act will apply in any event to some matters superseding current terms in shareholders agreements, this just create confusion and unnecessary risk.

Appoint an Implementation committee:

Consider the overall effect on the business and management affairs. Put a committee together to develop a snap shot of the status and affairs of problematic business units. The new Act prohibits a company from trading under insolvent circumstances, even if this would not in the circumstances be considered reckless. Insolvent circumstances are circumstances where the liabilities of a company or the consolidated liabilities of a holding company, as fairly valued, equal or exceed the assets of the company or the consolidated assets of the holding company, as fairly valued. What about subordinated loans, no mention is made in the new Act of subordinated loans. Consider the situation carefully. The Board must make the calls. All obligations needs to be identified and an action plan must be developed to ensure proper implementation.

Review Directors agreements and indemnities and consider the weighting of all the terms thereof:

Review Directors employment agreements, indemnities and liability insurance cover and obtain advice regarding the changes brought by the new Act.

Consider the changes of instances where special resolutions are required:

The new Act requires a special resolution to be passed in circumstances where a special resolution is not currently required. For example, remuneration for directors’ services may only be paid in accordance with a special resolution approved by the shareholders within the past two years, which is not a requirement under the current Act.

Consider Tax:

Consider the implications of tax.

09 March 2011