KEY CHANGES PROPOSED BY THE DRAFT COMPANIES AMENDMENT BILL, 2018

KEY CHANGES PROPOSED BY THE DRAFT COMPANIES AMENDMENT BILL, 2018

Published 30 October 2018

The current Companies Act, 71 of 2008 (“the Act“) succeeded in lessening multiple regulatory burdens under the old Companies Act, 61 of 1973 (“the Old Act“). On 21 September 2018 the Department of Trade and Industry (“the Dti“) released the draft Companies Amendment Bill, 2018 (“the Bill“) to initiate a formal process of changes to the Act. If the Bill is adopted, it will be the third time that the Act is amended, with the first two sets of amendments being implemented by way of the Companies Amendment Act, 3 of 2011 and the Financial Markets Act, 19 of 2012. According to the Dti, the Bill proposes changes that will bring the Act in line with the current international corporate trends and close identified gaps in the Act. In addition, the Bill jettisons certain cumbersome resolution requirements. We have selected a few key changes proposed by the Bill to discuss in a little more detail. The Bill is currently available for public comment until 20 November 2018. We encourage business and stakeholders to tender their comments to the Dti on or before the due date.

Key proposed changes

On what day does the amendment to a memorandum of incorporation (“MOI“) become effective?

The Bill makes it clear that all amendments to MOIs (excluding MOI amendments that change the name of the company) will take effect 10 business days after lodging your notice of MOI amendment with the Companies and Intellectual Property Commission (“the CIPC“). If the CIPC, after the 10 business days have lapsed, has not endorsed the notice of MOI amendment or failed to reject it with reasons, it will be deemed to be effective. Presently, under section 16 of the Act and as contained in the options provided on the CoR 15.2 Notice of Amendment of MOI form, the MOI amendment takes effect on the date that the CoR 15.2 form (together with supporting documents) is filed with the CIPC, the date on which the amended registration certificate is issued by the CIPC, when the MOI amendment includes a name change, (with an estimated turnaround time of 25 days in terms of the CIPC’s website) or such later date as is indicated on the CoR 15.2 form. The applicant may elect one of these options.

This change is welcomed as it shortens the CIPC’s turnaround time and places a duty on the CIPC to act expediently. However, care must be taken with the “deemed effect” when the CIPC does not provide feedback within 10 business days. The silence of the Bill seems to suggest that such “deemed effect” shall be incapable of being rescinded even if the CIPC, in hindsight, has valid reasons to reject the MOI amendment application. This can have long term negative effects on the company in that it will be governed by a defective MOI without knowledge, as no obligation is created on the CIPC to endorse or reject the MOI amendment after the 10 business days have lapsed.

Transparency regarding directors’ and prescribed officers’ remuneration

Stakeholders will be happy to know that the Bill proposes the amendment of section 30(4) of the Act. This section currently provides for the remuneration and benefits disclosure of “each director, or individual holding any prescribed office in the company”. The amended wording provides that each individual director or prescribed officer must be identified by name when reporting about their remuneration and benefits in the annual financial statements of the company. In addition, the Bill introduces a new section 30A in to the Act which outlines a format for a public company’s directors’ remuneration report, which must be compiled for each financial year and presented to shareholders at the annual general meeting.

These proposed changes should be welcomed as they strengthen transparency in South African companies.

Court’s power to validate the irregular creation, allotment or issuing of shares

Shareholders will not be happy to know that the Bill proposes empowering the courts, upon application by an interested person, to validate the irregular creation, allotment or issue of shares when it is just and equitable to do so. A similar provision existed in section 97 of the Old Act. Presently, shareholders or in other cases the board, if they have the power to authorise shares, may pass a resolution to retroactively authorise invalidly issued shares. Under section 38(3) of the Act, shares that are issued in excess of the authorised shares set out in the MOI (and not retroactively authorised) are a nullity.

This proposed change undermines the powers of the shareholders to govern the company by passing resolutions and decide internally whether to authorise invalidly issued shares or not. The discretion of the court is also far reaching in that no clear meaning can be ascribed to the terms “just and equitable”. The proposed change is therefore not welcomed as it limits the powers of the shareholders at the peril of the court’s wide discretion.

Regulation of share buy-backs

The Bill proposes tightening the regulation of share buybacks by requiring a shareholders’ special resolution to be adopted if shares are repurchased from a director or prescribed officer of the company, or a person related to such director or prescribed officer. In addition, the same special resolution will be required if the share buyback entails an acquisition of shares in a company generally, except for in identified circumstances. Such circumstances are where a pro rata (equal) offer is made to all shareholders (or to all shareholders of a particular class), or if the buyback is in the form of a transaction effected in the ordinary course on a recognised stock exchange on which shares of the company are traded. The present position under section 48(8) of the Act is that a shareholders’ special resolution for repurchasing shares is only required where the shares are held by a director or a prescribed officer of the company, or a person related to such director or a prescribed officer and where the buyback involves the acquisition by the company of more than 5% of the issued shares of any particular class of the company’s shares.

Fortunately, the Bill extends the circumstances where a special resolution is required. The implication of this is that any shares in the company that are repurchased must be approved by a special resolution (provided that the repurchase doesn’t fall into one of the exceptions), i.e. irrespective of whether they are held by a director or a prescribed officer of the company, or a person related to such director or a prescribed officer.

These proposed changes should be welcomed as they provide further protection for shareholders to vote on share buybacks. They also reduce regulations where it might be unnecessary to pass a special resolution for efficient operational reasons.

Financial assistance within a group

Lastly, the Bill proposes that shareholders’ special resolutions are no longer required where a company gives financial assistance to its own subsidiary. Under section 45 of the Act, such financial assistance must be authorised by the board and shareholders by passing a special resolution.

The shareholders will not be happy about this amendment since part of their voting power will be limited. In addition, “subsidiary company” is widely defined in the Act and it is unclear if “own subsidiary” will carry a narrower meaning. A decision to tender financial assistance to a subsidiary is material and shareholders should be given the opportunity to vote on it. Although, this proposed amendment lessens regulations it should not be welcomed since it takes away the right of shareholders to vote on this decision.

Conclusion

The identified proposed changes in the Bill which are meant to make the Act more compatible with international corporate trends are in relation to increasing corporate transparency. However, some proposed changes limit shareholders’ rights which will discourage investors and are arguably not aligned to international standards. The Bill provides much needed clarity about when an MOI amendment take effect. Lastly, the Bill lessens regulatory burdens for effective operational means in that resolution approvals are reduced. However, some of the Bill’s dropped resolution requirements, particularly in requesting special resolutions for actions of the company, and empowering the court to validate invalidly issued shares, may come at a cost to shareholders’ rights.

IS MY RESTRAINT OF TRADE ENFORCEABLE?

IS MY RESTRAINT OF TRADE ENFORCEABLE?

Published 30 October 2018

As a business owner, one of your many concerns will be ensuring that your proprietary interests are protected. This is especially a concern where it comes to employees who have access to very important proprietary interests, including, among others, trade secrets / confidential information of the business, details of and relationships with customers and suppliers, and who can use such access and information to damage the goodwill of the business. For this reason, and to protect their business’ proprietary interests, many employers enter into restraint of trade agreements with their employees (or include such provisions in their employment agreements). In this blog we briefly examine how the law views restraints of trade and how to ensure that your restraint of trade is reasonable and enforceable.

A restraint of trade is an agreement that limits, usually for the duration of an employee’s employment with the specific employer, and for a set period thereafter, the business activities that such employee may be involved in. It may also be entered where a business is purchased, and the new owner wants to protect the proprietary interests of the business as against the previous owner. It is important to note that there is no automatic right to a restraint of trade and that a restraint will only exist where the parties agree to it – it is a contractual right.

The starting point in assessing any restraint of trade is that, while it results in a clash in the principles of sanctity of contract and the constitutional right to choose a trade, occupation and profession, the courts will presume it to be valid and enforceable. Any person alleging that a restraint is not enforceable must show that it is unreasonable and therefore contrary to the public interest, at the time that the restraint is sought to be enforced.

In determining whether a restraint is in fact unreasonable, the courts will look at reasonableness as between the parties, and reasonableness in terms of the broad interests of the community.

In terms of the conflicting interests of the parties, the court must balance the employer’s interest in protecting his proprietary information against the employee’s right to be economically active. In determining this, the court will firstly consider whether the interest sought to be protected is actually protectable and, if so, it will then consider the duration of the restraint, the geographical area within which the restraint will operate and whether the restrained party is still able to earn a living (among other things). There are no specific thresholds as regards each of the above factors, and each case is rather determined according to its own circumstances.

To ensure that your restraint is enforceable and that your proprietary interests are sufficiently protected, the following must be considered / included:

  • the proprietary interest sought to be protected must be set out clearly and it must be made clear that such interests belong to the party in whose favour the restraint is granted;
  • it must be clear that the purpose of the restraint is to protect a proprietary interest and not to, for example, restrict competition or spite an employee for leaving;
  • the duration of the restraint must be specified and must be reasonable in the circumstances; and
  • the geographical area within which the restraint will operate must be specified and must be reasonable, having regard to the operations of the business.

The above factors must always be considered in the context of the market, the position of the restrained party and his access to proprietary information. Further to this, the restraint must be carefully drafted, such that the intention of the restraint is very clear.

Where the above factors are considered and applied, the presumption that a restraint is valid and enforceable is likely to be upheld, and the business’ interests protected. It is therefore best to always seek appropriate legal advice before preparing or entering a restraint of trade agreement.

A CAUTIONARY NOTE ON FRACTIONAL SHARES

A CAUTIONARY NOTE ON FRACTIONAL SHARES

27 September 2018

What is a fractional share / “shareholder”?

A fractional share is less than one full share. This implies that ownership in a single share is given to more than one person, for example, one share is divided between party A and party B rendering each the holder of 0.3 and 0.7 fractional shares in a profit company, respectively. The Companies Act, 71 of 2008 (as amended) (“the Act“) does not expressly forbid or regulate fractional shares. However, party A and party B cannot qualify as “shareholders” in a company for purposes of the Act. In terms of the Act, a shareholder “means the holder of a share issued by a company”. Such holder of a “share” must hold “one of the units into which the proprietary interest in a profit company is divided”. In other words, for a holder of equity to qualify as a shareholder in terms of the Act, the holder must hold at least one share and not a fractional share. Henochsberg on the Act also notes that a share cannot be divided into fractions.

Voting rights

Shareholders are generally entrusted to vote on any matter to be decided by the company. Such voting rights are defined in the Act as “the rights of any holder of the company’s securities to vote” on the proposed matter. A “share” is included in the definition of “securities”.

However, fractional shares do not enjoy general voting rights in terms of the Act. This means that issued fractional shares risk creating administrative anomalies when having regard to the total votes exercised on a resolution.

Section 37(2) of the Act states that each issued share of a company, has associated with it one general voting right, except to the extent provided otherwise in the Act or the preferences, rights, limitations and other terms determined in terms of the memorandum of incorporation (“MOI“). For our purposes, this section seems to suggest that fractional shares do not enjoy general voting rights given that an “issued share” must be at least one unit. This would result in party A and party B not enjoying general voting rights in matters to be decided by the company. Furthermore, we submit that if 40 holders own 2.5 fractional shares each in a company, they, in terms of section 37(2), are only entitled to vote using the two full shares for their voting rights, resulting in the other 0.5 fractional shares (multiplied by 40), being forfeited. How is the company meant to deal with these anomalies, if not otherwise provided in the MOI?

In addition, section 37(3)(a) of the Act states that every issued share has an irrevocable right of the shareholder to vote on proposals to amend the preferences, rights, limitations and other terms associated with that share. Applying the same logic as above, it would mean that for any proposed changes to the MOI regarding fractional shares, the holders of fractional shares will not be allowed to vote on such changes to their shares, subjecting their rights to the peril of other shareholders (if not otherwise provided for in the MOI).

Rectifying fractional shares issued

The good news is that an existing company which has issued fractional shares may still rectify this position by increasing the number of authorised shares (if needed); cancelling the currently issued fractional shares and issuing such numbers of whole shares to ensure the equivalent shareholding percentages in the company. This can be done by way of capitalisation shares in terms of section 47 of the Act. Alternatively, the company can resolve to make payment considerations instead of issuing fractional shares. This way, parties maintain their whole shares and receive monies instead of their fractional shares entitlement.

It is evident from the above that fractional shares will create a plethora of administrative difficulties for any company, resulting in wasted time and additional legal expenses. These can simply be avoided by issuing whole shares instead of fractional shares. To avoid finding oneself in a situation where fractional shares become an “option”, a company simply needs to authorise enough shares (we normally recommend millions) to enable initial and future issues of whole shares. If your company has existing fractional shares in issue, please don’t hesitate to contact us to help you solve this headache.

MERGERS AND AMALGAMATIONS IN TERMS OF SECTIONS 113 AND 116 OF THE COMPANIES ACT

MERGERS AND AMALGAMATIONS IN TERMS OF SECTIONS 113 AND 116 OF THE COMPANIES ACT

Corporate mergers and acquisitions play a significant role in many companies’ growth strategies. They are among the most effective tools utilised by forward thinking boards to scale and grow a business.

With the fast-paced society that we live in today and access to information being so readily available, businesses are scurrying to build shareholder value, taking advantage of potential complimentary industries and making the necessary corporate decisions to gain a bigger share of the markets they operate in.

Since the Companies Act, 71 of 2008 (as amended) (“the Companies Act“) came into effect on 1 May 2011, there has been a paradigm shift in the regulation of South African mergers and amalgamations.

The Companies Act introduced a new form of statutory merger which exists in addition to, and not in substitution of, the pre-existing methods used by companies wanting to effect business combinations, i.e. a sale of shares or a sale of business as a going concern.

The statutory merger is governed in terms of section 113 and section 116 of the Companies Act and the merger agreement is a mandatory requirement in terms of section 113(2).

In addition to each amalgamated or merged company passing the solvency and liquidity test in terms of section 113(1), section 113(2) provides further mandatory terms and conditions that must be addressed in the merger agreement, namely:

  1. the proposed Memorandum of Incorporation of any new company to be formed by the amalgamation or merger, must be included in the merger agreement;
  2. the name and identity number of each proposed director of any proposed amalgamated or merged company must be included;
  3. the manner in which the securities of each amalgamating or merging company are to be converted into securities of any proposed amalgamated or merged company, or exchanged for other property, needs to be detailed;
  4. if any securities of any of the amalgamating or merging companies are not to be converted into securities of any proposed amalgamated or merged company, the consideration that the holders of those securities are to receive in addition to or instead of securities of any proposed amalgamated or merged company;
  5. the manner of payment of any consideration instead of the issue of fractional securities of an amalgamated or merged company or of any other juristic person the securities of which are to be received in the amalgamation or merger;
  6. details of the proposed allocation of the assets and liabilities of the amalgamating or merging companies among the companies that will be formed or continue to exist when the merger agreement has been implemented;
  7. details of any arrangement or strategy necessary to complete the amalgamation or merger, and to provide for the subsequent management and operation of the proposed amalgamated or merged company or companies; and
  8. the estimated cost of the proposed amalgamation or merger.

Further to the above, a thorough regulatory investigation is required to ensure compliance with the relevant regulatory bodies and to ensure that the necessary consents and/or approvals are obtained (i.e. Takeover Regulation Panel approval or exemption, Competition Commission approval, etc.).

A compliant merger agreement, addressing all the requirements in terms of the Companies Act, is imperative for a successful merger. Should you need assistance perfecting a merger, don’t hesitate to give one of our lawyers a call.

Disclaimer. The articles on our website are provided for general information purposes only. We have taken care to ensure accuracy, however the content is not intended as legal advice. Always consult an attorney on your specific legal problems.

GDPR: DATA PROCESSING AGREEMENTS AND BINDING CORPORATE RULES

GDPR: DATA PROCESSING AGREEMENTS AND BINDING CORPORATE RULES

The General Data Protection Regulation (EU) 2016/679 (“GDPR“) became effective on 25 May 2018 and has a substantial impact on anyone who processes personal data of data subjects (individuals). The scope of the GDPR extends beyond the borders of the European Union (“EU“) and is therefore something that likely impacts most businesses that have an international footprint or clientele in the EU.

The GDPR requires certain rules to be complied with when personal data is processed in order for the security of the personal data to be maintained and for the protection of the fundamental right to privacy. These rules must be implemented by the data controller (the party that determines the purposes for which and how data is processed) throughout the stages of processing and requires the data controller to ensure that any third party processing the data on behalf of the controller (referred to as data processors) comply with the rules relevant to them as well.

In any given scenario, there may be multiple parties that act as data controllers and data processors in respect of the same personal data – commonly referred to as joint-controllers and joint-processors. All these parties must still comply with the GDPR and the two most common manners in which this is done is through data processing agreements and binding corporate rules. In this post, we look at these two mechanisms and discuss the differences between them and when each should be used.

Data processing agreements (“DPAs”)

Data processing agreements (“DPAs“) are most commonly used where a data controller appoints a third party to process personal data on behalf of and for the benefit of the controller. The processor is only authorised to process the data on the instructions of the controller and is limited from using the personal data for its own purposes. Processors are usually third party companies that provide a service to the controller and don’t form part of the group of companies that the controller is part of.

The appointment of data processors is subject to the controller and processor complying with the relevant requirements of the GDPR. The GDPR sets out express requirements that must be met by controllers when appointing processors, including that the processor must be appointed in terms of a written agreement (the DPA) and which agreement must include provisions relating to the further requirements that processors must comply with. Some of these include:

  • the purposes for which the data may be processed;
  • the duration of the agreement;
  • limitation of processing to the written instructions of the controller;
  • a duty of confidentiality on the processor in respect of the personal data;
  • duty to take appropriate organisational and technical security measures;
  • the rules regarding the appointment of sub-processors; and
  • liability of the processor in respect of the personal data.

Binding Corporate Rules (“BCRs”)

Binding corporate rules (“BCRs” or “Rules“), although similar to DPAs, regulate the processing of personal data between companies within a group of companies. They are like a code of conduct, allowing multinational companies to transfer data internationally to members of the group that are located in countries that may be considered to not provide an adequate level of data protection. Although some countries in which the members of the group conducts business may  have their own data protection laws and requirements in respect of processing personal information,  the BCRs aim to ensure that all the companies within a group meet, at a minimum, the standards required by the GDPR (and which will result in the companies falling within the GDPR’s ambit, complying with their legislative obligations).

Article 47 of the GDPR sets out the requirements regarding what BCRs must specify and the Rules that a group of companies develops must be approved by an EU regulatory authority. In brief, BCRs must further be legally binding and apply to all members of a group of companies, they must include provisions about the enforceable rights that data subjects have in respect of the processing of their personal data and must meet the further requirements of article 47, including:

  • the details of the group of companies;
  • information regarding the data that is transferred, the type of processing that is carried out and the purposes for such processing, and the third countries to which the data is transferred;
  • the data processing and protection principles that are applicable and the rights of data subjects in regard to the processing and protection principles;
  • the duties and tasks of the data protection officer who oversees the group’s compliance with the rules and the GDPR;
  • the complaint process that data subjects may use;
  • how the group of companies trains its employees in respect of the GDPR; and
  • the various requirements in respect of enforcing the rules, reporting on compliance with the rules and cooperation with the various regulatory authorities.

Conclusion

Binding Corporate Rules and Data Processing Agreements have the same broad goal: to ensure compliance with the GDPR when processing personal information where the processing is carried out by more companies than just the data controller. The application of these mechanisms depends on who is carrying out the processing. The territory in which the processing is being done will further impact the substance of these agreements.

It is important, from both a GDPR and POPI perspective, that data protection requirements are adhered to and that businesses make use of the various tools available to them to ensure that they comply with these rules.

NATIONAL WILLS WEEK – DOMMISSE ATTORNEYS

NATIONAL WILLS WEEK – DOMMISSE ATTORNEYS

This year we’ll be participating in National Wills Week from 17 – 21 September 2018.

For anyone who wishes to have a basic will drafted at no charge, all they’ll need to do is contact gerry-lee@dommisseattorneys.co.za to schedule an appointment.

The attending practitioner will send a short questionnaire that each person is required to complete and return prior to any consultation.

Please note that this is a free service and is offered on a first come first serve basis.

http://www.lssa.org.za/our-initiatives/advocacy/national-wills-week

JOB OFFER: SENIOR ASSOCIATE

JOB OFFER: SENIOR ASSOCIATE

About the Position

Description of Work: A senior associate who has a strong commercial background, can work independently and who will be responsible for their own client portfolio, developing client relationships and building a team.

Requirements:

  • 3/4 years post article experience in commercial law at a reputable firm.
  • Good understanding of commercial and legal aspects of transactional work.
  • Working experience in private equity, venture capital, mergers & acquisitions and generally the legal aspects of corporate finance is essential. Drive to be market-leading attorney is these fields.
  • Advanced computer knowledge with emphasis in MS Word, MS Excel and MS PowerPoint.
  • Excellent communication, reporting and interpersonal skills, verbal and written.
  • Ability to work independently and be proactive.
  • Ability to work within pressurized environment and adhere to tight deadlines.
  • Quality of work: accuracy, attention to detail.
  • Organisation: being meticulous in planning & prioritising work tasks.
  • Problem solving: anticipating and identifying problems, pro-actively solving them.
  • Leadership: managing, leading and building a team.
  • Consistently excel in the three core deliverables for senior team members: meeting and exceeding their own budget; managing team members to do quality work and also their targets; grow the value of the firm by bringing in new clients.

Competencies:
Primary competencies

  • High level transactional drafting and deal management experence.
  • Corporate finance transactions and specifically M&A work in mid-market environment; local and cross-border transactions
  • Fund raising (debt/equity).
  • Venture capital and private equity transactions – ability to negotiate and draft complex transactional documents without getting intimidated or overwhelmed.
  • Corporate restructuring.
  • Cross border transactions.

Secondary competencies

  • Joint venture deals – and the related sale of shares, shareholders’ agreements, partnerships.
  • Regulatory aspects with doing business across borders.
  • International expansion.
  • Ability to learn new areas of law and apply that to new jurisdictions.

Qualification:

  • LLB
  • LLM in commercial law and business courses will be advantageous but not a requirement.

Remuneration:

  • Market related

Desired Skills

  • Commercial Law
  • Mergers & acquisitions
  • Drafting legal documents
  • Staff management
  • Cross border transactions

Desired Qualification Accreditation

  • Degree

Kindly send your motivation and CV to: info@dommisseattorneys.co.za

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

If you are a promoter of a competition, then chances are that the CPA is likely to apply to that competition. It is important for the promotor to know when a promotional competition is regulated by the CPA and to comply with its requirements in order to avoid the risk of incurring penalties. This article will examine the relevant provisions in the CPA relating to promotional competitions and highlight the most important obligations placed on a promoter when running a promotional competition.

PROMOTIONAL COMPETITIONS IN TERMS OF THE CPA:

Section 36 of the CPA governs promotional competitions and defines a promoter as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted.”

A promotional competition is further defined in the CPA as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:

  • it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
  • any prize offered exceeds the threshold prescribed in terms of subsection (11) (currently R1.00),

irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

Given the rather wide definitions in the CPA and the low value threshold, it is safe to say that the vast majority of competitions conducted in South Africa will be governed by the CPA.

HOW A PROMOTOR CAN COMPLY WITH THE CPA:

Very importantly, a promoter of a promotional competition must not require any consideration to be paid by the participant (e.g. the participant should not be asked to pay for the opportunity to participate in the competition or participation in the competition should not require the purchase of goods and services at a price that is more than what is ordinarily charged without the opportunity of taking part in the competition) other than the reasonable costs for posting  or transmitting an entry form.

For the purposes of ensuring fairness, the CPA also requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of that competition.

Before each competition, the promotor must prepare a set of competition rules which should be made available to any participant upon request. Regulation 11(6) of the CPA also requires that a copy of the competition rules (together with certain important information) be retained for a period of at least three years.

A promotor must ensure that an offer to participate in a promotional competition must clearly state the following:

  • the competition or benefit to which the offer relates;
  • the steps required to participate in the competition or accept the offer;
  • the basis on which the results of the competition will be determined;
  • the closing date for the competition;
  • the medium through which the results of the competition will be made known; and
  • the person from whom, the place where and the date / time on which a successful participant may receive the prize.

The promoter must further ensure that an independent accountant, registered auditor, attorney or advocate oversees and certifies the conducting of the competition and must report this through the promoter’s internal audit reporting or other appropriate validation or verification procedures.

The CPA imposes a significant burden on promotors who wish to run a promotional competition, both from an administrative and financial perspective. It is therefore important for a promoter to be aware of and adhere to these requirements as far as possible to prevent non-compliance and possible punitive measures being taken against the promoter.

Let us know if you require any assistance in drafting promotional competition rules or overseeing and certifying the running of the competition.

NEW SYSTEM TO CURB DEBIT ORDER ABUSE: DEBICHECK

NEW SYSTEM TO CURB DEBIT ORDER ABUSE: DEBICHECK

  1. INTRODUCTION

Have any of your customers ever disputed a debit order that was legitimately processed against their bank account in favour of you in terms of a debit order mandate? Has your personal bank account ever been debited without your permission? If not, you’ve probably heard of someone who has experienced these rather unfortunate incidents. Well, these disputes will soon be a thing of the past. in this post we’ve set out how the Payments Association of South Africa (“PASA“) has planned to put a stop to debit order abuse.

  1. CURB ON DEBIT ORDER ABUSE

Many of us are familiar with the current workings of debit order authorisation. In brief, a service provider who collects its revenue by means of debit orders is required to enter into a written or oral agreement, commonly known as a “debit order mandate”, with customers. A valid debit order mandate serves as proof of consensus between a customer and the service provider for the repeated deduction of an agreed amount from the customer’s bank account. A service provider would request payment from the customer’s bank, based on the authority from the customer.

PASA (the Payments Association of South Africa, a body created by law to organise, manage and regulate the participation of its members in the South African payment system) has been receiving a significant number of complaints relating to debit order abuse by both customers and service providers. While most complaints related to debit orders processed to customer’s bank accounts without valid debit order mandates, some complaints related to debit orders which had been legitimately processed (where the customer disputes a legitimate debit order and has the payment reversed).  PASA –mandated by the South African Reserve Bank (“SARB“) – has found a solution to this ever-growing problem. PASA has introduced Debicheck, a new debit order system which will hopefully bring peace of mind to service providers and customers alike.

  1. HOW A DEBICHECK WILL OPERATE

In terms of Directive No. 1 of 2017 issued by SARB, the participant (i.e. bank) who is responsible for carrying out the payment instruction from a service provider (i.e. the bank customer’s creditor) must notify its customer (i.e. debtor / the service provider’s customer) of the proposed debit orders before making any deductions against the customer’s account. Customers will be required to approve or reject the proposed debit order and confirm any material information relating to such debit order, such as the service provider’s details, amount to be deducted and the date of debit order. Customers will also be required to re-approve any debit orders when the mandate changes.

According to the Directive, all debit order mandates concluded after the cut-off date (currently 31 January 2019) must comply with these requirements. In other words, these requirements do not apply to debit orders which are already in existence before the cut-off date.

  1. CONCLUSION

Through the Debicheck system, banks will have a record of all confirmed and rejected debit orders – meaning that no debit orders will be loaded by a bank without a customer’s positive authorisation of the debit order. As a result of the consents and rejections being recorded, it is unlikely that there would be debit order abuse on Debicheck debit orders.

THE IMPORTANCE OF COSEC: AUTHORISED AND ISSUED SHARE CAPITAL AND THE RELEVANCE FOR START-UPS (PART 2)

THE IMPORTANCE OF COSEC: AUTHORISED AND ISSUED SHARE CAPITAL AND THE RELEVANCE FOR START-UPS (PART 2)

We have in the past, received numerous queries relating to the difference between the issued and authorised share capital of a company and more importantly, the relevance of this difference for Start-ups.

This blogpost will briefly explain the difference between authorised and issued share capital and will explain why, in some instances, more may sometimes just be better.

What are shares?

Shares, or a single share, as defined in terms of the Companies Act, 71 of 2008 (“the Companies Act“) refers to “one of the units into which the proprietary interest in a profit company is divided [into]”. In short, a company’s share capital is comprised of shares and the owners of these shares are referred to as shareholders.

What is the authorised share capital of a company?

Given the above, we now know that any ownership of a company is evidenced by the number of shares held by its shareholders. Shares can be divided into various classes and formats, each of them with various specific rights and obligations attached to them. Irrespective of the class of shares, the maximum total number of shares available for any potential shareholder to own are referred to as the authorised share capital of the company.  The authorised share capital of the company is determined and stated in the company’s constitutional document known as the Memorandum of Incorporation (“MOI“) and can usually only be amended by way of a special shareholders’ resolution authorising such a change (if you want to see more on this please see our blog on shareholders resolutions here). The authorised share capital therefore is the maximum total number of shares available to the Company to distribute to potential future shareholders.

What is the issued share capital of a company?

If the authorised share capital is the maximum total number of shares available to be distributed to potential shareholders then, the issued share capital of the company is the actual number of shares already distributed to the shareholders. The shares are therefore issued and it’s not uncommon to find that the number of issued shares is significantly lower than the authorised share capital as the company does not want to find itself in a position where potential corporate actions are restricted due to the maximum number of authorised shares being exhausted.

Importance for start-ups?

So why is this important to start-ups? Although the above detail may be regarded as insignificant in the larger scheme of things, in terms of section 38 of the Companies Act, the board of directors of a company (usually the founders of a start-up) may not resolve to issue any shares in excess of the number of the authorised shares of any particular share class. If they do, they either have to authorise this share issue retroactively (section 38(2)) or, in the event that the resolution does not pass: return any funds (with interest as mandated by the Companies Act). Given the sometimes-precarious financial position of start-ups, returning vast amounts of funds could potentially be a daunting task. Not to mention the fact that board members who were privy to the decision to issue shares in excess of the authorised share capital (and who failed to vote against same) may be held liable in terms of section 77(3)(e)(i) of the Companies Act should the resolutions not pass.  Finally, and in light of past experiences, implementing rectifying steps and correcting the previous processes after the fact can lead to delays and frustration when you may least need it. Especially, during that funding round or exit… Given this, we always recommend that start-ups consider having a substantial number of authorised shares (especially when incorporating a new company) reserved in their MOI and that the issued shares remain well below that.

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