New Companies Act Good for Business

New Companies Act Good for Business

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Judin says that the Act has brought with it many changes, but in reality “not that much has changed”. He says there are still shareholders, directors, AGMs, etc, but that previously the legal duties of directors were found in Common Law; now they are in Section 76 of the New Companies Act.

By codifying the duties, the consequence of being in breach of the provisions could be long jail sentences of around ten years and personal liability. A director’s duties have been extended to prescribed officers and other people who sit on a company’s board.

Administrative issues

Judin says: “The New Companies Act, with its flaws, is one of the best pieces of business legislation in the world.” He admits however that there have been teething problems, particularly with regard to the CIPC (Companies and Intellectual Property Commission) in implementing the Act, but expects these to be resolved over the new few months.

One of the main reasons for the rush to implement the Act was that government was concerned that South Africa can’t escape the global financial crisis which is looming. The Act has introduced a Business Rescue provision for companies that are facing liquidation as a way for them to continue trading until they are able to turn the business around.

Business success through governance

According to Judin it is wrong to think that proper governance prevents companies from being entrepreneurial. On the contrary he believes businesses can be hugely successful through good governance.

Business owners who operate ethically shouldn’t have anything to worry about. The business judgement rule protects directors in that it will determine whether or not they acted as a reasonable person would in that specific circumstance, at that particular time. This is only applicable however if the person is properly informed, has no conflict of interest and acted as a reasonable person. Judin advises that all directors take out liability insurance to protect themselves further.

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