Regulate first, please Mr. Minister

20 April 2011

It’s disappointing and frustrating that the Department of Trade and Industry (dti) has decided to release the final Regulations accompanying the new Companies Act on 1 May 2011, the same day that the Act comes into effect. 

That’s the view of Grant Thornton SA’s national chairman, Leonard Brehm.  “South African businesses have every right to review the Regulations in advance of the new Act’s effective date, because companies require reasonable time to absorb, review and understand the implications of the Act and to carry out the requirements according to the new Act.”

The dti officially announced earlier today that President Jacob Zuma has now signed the Companies Amendment Act and that the Companies Act of 2008 will be put into legal force on 1 May 2011.  The announcement also adds that, “The Companies Regulations and all other relevant documents will be published and also come into force on implementation date.”

Much of the detailed legislation is contained in the Regulations, which are issued by the dti, rather than in the Act itself. 

“When the Act becomes effective on 1 May, companies will be asked to comply with legislation, aspects of which they know very little about,” says Brehm. “The dti should have given businesses at least a three month window from the release of the final Regulations before bringing the Act into effect.”

Some of the Regulations expected to accompany the Companies Act will have far-reaching repercussions for corporate SA.  Legal documents need to be amended.  Companies will need to review and revise these very quickly.

The Companies Act was originally passed in 2008 but never came into effect.  About half of its provisions were changed by the Companies Amendment Act which only went through Parliament on 24 March 2011.

“One would also hope that a consolidated version of the Act will be available prior to the 1 May implementation date,” added Brehm.  “It’s confusing for anyone to try to understand the 2008 Act and the 2011 amendments, when these two documents are still entirely separate.”

Brehm says that while companies have been preparing themselves since 2008 for the new Act and its implications, the detail in the Regulations is still unknown. “It’s impossible to implement the changes effectively when the full implications are not known.”

The Regulations will provide details about the following issues, to name only a few: 

• Registering company names
• Incorporating a company
• Information about directors
• Maintaining accounting records
• The financial reporting standards which companies must apply
• Which companies need to be audited and which need to be reviewed
• Who will be a prescribed officer under the new Act
• Fundamental transaction requirements and 
• Regulations relating to Business Rescue

Another long-awaited Act – the Consumer Protection Act (CPA) – did come into effect on 1 April this year.  However, businesses affected by the CPA are having to deal with extreme time pressures to comply with the regulations under that Act.  The Regulations were also only made public on the same day as the 1 April enforcement date.

Brehm points out, for example, that the CPA authorised the Minister to prohibit certain terms in contracts which are deemed to be unfair to consumers.  In effect, businesses were faced with the fact that large parts of their standard agreements became unenforceable; although they had no idea which parts until the very day the CPA became effective.

“These regulations accompanying the CPA have massive legal repercussions for businesses.  Many legal departments are desperately amending their documents in an effort to comply as quickly as possible with an Act which is already in force,” says Brehm. “It’s completely unacceptable to have to run a business in this back-to-front manner.”

Brehm is dissatisfied that the debacle experienced with the Consumer Protection Act and accompanying Regulations was not taken to heart and that a more structured approach was not prepared for the Companies Act.

“We’ve been waiting since 2008 for this new Act and I’m certain a few more months would not have made much difference,” Brehm concludes.

Ends