14 February 2012 by Cliffe Dekker Hofmeyr

The implications of the New Companies Act on the residence of a company

The concept of "residence" may be of fundamental importance for the purpose of determining which division of the High Court has jurisdiction over a company in respect of a particular matter. The "residence" of a company is a thorny issue at best as, being a juristic person, it only acts through its officers wherever such officers may be physically present at any given time. This concept was adjudicated upon by Judge Binns-Ward in the Western Cape High Court case of Sibakhulu Construction (Pty) Ltd v Wedgewood Village Golf and Country Estate (Pty) Ltd in the context of concurrent liquidation and business rescue proceedings in different jurisdictions. The question of a company's "residence" is often settled by locating the company's registered address and/or determining its principal or main place of business, which often are within the same division or even located at the same address. It is, however, also common practice for companies to nominate a convenient address, such as the address of their auditors, as the registered address of the company. It is thus not uncommon for companies to have a registered office and another distinguishable "principal place of business."

Under the previous Companies Act, 1973, section 12(1) provided that in any matter under that Act in respect of a company, any division of the High Court within the area of the jurisdiction whereof the registered office of the company or the main place of business of the company is situated, had jurisdiction. "Principal place of business" as an expression is not used in the 1973 Act and was used interchangeably and synonymously with "main place of business". The new Companies Act, 2008, which for the most part repealed the previous Companies Act, notably has no equivalent provision to the old section 12(1). When an Act is repealed by the legislature and it does not contain provisions evincing a different intention, any question in dispute needs to be determined by reference to common law. Judge Binns-Ward therefore examined the common law relating to jurisdiction and the changes between the 1973 and 2008 Companies Acts.

Judge Binns-Ward found that the 1973 Act was consistent with the common law and in particular with the principle of actor sequitur forum rei, which provides a ground for jurisdiction based on residence. There are of course other grounds for jurisdiction which are considered in other matters depending on the nature of the right or claim in issue. For purposes of the case before the court, the learned judge determined that liquidation and business rescue proceedings are matters affecting the status of a company and that residence is therefore the appropriate ground of jurisdiction.

Until the promulgation of the new Companies Act, the position regarding the residence of a company was set out authoritatively in a decision of the then Appellate Division of the High Court, namely Bisonboard Ltd v K Braun Woodworking Machinery (Pty) Ltd 1991 (1) SA 482 (A), which resolved earlier conflicting decisions. A company could either reside at its registered office or, if it carried on business in a different jurisdiction, it resided at the place where it carried on its operations or business. If a company carried on business in more than one place, it resided at the place where its general administration was centred, being most often its head office. It was therefore possible for a company to reside in more than one place and therefore for various High Courts to have jurisdictions over matters involving the status of a particular company. The learned judge in the Bisonboard case commented that the earlier case law sought to bring about certainty and elaborated by adding that to consider the registered office of a company as its place of residence (or at least one of its places of residence) was, and remains, a "commercially convenient" approach.

As alluded to earlier, the new Companies Act does not contain a section dealing with jurisdiction which is an equivalent to the old section 12, but instead it states in section 23(3) that each company or external company must have at least one office in the Republic and that its office (singular) must be registered, or if it has more than one office, then its “principal office” must be registered. Section 23(3) is not novel in requiring companies to have a registered office, but the material difference, as Judge Binns-Ward puts it, is that the registered office must now be the company's only office or, if it has more than one office, its “principal office”. The new Act does not define "principal office". Judge Binns-Ward cautioned that section 23(3) of the new Companies Act makes it “clear that the registered office must be an office maintained by the company and not the office of a third party used for convenience as a registered office”. Essentially, the concept of registered office and main place of business, in the opinion of the court, has now become one. Judge Binns-Ward concludes that the result for a pre-existing company must mean that it is obliged in terms of section 23(3) to change its registered office to be that of its principal place of business or principal office (if it has more than one office in order that it may be “resident” in only one place). To hold otherwise, in the learned judge's opinion, would also defeat the effect of the provisions of the Act and the purpose of the Act. What is more, the definition of "court" in the business rescue chapter, refers to court by the definite article, which clearly envisages only one court.

The principal place of business has often been expressed as the place where the “direction” of the company takes place. The same probably holds true for “principal office” and by implication, in terms of this judgment, the place where the direction and chief or head administration function takes place should now also be the registered office for the purpose of compliance with the new Companies Act.

The outcome of the decision in the Sibakhulu Construction case is likely to have significant implications with regards to jurisdiction in matters concerning companies in that the new Companies Act does not provide for the possibility of a company residing in more than one place. Companies may now need to consider a change of address. The location of a company's registered address has further implications for record-keeping, as set out in sections 24, 25 and 28 of the Act. Judge Binns-Ward premises his conclusion on the purpose of Chapter 6 of the Act (the chapter dealing with business rescue) and on the purposes of the Act itself set out in section 7, one such purpose being "to provide a predictable and effective environment for the efficient regulation of companies".

A further obvious implication is that failure to comply with this requirement could constitute a contravention. Companies therefore need to reconsider and properly regulate where their registered office is located. The necessity for this is both practically and legally warranted as such office then serves as an office where, and via which, third parties can transact and communicate with it.

The decision might be welcomed as bringing certainty in providing one easily ascertainable address for each company. The benefits of "forum-shopping" between divisions will no longer be possible, at least in matters concerning the status of a company. The decision may also have far-reaching consequences for companies and the manner in which they administer their offices and companies directors and secretaries would be advised to take cognisance of the Sibakhulu Construction judgment and its ramifications for them.

Rule 4 of the High Court Rules provides that service of any court process on a company must be effected upon an employee of the company at its registered address or at its principal place of business. It appears from the commentary on the High Court Rules that Rule 4 remains to be interpreted in terms of the old Companies Act. In light of the contradiction which exists between Rule 4 and the recent Sibakhulu Construction judgment, an amendment of Rule 4 may well be warranted.

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