17 November 2021 by and Corporate & Commercial Alert

Amendment Bill to the rescue: A discussion of the proposed amendments to section 16 of the Companies Act

The Companies Amendment Bill, 2021 (Amendment Bill) was published for comment by the Department of Trade, Industry and Competition on 1 October 2021. One of several amendments to the Companies Act 71 of 2008 (Companies Act) proposed in the Amendment Bill is an amendment to section 16 of the Companies Act. The proposed amendment is meant to finally clarify the effective date of an amendment to a company’s memorandum of incorporation (MOI).

Parties often need to urgently create shares to implement a subscription transaction because the target company needs the funds to flow so they can use the subscription proceeds. The implementation of the transaction in such instances is subject to the amendment of the MOI of the target company. The parties will complete the required forms and send the signed forms together with the amendment to the Companies and Intellectual Property Commission (CIPC).

The inevitable question that follows is when does the amendment take effect so that the parties can implement the transaction? The answer to the question is often unsatisfactory.

Section 16 of the Companies Act currently provides that an amendment to an MOI of a company takes effect on the date and time when the notice of amendment is filed with the CIPC or on a date specified in the notice of amendment. The question that often arises is what is meant by “filed”.

The conservative view is that filing takes place when the target company receives written confirmation from the CIPC that the notice of amendment has been accepted and placed on file. Submitting the amendment with the CIPC does not constitute filing, it simply means that the amendment has been sent to the CIPC for processing.

The reason for the current debate around when “filing” takes effect is that section 1 of the Companies Act provides that “filing” is mere delivery to the CIPC. However, Table CR 3 in the Companies Regulations, 2011 provides that delivery is deemed to take place to the CIPC only when the CIPC issues a receipt. That is why it is always best to follow the conservative approach and wait for the CIPC’s formal receipt.

Review Period

Processing the amendment at the CIPC and receiving written confirmation of filing from the CIPC can take anywhere between 5 to 15 business days. The CIPC does, in certain instances, issue its confirmation faster. It will depend on the circumstances and whether there is a backlog at the CIPC. The timelines can therefore fluctuate.

The Amendment Bill proposes a new filing regime that provides for a deemed filing construct that is meant to address the inconsistencies and provide certainty for the parties. The Amendment Bill provides that an amendment of an MOI will now take effect 10 business days after receipt of the notice of amendment by the CIPC (Review Period).

Notwithstanding that the amendment will be deemed to have taken after the Review Period, the CIPC will retain some measure of discretion during the Review Period. The CIPC will inspect the amendment to ensure that it complies with the requirements of the Companies Act and the provisions of the MOI of the company during the Review Period. If the CIPC does not issue any response before the expiry of the Review Period (i.e. the CIPC has not accepted the amendment, issued any query or rejected the amendment with reasons) the amendment will be deemed to take effect on the expiry of the Review Period.

While the amendment seeks to clarify the effective date of the amendment, it does not contain a provision that deals with the consequences if the CIPC rejects or queries the amendment after the expiry of the Review Period. In such instances, the amendment would nevertheless be valid as per the deemed provisions. The parties would thereafter need to address the CIPC’s rejection and queries.

 

The one area of suggested improvement with respect to the proposed amendment, which we have suggested to the Department of Trade, Industry and Competition, is that if the CIPC happens to process the amendment faster than the 10 business days, that earlier date should be the deemed filing date as there is no point in then waiting out the expiry of the Review Period.

If the proposed amendments to section 16 to the Companies Act contained in the Amendment Bill become law, parties will now have certainty regarding the effective date for the amendments to MOIs for the purpose of implementing their transactions.

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