The Companies and Other Business Entities Act [Chapter 24:31] (hereinafter “the New Act”) was gazetted on 15 November 2019. It came into force on the ninetieth day after its promulgation – that is on 13 February 2020 and repeals the Companies Act [Chapter 24:03] (hereinafter “the Old Act”) and the Private Business Corporations Act [Chapter 24:11].
The New Act has a number of significant impacts on corporate governance including the following:
The fiduciary duties of office bearers of registered entities have been codified in the New Act. These include the duties of care and good faith (Section 54), as well as the duty of loyalty (which includes prohibitions in cases of conflict of interest) (Section 55). The New Act provides for the means in which members of entities, as well as other third parties, may approach the courts for relief where office bearers have failed to comply with their fiduciary duties (Sections 59 – 61). Other, more general, corporate governance issues dealt with in the in New Act include requirements relating to requirements to issue out share certificates within two months (Section 153), maintenance of a member register (Section 159), requirements to prepare records of meetings within 20 days thereof (Section 180), and the requirement that auditors may only serve for 5 consecutive years after which they must take a 2 year break (Section 191).
Public companies have additional corporate governance provisions imposed, including the requirement that they shall establish or adopt written guidelines covering matters such as “standards for qualification and independence of a director, directors’ responsibilities including meeting attendance, diligence in reviewing materials, and rules for disclosure and review of potential conflicts of interest with the company, director compensation policy, succession planning for both directors and officers, and other corporate governance matters deemed appropriate” (Section 220). In addition, public companies must set up an audit committee, all of whom should be independent directors (Section 219).
The New Act sets out penalties against persons who breach their duties, including against those who provide false statements or oaths in any “statement, return, report, certificate, statement of financial position or other document required” by or under the New Act, which includes fines and imprisonment for up to two years (Section 67). Similarly, carrying out business in a fraudulent, reckless or grossly negligent manner, or wilfully failing to account properly or keep proper financial records, may attract civil penalties, fines and/or imprisonment (Sections 68 and 69).
Additional requirements relating to directors are also set out under the New Act, and the minimum number of required directors will now be dependent on the number of members of the company (whereby a private company with between 1 and 10 members must have two directors, and any private company with more than 10 members must have at least three directors. Public companies shall have between seven and fifteen directors) (Section 195), of which at least three must be independent (Section 206).
No director may sit on the board of more than 6 un-associated public companies (Section 195(9)). Any contravention shall result in civil penalties. All companies must also appoint one or more persons as “officers” who shall manage the company, and a head officer may be elected (CEO, president, Managing Director and other similar roles) (Section 221). The New Act also set outs that no director or officer may act as a proxy for a shareholder, and shall be subject to a civil penalty if he or she purports to do so (Section 171).
The New Act also sets out requirements for company secretaries in relation to public companies. A persons qualified to act as company secretary for a public company if:
- “(a) for at least three of the five years immediately before his or her appointment as secretary, he or she held office as secretary of a public company; or (b) he or she is registered or entitled to be registered as a chartered accountant under the Chartered Accountants Act [Chapter 27:02]; or (c) he or she is registered or entitled to be registered as a chartered secretary under the Chartered Secretaries (Private) Act [Chapter 27:03]; or (d) he or she is registered or entitled to be registered as a legal practitioner under the Legal Practitioners Act [Chapter 27:07]; or (e) he or she is registered or entitled to be registered as a public accountant or public auditor under the Public Accountants and Auditors Act [Chapter 27:12]; or (f) he or she holds such other qualification as may be prescribed in regulations” (Section 198). Disclosure Provisions
Various sections provide for the disclosure of certain information which includes:
- Duty by a controlling member to disclose conflict of interest (Section 57)
- Duty to disclose the particulars of a beneficial owner (Section 72)
- Duty to disclose to the Registrar a return showing purchase by the company of its own shares (Section 132)
- Duty to disclose the particulars of other directorships for directors of public companies (Section 195)
- Duty to disclose payments for loss of office (Sections 209 – 211)
- Duty to disclose particulars of directors’ emoluments and pensions (Section 215)
- Duty to disclose particulars of loans, guarantees and security provided by the company to directors or officers (Section 216)
This analysis is not intended to cover all changes which have been introduced under the New Act, but simply highlights certain aspects which may be of interest to readers. The same is strictly for information purposes and that we do not take responsibility for any loss or damage suffered by any person as a result of the reliance upon the information contained therein.
HONEY & BLANCKENBERG