New Companies Act 'flawed'

Pretoria - Lindie Engelbrecht, outgoing chief executive of the Institute of Directors (IoD), is "cautiously optimistic" that the new Companies Act will not come into force this year.

She says the alterations to the act published in December deal with spelling and grammar errors, but neglect to say what these are or how they will be corrected.

Opportunity has been given for comments on the corrections, but this is probably a worthless exercise because no one knows what needs to be commented upon.

More than 200 pages of regulations have also been published in an effort to correct errors of principle in the legislation.

As soon as changes are made to legislative principles, an act has to return to the parliamentary process. The problem is that there are only two of the original trade and industry portfolio committee members remaining who were involved in the amendments.

The process of amending the act began in 2003. The first White Paper was published in 2004. The first version of the act was an unmitigated mess, says Engelbrecht unequivocally.

She is also extremely sceptical about the current act. Compliance will cost companies thousands of rands.

For the past five years government has been asked to do a cost analysis on the effect of new legislation, but this has not been done, she says.

She adds that there are enormous problems with the practical application of the act. One important "error" is that the act is in conflict with other legislation, such as the Competition Act and the Consumer Protection Act. It was written in total isolation from any other legislation, she says.

One aspect that has been vociferously criticised is the effect of company bailouts.

According to the new act, a company could find itself in the sphere of a company bailout if it experiences serious cash flow problems for a couple of months.

Bank loans, supplier and credit agreements, as well as long-term contracts are under threat from the requirements relating to company bailouts.

Contracts and loans currently entered into could simply be cancelled in 10 years' time should a company need to be bailed out.

This means that banks, suppliers and creditors could lose their rights in terms of this principle in the act.

The profession that will benefit most from the legislation is the legal profession, says Engelbrecht.

The new Companies Act is supposed to come into force on July 1 this year.

- Sake24.com

For more business news in Afrikaans. go to Sake24.com.