HIGHLIGHTS OF CORPORATE GOVERNANCE IN SOUTH AFRICA
The Companies Act, No. 71 of 2008 has partially codified corporate governance standards in South Africa. The various iterations of the King Report on Corporate Governance for South Africa have also raised the bar in terms of corporate governance standards in the country, the latest version being the King IV Report which was released in November 2016. According to Prof Mervyn King, King IV has accentuated the fact that directors are not merely the agents of shareholders, but rather the heart, mind and conscience of the company. Stakeholder primacy has now become the norm and this cannot be ignored. The King Committee is already revising King IV. This has been partly informed by the recent amendments to the Companies Act, the ever-evolving governance landscape, and the need to make the Code more user-friendly.
However, sweeping changes are not expected in the new report, that is the King V Code, which is likely to be officially launched towards the end of 2025.
At SIKANYE we are mindful of the fact that corporate failure is not always a function of corporate leadership. Businesses can find themselves in trouble out of no fault of their own, for instance, due to black swan events. A case in point is the financial distress and insolvencies occasioned by COVID-19 and the associated lockdown regulations. To this end, the company provides a wide range of advisory services relating to business rescue in order to enable directors to timeously leverage this remedy when their organisations go through financial distress. This is done in an effort to salvage the situation early and thereby avoid formal insolvency proceedings. More often than not, directors and creditors’ committees also require guidance on how the business rescue procedure works. Business rescue should be a speedy process and timely commencement is a critical success factor. Company directors need to be aware of this procedure and how it works in order to be able to invoke it on time if and when circumstances dictate. Section 4 of the Companies Act sets out the solvency and liquidity test. In this connection, section 22 of the Act prohibits reckless trading.
Against this backdrop, governing bodies should now perform their fiduciary duties with even greater care, skill, diligence and circumspection. The decisions that they make must be able to withstand scrutiny. Furthermore, the recent amendments to section 77 of the Act expose directors to more liability when performing their duties. The section now allows the court to extend, on good cause shown, the three-year period of prescription for claiming damages. It is also noteworthy that the operation of this amendment applies retroactively. Consequently, the period to declare a person a delinquent director or under probation has now been extended. It should be noted that over and above that, in terms of section 218(2), liability may also be triggered by a contravention of any provision of the Act. Clearly, being a board member or a prescribed officer comes with the risk of personal liability which ought to be mitigated by always acting rationally, prudently, ethically and within the confines of the law.
Ironically, the company secretarial role is often perceived as the Cinderella of all management roles in organisations yet courts have held that a company secretary is an officer with extensive duties and responsibilities. In effect, he is a chief governance officer providing corporate governance support and oversight. Board members, individually and as a collective, should have unfettered access to the professional guidance of the company secretary who should also jealously guard his independence inter alia by maintaining an arm’s-length relationship with the Board. The Board should also ensure that the company secretary is empowered and vested with the necessary authority.
Sikanye Governance & Corporate Secretaries (Pty) Ltd.
Registration Number:
2010/004318/07
Address
Office Address
112 Kestrel Place
Moddercrest Office Park
1 High Street
Modderfontein, 1645
Business Hours
Monday – Thursday: 08.30 – 16.30
Friday: 08.30 – 13.00
Contact Us
064 890 6851
Email:
info@sikanyegovernance.com
Website:
www.sikanyegovernance.com
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