Category Archives: Business

The compulsory rotation of auditors

Every public and state-owned company has to appoint an auditor and a company secretary.  However, in terms of section 92 of the Companies Act, 2008, the same individual is not allowed to serve as the auditor or designated auditor of a company for more than 5 consecutive financial years.

 What does this mean for my company?

  • If an individual has served as the auditor or designated auditor of your company for 2 or more consecutive financial years, and then ceases the position, the individual may not be appointed again as the auditor or designated auditor of the company until after the expiry of at least two further financial years.
  • If your company has appointed 2 or more persons as joint auditors, you must manage the required rotation in a way that all of the joint auditors do not relinquish office in the same year.

Despite the strict requirements for public and state-owned companies, it is not compulsory for private or personal liability companies to appoint an auditor, unless the company is required to produce audited financial statements.

Is this for the better?

It is understood that the external audit function is an activity of public protection and provides credibility to financial statements and assurance to investors. However, auditor rotation could lead to additional costs to companies, as the new auditor would be required to perform additional procedures on the opening balances of their new client.

In some areas, it could also impact negatively on the availability of auditors, as some towns only have a limited number of registered auditors. Auditors practicing as sole practitioners will also be affected, and could lose long-term clients unless they bring in another registered auditor and expand their practice.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Social Media: What line can’t I cross as an employee?

There are cases of employees posting sensitive or disrespectful information and messages about their employers online. This might seem like an innocent joke with the people on your social media feed, however, the backlash is far more serious than that. The conduct of employees on social media platforms is also more frequently exposing employers to the risk of vicarious liability and brand damage.

In considering the risks to employers (and their employees), it is necessary to keep in mind:

  1. the impact of social media on the Constitutional rights to dignity, privacy and freedom of expression;
  2. the risks that defamatory or harassing statements may result in vicarious liability for employers;
  3. the risk of work place harassment and cyber-bullying and the impact of this conduct on the work environment; and
  4. what conduct may justify disciplinary action and even dismissal.

 What if an employee posts something negative about their employers?

An employer does have recourse against employees whose social media blunders cause brand damage, or result in the disclosure of confidential information or vicarious liability. The CCMA has accepted that certain conduct on social media may warrant disciplinary action. However, the ordinary principles of fairness and equity apply. When investigating such conduct, care must be taken not to unlawfully infringe rights to privacy and the provisions of the Regulation of Interception of Electronic Communications Act.

In the case of Beaurain v Martin NO & others (2014), Mr Beaurain, was employed by Groote Schuur Hospital. During his employment, he raised various complaints regarding health issues at the hospital. Each complaint was investigated and he was informed that the complaints were without merit. Getting no joy from the hospital, Mr Beaurain started posting his complaints on Facebook. Eventually, the head of Mr Beaurain’s department addressed a letter to him to inform him that he was to stop posting his claims pertaining to health risks at the hospital, on social media. Mr Beaurain did not heed this instruction. This resulted in another letter in which was given a final warning to stop the conduct.

After an angered Facebook post where he attacked the state of the hospital, he was charged with gross insubordination and dismissed. Mr Beaurain referred a dispute to the Labour Court. His dismissal was found to be fair.

Conclusion

Not all comments on social media that are critical of an employer will warrant dismissal. For example, if the post constitutes conduct in alignment with a protected strike or amounts to a protected disclosure, dismissal is not allowed. However, employees should be careful not to post information regarding their employers that could put the brand name in jeopardy or reveal confidential company information.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

How to register a trademark in 2017

If you have a business and wish to keep competitors from using, or misusing, your brand, then you should consider registering a trade mark for your company’s name and logo.

A trade mark can only be protected and defended under the Trade Marks Act, 1993, if it is registered. However, unregistered trade marks may be defended in terms of common law. The registration procedure results in a registration certificate which has legal status, allowing the owner of the registered trade mark the exclusive right to use that mark.

Where do I register a trade mark?

The Companies and Intellectual Property Commission (CIPC) administers the Register of Trade Marks which is the record of all trade marks that have been formally applied for and registered in South Africa.

A trade mark is only registrable if it serves the purpose of distinguishing the goods/services of one trader from those of another trader. Other points to remember include:

  1. It must not have become customary in your field of trade.
  2. It does not represent protected emblems such as the national flag or a depiction of a national monument such as Table Mountain.
  3. It is not offensive or contrary to the law or good morals or deceptive by nature or way of use.
  4. There are no earlier conflicting rights.

How to register a trade mark?

  1. Register as a customer on CIPC: Go to the CIPC website (www.cipc.co.za). If you are already registered as a customer, and know your customer code and password, then continue with the next step.
  2. Deposit funds: Deposit the application fee of R590 regarding every class and every trade mark applied for into the CIPC bank account using your customer code as reference.
  3. Conduct a search: In order to conduct a search, you can request a special search from CIPC, or you can conduct a cursory e-search yourself.

A registered trade mark can be protected forever, provided it is renewed every ten (10) years upon payment of the prescribed renewal fee.

To make the process easier and more successful, then contact your legal adviser, who can lodge a trade mark application on your behalf and ensure all your documentation is correct.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Is your Business POPI Compliant?

POPI refers to South Africa’s Protection of Personal Information Act which seeks to regulate the Processing of Personal Information.

What is Personal Information?

Means any information relating to an identifiable, living natural person or juristic person (companies, CC’s etc.) and includes, but is not limited to:

  • Contact details: email, telephone, address etc.
  • Demographic information: age, sex, race, birth date, ethnicity etc.
  • History: employment, financial, educational, criminal, medical history
  • Biometric information: blood type etc.
  • Opinions of and about the person
  • Private correspondence etc.

What is Processing?

Processing broadly means anything done with someone’s personal Information, including collection, usage, storage, dissemination, modification or destruction (whether such processing is automated or not).

Some of the obligations under POPI:

  • Only collect information that you need for a specific purpose.
  • Apply reasonable security measures to protect it.
  • Ensure it is relevant and up to date.
  • Only hold as much as you need, and only for as long as you need it.
  • Allow the subject of the information to see it upon request.

Does POPI really apply to me or my business?

POPI applies to every South African based public and/or private body who, either alone, or in conjunction with others, determines the purpose of or means for processing personal information in South Africa.

There are cases where POPI does not apply. Exclusions include: Section 6:

  • purely household or personal activity.
  • sufficiently de-identified information.
  • some state functions including criminal prosecutions, national security etc.
  • journalism under a code of ethics.
  • judiciary functions etc.

Why should I comply with POPI?

POPI promotes transparency with regard to what information is collected and how it is to be processed. Openness increases customer trust in the organisation.

Non-compliance with the Act could expose the Responsible Party to a penalty of a fine and/or imprisonment of up to 12 months. In certain cases, the penalty for non-compliance could be a fine and/or imprisonment of up 10 years.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

How to register a new company

a1bThe basic steps to register a company under the Companies Act of 2008 at the Companies and Intellectual Property Commission (CIPC) involves certain forms and supporting documentation that must be lodged and the accompanied fees paid.

The steps

The first step in registering a new company is optional. A CoR9.1 form must be completed and lodged with the CIPC in order to reserve a name for the company to be registered. However, the Act does make provision for a company to be registered without a name. The company registration number will then be the name of the company until such time as the company properly registers a name. A certified copy of the identity document of the applicant must be submitted as supporting documentation with this form and a filing fee is payable.

The next step is to complete and lodge the CoR14.1 Notice of Incorporation form together with the CoR15.1 Memorandum of Incorporation.

The Notice of Incorporation specifically contains information regarding the type of company to be registered, the incorporation date, financial year end, registered address, number of directors and the company name if applicable. A certified copy of the identity document of the applicant must be submitted as supporting documentation and a filing fee is payable. A CoR14.1A form contains specific information about the directors of the company who will be appointed at registration, and this form must be lodged together with the Cor14.1. Certified copies of the identity documents of all directors to be appointed must be submitted as supporting documentation. An optional form CoR14.1D may be lodged together with the CoR14.1, which indicates any company appointments to be registered with the CIPC, such as a company secretary or auditor.

The Memorandum of Incorporation is probably the most important document when registering a company, since the provisions contained herein will govern the company. It can be short and simple, or long and extremely technical, depending on what type of company is being registered. In this regard, it is best to seek professional advice. The supporting documentation and filing fees applicable will depend on what type of Memorandum of Incorporation is being registered.

If an auditor or company secretary is appointed at registration as contained in the CoR14.1D, a CoR44 form must also be completed and submitted. No filing fee is payable for this form. An original acceptance letter and certified copy of the identity document of the auditor or company secretary must be submitted as supporting documentation.

The CoR21.1 Notice of Registered Address must be completed with the particulars of the registered address of the company. Again a certified copy of the identity document of the applicant must be submitted as supporting documentation, but no filing fee is payable.

Once all the necessary forms and supporting documentation has been submitted and applicable fees paid, the CIPC will issue a Registration Certificate form CoR14.3 if it is satisfied that all provisions in the Act has been satisfied.

Any changes to the information placed on record at the CIPC at the original registration of the company, must be registered without delay and on the proper forms and possible payment of applicable filing fees.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

I bought something that doesn’t work

Sarah buys furniture from Mark who promised her that the furniture is of good quality. However, he doesn’t notify her about problems with the furniture. Later, Sarah discovers that some of the chairs she bought have faulty joints, meaning they can’t be used properly. This is what’s called a latent defect and Sarah will be able to claim from Mark for the furniture not fulfilling its purpose.

                                                                                                                          A patent defect or a latent defect?

A patent defect is when there’s a problem with a purchased item but it was clearly visible and obvious to the buyer when the contract was signed. If the furniture that Sarah bought had a patent defect, such as a chair leg missing, it would be assumed that she knew about it and the law would not protect her.

NOTE: A defect is something that makes the product less useful or completely useless. A product not looking as good as you thought is not a defect. A piece of furniture with a stain on it can still be used normally. If the product has broken or missing parts, meaning it can’t be used properly, it’s a defect.

If the product you bought has a defect affecting its usability and purpose, then the seller is liable and you as the buyer can claim from them. You should also take into account if the contract had a “voetstoots” clause, meaning that you are buying a product based on its appearance or “as is”. If this is the case the seller would not be held accountable for any defects with the product, latent or patent.

What can I get back from the seller?

If the product you bought has a latent defect you can get a price reduction or a refund for the price you paid. A price reduction is the difference between the price you paid and the true value of the product. A full refund includes the price you paid, interest, maintenance costs and the cost of receiving the product. A full refund would also mean that you need to return the product that you got under the contract.

If a defect has caused you harm or damaged your property, for instance, you could possibly also claim this amount as compensation from the seller.

Who is a trader and who is a seller?

It’s important to keep in mind that there’s a difference between someone who is a trader and a seller. A trader is someone who makes a living from selling products, whereas a seller is an ordinary person like Mark in the example above. A trader who specialises in particular products and boasts having a specialized knowledge is held to a higher standard than an ordinary seller.

Sales talk or latent defect

It’s normal for sellers or traders to do the best to sell their product. This usually means “sales talk” or boasting about the products value and usefulness. They are allowed to do this, however, if they make statements about the product that turn out to be false, such as claiming the product can do something that it actually can’t, the law will be in your favour and protect you in the same way as a latent defect.

Before you agree to buy anything from a seller or a trader make sure you inspect the product first and make note of any defects there might be. If you neglect to inspect the product it could be more difficult for you to get compensation from the seller if there is a problem in the future.

Reference:

  • “What you should know about Contracts”. 2009. The Western Cape Office of the Consumer Protector. Department of Economic Development and Tourism. Accessed from: https://www.westerncape.gov.za/ on 13/05/2016.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

What’s the buzz about business rescue?

If a company/close corporation is in financial trouble and all possible avenues to save the business have been exhausted, there is one last option available to save the business: it can lodge an application for business rescue at the CIPC. In order to qualify for business rescue proceedings, the business must satisfy the requirements as set out in the next paragraph.

                                                                                                                            A company/close corporation will only be considered as a business rescue candidate if all three of the following requirements are met:

1. The decision to start business rescue proceedings must be taken before any liquidation proceedings have been instituted against the business.
2. The business is financially distressed.
3. A business is seen as financially distressed if:

  • It seems reasonably unlikely that the business can pay its debts in the normal course of   business for the next six months, or
  • It seems reasonably likely that the business will be insolvent in the next six months.
  • There seems to be a reasonable chance of rescuing the business.

What is the aim of a business rescue plan?

The aim of placing a company/close corporation under business rescue is to give the business some breathing space to implement the business rescue plan and give the business a fair chance to become a going concern again.

Alternatively, if the business is liquidated despite the business rescue proceedings, the aim is to hopefully have a higher return available for the creditors and shareholders than would have been the case if the business was liquidated before undertaking any business rescue proceedings.

To give a business the maximum chance of recovering its finances and to continue operating as a solvent enterprise, the business rescue plan normally restructures a business’ assets, liabilities and equity, as well as its way of doing business.

Who can be appointed as a business rescue practitioner?

There is a list of licensed business rescue practitioners available on the CIPC’s website.

What does a business rescue practitioner do?

The appointed business rescue practitioner will investigate the business’ situation and propose a business rescue plan. After the business rescue plan has been approved by the creditors and shareholders, the business rescue practitioner will implement the plan. The reason why the creditors and shareholders must approve the business rescue plan is that they will withhold their rights against the business to claim payment as long as the business is operating under the business rescue plan.

After implementing the business rescue plan, the business rescue practitioner will temporarily oversee and manage the business together with the current management.

The business rescue practitioner also takes over dealing with the creditors and shareholders. In addition, the business rescue practitioner will communicate with registered trade unions which represent employees of the business. If there are employees who are not members of any registered trade union, the business rescue practitioner will deal with these employees or their representatives as well.

The first step to start with a business rescue is for a business to file a notice with the CIPC that it wants to start with business rescue proceedings. The rest of the business rescue process and the business rescue documents which are required to be submitted to the CIPC, is set out on the CIPC’s website.

Reference list:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Commencement of business rescue proceedings

A3_bIs your company experiencing financial strain? Are creditors breathing down your neck? Business Rescue proceedings may be a solution to your problems.

Business Rescue is a new approach that is governed by the Companies Act 71 of 2008 (“the new Companies Act”) with the aim of assisting companies which are experiencing financial strain and are unable to pay their creditors in the ordinary course of business. This article will look at what Business Rescue encompasses, as well as how Business Rescue proceedings are commenced.

Section 128(1) (b) of the Companies Act defines Business Rescue proceedings as proceedings to facilitate the rehabilitation of a company that is financially distressed by providing, inter alia, temporary supervision of a company under a Business Rescue practitioner.

The role of the Business Rescue practitioner (who must be appointed within 5 days after the company has been placed under Business Rescue) is to ensure that the company complies fully with the steps to be taken once Business Rescue proceedings have commenced. They must also ensure that everything reasonably possible is being done (including the drafting of a Business Rescue plan) to assist the company in getting out of its current state of financial strain and into a position where it will be able to pay its creditors in the ordinary course of business.

The new Companies Act stipulates that, in order to place a company under Business Rescue, a resolution must be taken by the Board of Directors and an application thereto must be made to the CIPC (Companies and Intellectual Property Commission). The Commissioner must then consider the application and approve or reject it. Alternatively, any interested or affected party may apply to the Court for a court order placing the company under Business Rescue.

A company that is under Business Rescue is protected from creditors in that no legal action or proceedings may be taken against a company that has commenced with Business Rescue proceedings.

It is imperative to note that a lack of full compliance with the requirements in respect of Business Rescue proceedings may render the Business Rescue proceedings null and void. This position was reiterated in the High Court case of Advanced Technologies & Engineering Company (Pty) Ltd v Aeronautique et Technologies Embarquees SAS (unreported CASE NO 72522/20110), and the Court further held that the new Companies Act does not provide for condonation of non-compliance with the requirements.

References:

  • Companies Act 71 of 2008
  • D Davis, W Geach, T Mongalo, D Butler, A Loubser, L Coetzee, D Burdette, 3rd Edition (2013) Commercial law: Companies and other Business Structures in South Africa.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)