PRESENTATION ON THE COMPANIES AMENDMENT BILL

OF 2010

Dr. Dario Milo Partner, Webber Wentzel

dario.milo@webberwentzel.com011 530 5232

The Portfolio Committee on Trade and Industry

19 January 2011

Introduction

• Submission about public access to securities and directors registers of companies section 26 of 2008 Act; clause 17 of 2010 Amendment Act

• There are a number of reasons why it is important that such information should be accessible to the public, including: to analyse economic power and whether transformation is

being achieved; to determine the legitimacy of BEE ownership claims; to decide whether to invest and to allow potential investors

access to the identity of shareholders; to determine whether public officials hold securities in

accordance with the law

The position under section 26 of the Companies Act, 2008

(1) A person who holds or has a beneficial interest in any securities issued by a company --(a) has a right to inspect and copy the information contained in the records of the company …(b) …

(c) may exercise the rights set out [above] - (i) by direct request made to the company in the

prescribed manner, either in person or through an attorney or other personal representative designated in writing; or

(ii) in accordance with the Promotion of Access to Information Act, 2000 …(3) The register of members and register of directors of a company, must, during business hours for reasonable periods be open to inspection by any member, free of charge and by any other person, upon payment for each inspection of an amount not more than R100,00.

Clause 17 of the 2010 Act

• Fixes the terminology problem of “register of members” in section 26

• Tries to streamline access claims by security holders and members of the public

• But in doing so can be interpreted as requiring members of the public and holders of securities to use PAIA in order to access the registers. It does this by using the conjunctive “and” instead of the disjunctive “or” in section 17(4)

Clause 17 of the 2010 Act

(1)Any person who holds or has a beneficial interest in any securities issued by a profit company or who is a member of a non-profit company has a right to inspect and copy … [the directors and securities’ registers].

(2)A person not contemplated in subsection (1) has a right to inspect the [directors and securities’ registers] upon payment of [a prescribed fee]…

(4) A person may exercise the rights set out in subsection (1) or (2) …

(a)for a reasonable period during business hours;(b)by direct request made to the company in the

prescribed manner … and(c) in accordance with the Promotion of Access to

Information Act, 2000.

Does clause 17 force the requester to use PAIA?

• One possible interpretation of the change from “or” in section 26 to “and” in clause 17

• Creates ambiguity

• This is compounded by draft regulations: Reg 24(2) says that a person claiming a right of access

may not exercise that right until the person’s right of access has been confirmed in accordance with PAIA;

Reg 24(3) states that a person claiming access must deliver to the company the prescribed form as well as “any further documents or other material required in terms of” PAIA

• As a result, transparency, openness and free speech is potentially undermined

The Constitutional principles of openness, accountability and transparency

• Openness is an underlying value of the Constitution. Section 1(d) of the Constitution provides that the Republic of South Africa is one democratic state founded upon a number of values, including : "a multi-party system of democratic government, to

ensure accountability, responsiveness and openness“

• In the recent 2010 Supreme Court of Appeal decision of The President of the Republic of South Africa v M & G Media Limited, Nugent JA stated:

The importance of [the rights of access to information] in a country which is founded on values of accountability, responsiveness and openness, cannot be gainsaid

The rights of access to information and freedom of expression

• The right of access to information is created under section 32:

Everyone has the right of access to -

(a) any information held by the State; and(b) any information that is held by another

person and that is required for the exercise or protection of any rights

• Freedom of expression is protected by section 16(1) of the Constitution:

Everyone has the right to freedom of expression which includes –(a) freedom of the press and other media;

(b) freedom to receive or impart information or ideas  …

The challenges and obstacles of PAIA

• PAIA was promulgated to give effect to the constitutional right of access to information, but it is not exhaustive of the manner in which access to information (both held by public and private bodies) must be exercised

• In Leslie v La Lucia Sands Shareblock Ltd, Judge Van Zyl held that:

Section 113 of the [Companies Act, 1973] creates a right to certain information and establishes a mechanism with which to enforce such right. … In my view PAIA is intended to create new mechanisms for obtaining information, not to displace existing mechanisms to enforce existing rights, such as section 113 of the [Companies Act] (our emphasis)

PAIA’s various obstacles

(1) One of the threshold requirements for a requester to obtain access to information held by a private entity under section 50(1)(a) of PAIA is that the requester must prove that the information requested is "necessary for the exercise or protection of a right"

• This requirement has the potential to be interpreted restrictively by courts

(2) Grounds of refusal

• The disclosure of the information contained in the registers might be argued by the company's information officer to involve the unreasonable disclosure of personal information about a third party (the holder of the securities)

• The disclosure might also be argued in at least some cases to "constitute an action for breach of a duty of confidence owed to a third party in terms of an agreement" (which could arguably protect the holder of the securities)

• Holders of the security and the company may enter a confidentiality agreement, which could become standard, in order to allow this ground of refusal to be invoked

(3) Procedural and cost issues

• Lengthy delays where PAIA requests are made, and where the company concerned does not wish to divulge the information for whatever reason, it is an unfortunate fact that PAIA provides ample opportunity to delay responses

(4) Third party procedure

• In terms of section 25(1) of PAIA an information officer usually has a maximum of 30 days But third party procedure could be invoked: adds 21 days to

the process If access granted, third party may appeal If access refused the requester must launch a court

application to review the decision within 180 days

Empirical research on PAIA’s problems

• South African Human Rights Commission’s Development Report, 2008

• South African Human Rights Commission 2010 Annual Report

• Open Democracy Advice Centre’s research, 2010

News and research are perishable commodities

• In the case, for instance, of a newsworthy investigation by a journalist or a contemporaneous study of economic power by a researcher, the possible emergence of the registers more than a month after the request, may by then be of no relevance at all

• As the European Court of Human Rights recently held: News is a perishable commodity and to delay

its publication, even for a short period, may well deprive it of all its value and interest. Sanoma Uitgevers BV v The Netherlands (ECHR; 14 September 2010)

Judicial enforcement of PAIA

• The Supreme Court of Appeal in Claase v Information Officer, South African Airways (Pty) Ltd gave the lie to the proposition that PAIA is working well in our society

It is unfortunate that [PAIA] which (as appears from the preamble) was intended to … foster a culture of transparency and accountability in public and private bodies by giving effect to the right of access to information [and] actively promote a society in which the people of South Africa have effective access to information to enable them to more fully exercise and protect all of their rights, should result in pre-trial litigation involving huge costs before the merits of the matter are aired in court. One of the objects of the legislation is to avoid litigation rather than propagate it. This is the fourth case in which information has been sought in terms of the Act that has in the past 18 months required the attention of this Court

The position in the United Kingdom and Australia

• Section 113(1) of the UK Companies Act requires every company to keep a register of its members. The register of members may be inspected by any member of the company and "any other person on payment of such fee as may be prescribed”

• Section 173(1) of the Australian Corporations Act states that "a company or a registered scheme must allow anyone to inspect a register kept under this Chapter.“

• No insistence on using freedom of information law legislation, which both UK and Australia have

Amendments

• In the circumstances, we urge the Committee to replace the word "and" in clause 17(4) of the Bill, with the word "or“:

(4) A person may exercise the rights set out in subsection (1) or (2), or contemplated in subsection (3) –

(a) for a reasonable period during business hours;

(b) by direct request made to a company in the prescribed manner, either in person, or through

an attorney or other personal representative designated in writing; or

(c) in accordance with the Promotion of Access to Information Act, 2000 …

• Further, we propose that clause 17(2) be amended to provide that a non-member may make a copy as well as inspect the registers:

(2) A person not contemplated in subsection (1) has a right to inspect and copy the [directors and securities’ registers] upon payment of [a prescribed fee]…

Thanks