Introduction
The Helen Suzman Foundation made submissions to the Department of Trade and Industry (Department) in response to its invitation for public comment on the Companies Amendment Bill (Bill). To view the full submission, click here.
In the submission, the HSF proposes a further amendment to the Companies Act (Act) to enhance ease of access to information about the beneficial ownership of shares. The HSF also addresses some typographical and language concerns in the Bill.
Transparency in relation to beneficial ownership: the need for readily-available access to share registers
The HSF submits that the amendment to section 25 contained in the Bill is an incremental step towards transparency when, in fact, a giant leap is needed. Practically, this means reducing the number of steps involved in acquiring information relating to shareholders of private companies. One way to do this is for the share registers of companies to be made available electronically via request to the Companies and Intellectual Property Commission (CIPC), in much the same way as information concerning directors is made available currently.
Access to share registers via request to the CIPC is a marked difference from the means of access that currently exist, namely:
- by inspecting the records directly;
- by request to the company in the prescribed form; or
- via use of procedures prescribed in the Promotion of Access to Information Act 2 of 2000 (PAIA).
The provisions of the Act in its current form do not guarantee that reasonable requests are accommodated. This was illustrated by the case of Nova Property Group Ltd and Others v Cobbett and Another[1] (Nova Property), which concerns the attempts of a financial journalist who specialises in investigating illegal investment schemes to obtain share registers of companies for the purposes of an investigation. Notably, this case provides important guidance on the proper approach to transparency in relation to company information. The Court acknowledged inter alia that:
- timely access to securities registers is essential for journalists;
- the right of access to securities registers is unqualified;
- the exercise of the right to freedom of expression entails a duty on the media to report accurately, which means that journalists must be able to have speedy access to information such as the securities registers;
- preventing the press from reporting fully and accurately does not only violate the rights of the journalist, but also violates the rights of all the people who rely on the media to provide them with ‘information and ideas’; and
- an unqualified right of access to a company’s security register is, therefore, essential for effective journalism and an informed citizenry.
The HSF agrees with the Court’s reasoning but submits that while the right to access a company’s security register is unqualified legally, it is qualified by practical constraints. The intention of the existing legislation is therefore not given full effect under the current legislative regime.
A notable constraint is that a company that does not wish to share its information can refuse a request and use the court system to delay investigations, thereby putting the requestor under financial duress to abandon the request. Therefore, the potential for a chilling effect on the investigation of financial crime exists.
Other constraints lie in the practicability of the existing provisions. It is not always possible for requestors to go to the physical location of the record (and where they do, they may be met with hostility, which is a deterrent). Written requests create a delay between the time of the request and the response. In journalism, timeliness is key. Even the making of a request can alert companies to an investigation and create an opportunity for the destruction or concealment of vital evidence. This in itself is a strong justification for enabling access to the share register without necessarily involving the company.
If the right to access this information is unqualified, there is no reason why it should not be made readily available to requestors without having to approach the companies directly. Crucially, the infrastructure to facilitate this already exists, in the form of the electronic information repository administered by CIPC.
Permitting access to share registers through request to the CIPC has the potential to enhance compliance with the Financial Intelligence Centre Act 38 of 2001 and, in turn, aid in the combating of money laundering activities and the financing of terrorist and related activities. Further, it is in line with the practice of various other jurisdictions, including Singapore, New Zealand, India, and the United Kingdom.
Applied to the South African context, South Africa’s unique constitutional framework and circumstances necessitate strong protections for transparency. Openness is a foundational value listed in the Constitution. It operates against secrecy, which permits the concealment of illegal and immoral acts. Where money is involved, secrecy must be treated with circumspection. Enhancing access to share registers militates against secrecy and acts as a deterrent to companies from engaging in illegal activities.
Conclusion
With the above considerations in mind, the HSF submits that access to share registers via the CIPC be specifically provided for in the Act by way of amendment to section 26(4) as follows:
“(4) A person may exercise the rights set out in –
(a) subsection (1) or (2), or contemplated in subsection (3) -
(i) for a reasonable period during business hours;
(ii) 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
(iii) in accordance with the Promotion of Access to Information Act, 2000 (Act 2 of 2000);
(b) subsection (2) –
(i) for a reasonable period during business hours;
(ii) 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;
(iii) in accordance with the Promotion of Access to Information Act, 2000 (Act 2 of 2000); or
(iv) by request to the Commission in the prescribed manner and upon the payment of the prescribed fee.”
The CoR 30.1 form would also need to be amended to include a section relating to beneficial ownership. At the very least, the following information would be required:
- identity of shareholders, including their names and identity numbers (other identifying information, such as addresses, should be considered for inclusion); and
- number and class of shares held by each shareholder.
The CIPC would then be required to hold this information in its records following the filing of each annual return and provide it upon request. In this way, any person would be able to quickly and cheaply access share registers that are accurate up to the date of the last return submitted. A nominal fee may be charged before the information is provided.
The HSF submits that this amendment will give practical effect to the intention of section 26(4) of the Act, which is to provide unqualified access to information concerning beneficial ownership of shares.
Cherese Thakur
Legal Researcher
cherese@hsf.org.za
011 482 2872
[1] 2016 (4) SA 317 (SCA).
