Just to clarify the situation in the Companies Act regarding a few principles. I won’t quote sections, you can look them up yourself.
- Directors can be appointed by the Board or by shareholders. The appointment should be properly minuted and recorded in the register of directors.
- The CIPC should be notified of the appointment in 10 working days. Their working days, not yours, so that’s two weeks basically.
- Failure to notify CIPC does not invalidate the appointment of a director, rather the company is guilty of an administrative offence, provided the appointment complies with requirements of the Act.
- A de facto director is one who has not been properly appointed but who carries out the duties and functions of a director.
- A non-executive director is one who has no other management or executive functions in the company and who is not employed in another capacity by the company.
- Directors become personally liable for the debts and obligations of the company when they have allowed the company to trade while it is factually or technically insolvent; in other words, it cannot pay its debts in the normal course of business and within the agreed upon credit period. Agreed upon means agreed between the company and the creditor. As far as I know they are also personally liable when the they allow the company to operate a crime.
- If directors are appointed by shareholders then it follows that shareholders exist in some form when the company is registered.
- If shares are issued to a director, then a Special Resolution by the existing or founding shareholders is required.
- The shares must be certificated and entered in the Share Register. The shareholder’s details must be entered in Register of Members. Members should not be confused with MTI Speak. They constantly refer to “Members”, I guess they think it’s a club.
- A share certificate cannot be entered in a register unless agreed to by the directors. Hence the certificate is usually required to be signed by one.
- A certificate can only be cancelled or transferred if the original certificate is suitably endorsed and is in the possession of whoever is to maintain the register.
- The Board of a company may resolve that the company commence Business Rescue Proceedings if they believe the company is financially distressed and there is a possibility that it can be saved.
- If an application for liquidation has already been filed by any creditor then any resolution for rescue proceedings has no effect.
- The purpose of a liquidation is to realise all of the company’s assets so that it’s creditors, who would normally have to prove their claims at a special meeting of creditors, can receive a dividend.
- Creditors are settled from the funds raised in a particular order.
- Secured creditors. Secured mortgage bond holders, often landlords, and so on. Where their claims are not settled in full the balance is transferred to the Concurrent Creditors.
- Preferent Creditors. Think SARS. Employees for net pay, etc.
- Concurrent Creditors. Everybody else. “Investors” are unsecured so that’s where they sort. Some investors may well be debtors depending on the legality of the company’s activities.