Compliance notices in terms of the Companies Act 71 of 2008: Some observations regarding the issuing of and objection to compliance notices

• Jurisdiction: South Africa
• Published date: 20 August 2019
• Date: 20 August 2019
• Pages: 434-455
• Author: S de Lange
• Citation: (2018) 30 SA Merc LJ 434

COMPLIANCE NOTICES IN TERMS OF THE

COMPANIES ACT 71 OF 2008: SOME

OBSERVATIONS REGARDING THE ISSUING

OF AND OBJECTION TO COMPLIANCE

NOTICES

S DE LANGE

Lecturer, Mercantile Law Department, University of Stellenbosch

Abstract

As a mechanism to address contraventions of the Companies Act 71

of 2008 (Companies Act), compliance notices play an important

role in the decriminalisation of company law. Being issued with a

compliance notice, and especially failure to comply with it, can have

serious and far-reaching consequences. It is therefore vital that

compliance notices are issued in a manner which is fair and just,

and that appropriate remedies are in place for an aggrieved person

to object to or dispute the notice. As the issuing of a compliance

notice is classif‌ied as administrative action, it must meet the

requirements of lawfulness, reasonableness, and procedural fairness

as contemplated in section 33 of the Constitution of the Republic of

South Africa, 1996 (the Constitution),

1

read with the Promotion of

Administrative Justice Act 3 of 2000 (the PAJA). This article

considers some administrative justice aspects relating to the

limitations or constraints on the issuing of compliance notices. It

further addresses possible remedies or avenues of redress available

to aggrieved persons once a compliance notice has been issued. In

this regard, observations are made relating to the rights of an

aggrieved person to object to a compliance notice in terms of

section 172 of the Companies Act while also considering the PAJA.

I INTRODUCTION

The Companies Act 71 of 2008 (the Companies Act)

2

came into effect on

1 May 2011. One of the main features of the Companies Act has been

1

Constitution of the Republic of South Africa, 1996.

2

All section references in this article are to the Companies Act unless otherwise stated. It is

noted that the Companies Amendment Bill, 2018, GN 969 in GG 41913 of 21 September 2018

contains no provisions relating to compliance notices in the context of this article.

434

(2018) 30 SA Merc LJ 434

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stated as ‘a move towards the decriminalisation of company law and the

establishment of bodies for the effective enforcement of the legislation’.

3

In other words, the Companies Act decriminalises company law

4

and

aims to achieve compliance through administrative enforcement.

5

One

of the procedures to ensure compliance is for a complainant to f‌ile a

complaint with the Takeover Regulation Panel (the TRP) or the

Companies and Intellectual Property Commission (the CIPC) in accor-

dance with section 156(d). Such a complaint may be f‌iled by a

complainant in terms of section 168, if it is alleged that a person has

acted in a manner inconsistent with the Companies Act, or that the

complainant’s rights under the Companies Act, or under a company’s

Memorandum of Incorporation or rules, have been infringed. After the

initiation of a complaint, the TRP or the CIPC may, amongst other

things, direct an inspector or investigator to investigate the complaint.

Section 170(1)(g) states that CIPC or the executive director of the TRP

may issue a compliance notice in terms of section 171 after receiving the

report of an inspector or independent investigator.

6

The issuing of compliance notices is regulated by section 171.

Delport

7

states that this section ‘is an important part of the framework in

terms of which regulators have an expanded role in enforcing compli-

ance with the Act.’ Davis

8

describes the introduction of a compliance

notice provision as ‘the most novel feature of the 2008 Act’, while

according to Sutherland,

9

it is ‘the most powerful enforcement tool in

the arsenal of the Commission’.

Compliance notices are typically seen as administrative or non-

judicial measures.

10

In short, a compliance notice may be issued in terms

of section 170(1)(g) and in accordance with section 171, subsequent to a

3

Department of Trade and Industry, The Companies Act, No 71 of 2008, An Explanatory

Guide, Replacing the Companies Act, No 61 of 1973 (2010) at 9.

4

To a certain extent as there are still offences which can be committed in terms of the

Companies Act. For example, s 213 provides that is an offence to disclose any conf‌idential

information concerning the affairs of any person in certain circumstances, and s 214 also

provides that a person is guilty of an offence if he or she is, for example, a party to the

falsif‌ication of any accounting records of a company.

5

DTI, (2010) at 48.

6

Issuing a compliance notice is one of outcomes listed in s 170(1), after the CIPC or the

TRP has received the report of an inspector or independent investigator.

7

Delport, Henochsberg on the Companies Act (LexisNexis 2011) 171.

8

Davis, ‘Dealing with corporate defaulters: Curbing the unfettered exercise of criminal

law’ 2010 Acta Juridica 411 at 419.

9

Sutherland, ‘The state of company law in South Africa’ (2012) 23 (1) Stell LR 157 at 177.

10

Glazewski & Du Toit, Environmental Law in South Africa (LexisNexis 2000) 26.2.1 and

26.7.1, in the context of environmental law, but which is equally applicable to company law.

See also Feris, ‘Compliance notices — A new tool in environmental enforcement’ (2006) 9(3)

PELJ 53 at 68 where it is stated that a compliance notice is an ‘administrative remedy that

COMPLIANCE NOTICES IN TERMS OF THE COMPANIES ACT 435

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