Concern over foreign groups

• Commission says external companies listed on the JSE are not subject to certain provisions of the Companies Act

The Companies and Intellectual Property Commission is concerned that external companies listed in SA but not registered in the country are not subject to certain provisions of the Companies Act.

This concern was expressed on Wednesday by the commission’s head of governance, surveillance and enforcement, Asogaren Chetty, in a briefing on Steinhoff, before four parliamentary committees: finance, trade and industry, public accounts and public service and administration.

An external company under the Companies Act is a foreign company that carries on business in SA.

Chetty said the regulator’s concern was that a publicly listed foreign company was defined by the Companies Act as an external company and it was technically allowed to contract out of certain civil and criminal provisions of the act, including section 214 on the duties of directors. This meant that in terms of liability there were no consequences

COMPLIANCE NOTICE

The problem was not only apparent at Steinhoff, but also at other companies, particularly mining groups, that were allowed to list and did not comply, for example, with rehabilitation and social and ethics obligations. The commission issued a compliance notice against Steinhoff in January 2018 under section 214 of the Companies Act, citing falsification of accounting records. This came after allegations of accounting irregularities.

The Steinhoff board has been given six months to provide the commission with the names of individuals who were involved in this falsification and to institute criminal action against them. Chetty said that the commission wanted to see action taken to recover money and to apply for directors to be declared delinquent.

ACCOUNTING RECORDS

He emphasised that the falsification of accounting records occurred at Steinhoff International Holdings and predated the establishment of Steinhoff NV as a company registered in the Netherlands.

Steinhoff International Holdings was then a registered company as defined in the Companies Act and so all provisions of the act applied to it.

Until 2015, Steinhoff International had its primary listing on the JSE. In 2015, it became an external company with a secondary listing on the JSE.

The allegations of financial irregularities stretch back to 2015 and will require restatement of the financial statements for 2015, 2016 and 2017 and perhaps even earlier.