CIPC shows its teeth

NOVEL APPROACH: IS IT BACKED BY COMPANIES ACT?

How PIC responds to the commission’s aggressive stance remains to be seen.

The Companies and Intellectual Property Commission (CIPC) recently issued a compliance notice to the directors of Public Investment Corporation (PIC) regarding its equity investment in Ayo Technology Solutions Limited of R4.3 billion.

The compliance notice states that the commission believes the PIC board contravened section 76 of the Companies Act, and prescribes remedies to “bring the company’s conduct into compliance with the Act”.

These remedies direct that the board must:

Recover the R4.3 billion capital investment made to Ayo within 15 days; and

Recover any interest that may have accrued on this capital investment.

The CIPC must be impartial and act without fear, favour, or prejudice. Included in its objectives is enforcing compliance with the Companies Act and applicable legislation.

Its administrative action in issuing the compliance notice raises a number of questions:

The PIC has some underperforming investments as detailed in the Isibaya Investment Schedule at March 2017, submitted to parliament. It also invested in Steinhoff. Will CIPC issue compliance notices on all underperforming investments?;

When the PIC invested in Ayo, it would have seen Ayo’s pre-listing statement, which detailed its book value and a share issue to the B-BBEE consortium of R1.50 per share. The PIC, however, paid R43 per share. Why did CIPC wait a year to issue the notice?;

How does CIPC propose the PIC retracts its Ayo investment? It appears to believe an equity investment earns interest;

The compliance notice was issued under section 76. While section 76 addresses the standards expected of directors, it doesn’t provide for a penalty or remedy;

Section 77 (not used by CIPC) provides for the liability of directors and prescribed officers.

But if a director is to be held guilty of an offence, surely the CIPC would have to apply to the court in this regard?

Section 22 (not used by CIPC) states that a company must not carry on its business recklessly, with gross negligence and or for any fraudulent purpose.

Trading recklessly is trading while insolvent, which doesn’t apply to the PIC.

However, without casting aspersions on Ayo Technology Solutions, would a bad, even reckless investment, fall within this provision?

Would this include investing where there’s no reasonable prospect of a return, and where investment capital would be lost?;

Section 214 (not used by CIPC) provides that a person is guilty of false statements, reckless conduct and noncompliance if they were knowingly party to any act or omission by a company calculated [for] fraudulent purpose.

This would surely relate to directors of a company, which solicits investments based on a false promise, or statements. How many such compliance notices have the PIC issued?; and

Various state-owned entities haven’t complied with requisite acts, and have also squandered money on irregular, fruitless, and wasteful expenditure.

Will the CIPC be applying to court to have the directors of these state-owned entities declared delinquent? Will these directors be made to pay back the losses?

Is the compliance notice backed by the Companies Act?

Perhaps the CIPC will now issue compliance notices to all parties that have flouted the act.