The little-known governance, surveillance & enforcement division of the companies & intellectual property commission (CIPC) has fingered 15 JSE-listed companies for not disclosing proper annual turnover values in their annual returns to the commission.
But the division’s first bid to engage publicly with listed entities appears to have fallen foul of the JSE, which wants nothing to do with efforts to "out" these transgressors.
In a dramatic break with convention, the CIPC’s governance, surveillance & enforcement unit went public about its recent engagement with the 15 companies. It issued a press release referring to "a surveillance sweep" in which it identified that the listed companies were either underdisclosing or not disclosing the proper annual turnover values and therefore not paying the correct annual return fees to the CIPC.
Many of the companies involved have attributed this fairly basic contravention of the Companies Act to administration errors, but they have failed to explain why it has been repeated for so many years.
Unfortunately (for the media) the CIPC did not disclose the names of the contravening companies. However, because it viewed their breach of the Companies Act as "material" it did the next best thing. It instructed the companies to inform the market by issuing Sens statements. "Failure to do so will result in the CIPC publishing the names of these companies on the CIPC website," the CIPC press release says.
But the JSE has prohibited the companies from using Sens to inform the market. The JSE refused even when the companies said they wanted to make the announcement.
The JSE doesn’t think this contravention of the Companies Act is significant enough to warrant an appearance on Sens. As the exchange sees it, Sens belongs to the JSE, and if the CIPC wants something announced it can find its own platform.
Andre Visser, GM of issuer regulation at the JSE, says the information being disclosed is not required by the JSE’s listing requirements and is not necessarily price-sensitive. "The JSE would have no objection if an issuer publishes information on Sens which is of a price-sensitive nature ... the JSE is of the view that the publication of the annual return disclosure doesn’t appear to be ‘relevant company information’ as defined in schedule 9 [of the listings requirements]."
If the CIPC is trying to apply the "broken windows theory" of compliance mastered by the New York police in the 1980s, it seems the JSE is not interested.
Lana van Zyl, senior manager at the CIPC unit, says Sens seemed the obvious facility, given the expectation that the JSE would want to encourage compliance with the Companies Act. She acknowledges the fees not paid to CIPC are not substantial, but says lack of compliance is a fundamental issue. "The legal secretarial teams and compliance units at these listed companies should be ensuring these sorts of errors do not occur."
The move by Van Zyl’s team indicates the CIPC looks set to assume a more aggressive (and public) role as the legislated monitor of compliance with the Companies Act. The CIPC has not been a slouch on these matters, but to date it has opted largely to stay clear of listed companies.
This may be because it has its hands full trying to deal with a ridiculously broad mandate, which includes "monitoring proper compliance with" the Companies Act and "receiving or initiating complaints concerning alleged contraventions of this act, evaluation of those complaints, and initiating investigations into complaints", according to the Companies Act. This has meant it is as likely to be tied up in an investigation into one of Radovan Krejcir’s companies or a state-owned company as a listed entity.
It may also be because the way the act is drafted complicates the CIPC’s monitoring role. Van Zyl’s unit has to be appointed to an investigation by the companies commission. Such appointment is based on a complaint by a member of the public or the minister of trade & industry. If the investigation uncovers an offence, the unit can issue a compliance notice or, if it is serious, launch a criminal case. If the compliance notice is ignored then the unit can administer a fine, which has to be confirmed by a court.
It is all much messier than the way things work over at the competition authorities. (The Competition Act and the Companies Act were drafted by the same Canadian expert.) The Competition Act deals much more efficiently with the relationship between the competition commission and the competition tribunal. It creates a tighter process, with speedier resolution of cases. Occasionally matters are referred to the competition appeal court, and very occasionally they are referred to the constitutional court. Van Zyl says amendments are in the pipeline that, if implemented, will make her unit’s monitoring role more efficient. They will also create a more constructive relationship with the companies tribunal, which currently looks trapped in a legislative no man’s land.
On top of all that there’s the fact that Van Zyl’s unit doesn’t have the necessary capacity to take on companies that lawyer-up at the drop of a hat. It has just nine inspectors for the whole of SA. Creating a higher public profile could stretch the unit’s resources, but it might actually help its oversight role.
Given the JSE’s position as both gamekeeper and potential poacher, a vigorous, well-resourced unit could play a vital role in providing independent oversight of SA’s most powerful companies. How the story of the 15 transgressors unfolds will be an indication of the unit’s commitment to challenging the big boys on the JSE.