After much anticipation, the Companies Act, 71 of 2008 (“the new Companies Act“) was signed and promulgated by the President on the 8th of April 2009, and will come into effect on a date to be proclaimed by the President, which date may not be earlier than the 9th of April 2010.
Further to the promulgation of the new Companies Act, the question that needs to be addressed is to what extent the provisions of the new Companies Act impact on business practices of long-term insurers currently regulated in terms of the Long-term Insurance Act, 52 of 1998 (“the Insurance Act”).
In terms of the Memorandum on the Objects of the Insurance Laws Amendment Bill, now the Insurance Laws Amendment Act, 27 of 2008, (“the memoranda”), it was determined that certain provisions of the Insurance Act were specifically amended to align it with the provisions of the current Companies Act, 61 of 1973 (“the current Companies Act”). In this respect we can applaud the Legislature for the amendments to the Insurance Act as its provisions have, to a very large extent, been reconciled with the provisions of both the current and the new Companies Act, and most of the previous conflicting provisions have been amended.
An interesting amendment to the current dispensation in terms of the new Companies Act is the hierarchy of the new Companies Act towards the Insurance Act in instances of conflicting provisions. Currently, section 3 of the current Companies Act provides that the provisions thereof shall not apply with reference to any company which is subject to the provisions of any law relating to insurance companies or societies, in so far as those provisions are inconsistent with the provisions of the current Companies Act. Due to this prevailing provision, insurers have, to date, complied with the provisions of the Insurance Act in instances of inconsistencies.
The new Companies Act, however, substantially alters the current position by providing that, if an inconsistency exists between any provision of the new Companies Act and a provision of any other national legislation, to the extent possible, the provisions of both acts must be applied concurrently. However, if such reconciliation is not possible, the provisions of the new Companies Act will prevail, save for a list of prevailing acts which takes preference to the new Companies Act. Unlike the new Companies Act’s predecessor, the Insurance Act has been omitted from the list of prevailing acts; the effect being that in instances of a conflicting provision between the Insurance Act and the new Companies Act, the latter will prevail.
An example of such a conflicting provision lies with the composition of the audit committees which are prescribed by both the Insurance Act and the current and new Companies Acts. Interestingly enough, in terms of the memoranda, the Legislature specifically mentioned the alignment of the composition of audit committees with the Companies Act as a specific object for the amendment to the Insurance Act. However, despite such amendments, certain irreconcilable inconsistencies still persist in respect of the current Companies Act, and now also with the new Companies Act. Currently, the Insurance Act prevails. However, upon the new Companies Act becoming effective, the provisions of the new Companies Act will take preference over the provisions of the Insurance Act. The effect thereof is that every member of the audit committees of an insurer, and not only the majority of the members as envisaged in the Insurance Act, will have to comply with the requirements of independence as per the new Companies Act.
A further interesting and welcoming amendment is that the definition of a ‘person’ in terms of the new Companies Act now specifically includes a juristic person and a trust. It has been held in a number of cases following the definition of a person in terms of the Interpretation Act, 33 of 1957, that a trust is not a person, either in the meaning of a legal person or an unincorporated person; however, the inclusion of a trust in the definition of a person in terms of the new Companies Act may possibly open doors in respect of the Insurance Act to structure certain transactions with trusts.
Notwithstanding the above, the new Companies Act is welcomed as it pertains to the insurance sector in that many provisions have been simplified, while other uncertainties have been addressed. Insurers are advised to become acquainted with the terms thereof in order to ensure that their business practices, to the extent necessary, are brought in line with the provisions thereof.