August 2017

UKnow Editorial – August 2017

Happy Women’s Month! We are proud to support women in our workplace and as our clients and business partners. We are certainly very proud of the women of Unik Professional Services.

July saw the implementation of yet more legislation: Non-compliance with Laws and Regulations (NOCLAR). Please read our article on this to understand how this will affect your business. The necessary provisions and information regarding NOCLAR have now been updated in our engagement letters for services that we provide, and our clients will therefore receive new engagement letters henceforth.

We also include the first of a series of articles on the Companies Act, written by specialist consultant Chris de Jager. It is presented as a broad overview, aimed to give a basic understanding of the most important matters contained in the Companies Act as well as other applicable legislation that affect companies.

It is with great sadness that we say goodbye to one of our colleagues. Len Geldenhuys was part of the firm that is today Unik Professional Services for 17 years. Most of our clients would have had a long standing relationship with Len as he was responsible for our debtors administration. Please see our obituary below. Please be advised that we are in the process of re-allocating the debtors administration within our firm, and we appreciate your patience with this.

We hope that you find our newsletters interesting and informative. As always, if you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin and Facebook.

Warm regards until next month.

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Non-Compliance with Laws and Regulations (NOCLAR)

The International Ethics Standards Board for Accountants (IESBA)’s pronouncement “Responding to Non-Compliance with Laws and Regulations” became effective on 15 July 2017. This framework was developed to guide professional accountants (as defined) on how to best act in the public interest and how to respond when confronted with non-compliance with laws and regulations (NOCLAR).

NOCLAR is defined as any act of omission or commission, intentional or unintentional, committed by a client or employer, including by management, those charged with governance or by other working for or under the direction of the client or employer, which is contrary to prevailing laws or regulations.

This pronouncement comes after a six year project that was initiated to address concerns from the regulatory community and other stakeholders about (as per the IESBA website):

  • The duty of confidentiality acting as a barrier by auditors to properly disclose NOCLAR;
  • Auditors simply resigning from an engagement because of NOCLAR; and
  • A lack of guidance in these circumstances.

The scope of the project was eventually broadened to be applicable to all professional accountants in public practice and in business, not just auditors. This will therefore include accountants that are members of the South African Institute of Chartered Accountants (SAICA), South African Institute of Professional Accountants (SAIPA) and the Chartered Institute of Management Accountants (CIMA), irrespective of whether they work in a public practice or in commerce and industry.

The IESBA’s website states that the issue at the heart of the debate was about “what is reasonable to ask of professional accountants, given their responsibility to act in the public interest when they encounter or are made aware of NOCLAR or suspected NOCLAR, when providing a professional service to their clients or carrying out their duties for their employer.”

There are different requirements set for the way auditors have to respond to NOCLAR as opposed to professional accountants in public practice, as well as senior-level professional accountants as opposed to other professional accountants. In broad terms the response would include:

  • Raising the identified or suspected NOCLAR with the appropriate persons at the client or employer;
  • Understanding and complying with any relevant laws and regulations, which might include the reporting of the matter to an appropriate authority;
  • Attending to or assisting with or evaluating the rectification, remediation or mitigation of the consequences of the NOCLAR and the reducing of the risk of re-occurrence;
  • Determining if any further action is needed in the public interest (which can include withdrawing from the client or employer relationship); and
  • Attending to any disclosure (if necessary) to the auditor.
  • In exceptional circumstances, it may be necessary to disclose the matter immediately to an appropriate authority if there is an imminent breach of law or regulation that would cause substantial harm to stakeholders.

As Unik Professional Service uphold all applicable laws and regulations, and adhere to regulations set by the professional bodies that regulate us, we will henceforth include the provisions of NOCLAR in any engagement letters and act in accordance with the requirements.

Oddette Boshoff

Director

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Companies Act, No 71 of 2008 | Chapter 1 – The company as a separate legal person

I will deliver a series of articles on the Companies Act in order to convey a basic understanding thereof. Although the presentation will be based on the Act itself, and sometimes on case law, it should be recognised that the articles cannot be relied upon as absolute, as the articles will be summaries of the Act and will not cover all situations. Cases and facts may differ and the outcomes might be totally different. For specific cases expert advice should be sought.

It must first be thoroughly understood what a company is. In terms of section 19 of the Act a company is a juristic person, which exists continuously until its name is removed from the register at the Companies and Intellectual Property Commission (CIPC). It has all of the legal powers and capacity of an individual, except to the extent that a juristic person is incapable of exercising any such power, or having such capacity, or the company’s MOI (Memorandum of Incorporation) provides otherwise. The common-law principle that the company is a separate legal person was laid down in Salomon v A Salomon & Co Ltd (1897) AC 22 (HL). As the learned judge Innes CJ also said in Dadoo Ltd vs Krugersdorp Municipal Council 1920 AD 530 “It is one of the cardinal principles of company law that a registered company is a legal persona distinct from the members who compose it….. This conception of the existence of a company as a separate entity distinct from its shareholders is no merely artificial and technical thing. It is a matter of substance; property vested in the company is not, and cannot be, regarded as vested in all or any of its members”. This principle applies even if the company has only one member.

There are cases where the court has disregarded the company’s separate legal personality, and “pierced the corporate veil”, focusing on the persons behind the company. The court however held that Courts do not have a general discretion to disregard a company’s separate legal personality whenever they consider it just or convenient to do so. Only when fraud, dishonesty or improper conduct are present should it be considered. As one of the criteria in Ex parte application of Gore NO case supra was put “And the court will pierce the veil only so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done”.

Section 19(2) states that a person is not, solely by reason of being an incorporator, shareholder or director of a company, liable for any liabilities or obligations of the company, except to the extent that the act or the MOI provides otherwise. However, in the case of a personal liability company (types of companies will be discussed in more detail in the next chapter), the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office.

It must be pointed out that there is an inconsistency between this section 19(2) of the Companies Act and section 181 of the Tax Administration Act. The latter determines that where a company, other than a listed company, is wound up other than by means of an involuntary liquidation without having satisfied its outstanding tax debt, the persons who are shareholders of the company within one year prior to its winding up are jointly and severally liable to pay the tax debt, to the extent that they receive assets of the company in their capacity as shareholders within one year prior to its winding up, and the tax debt existed at the time of the receipt of the assets. The liability of the shareholders is secondary to the liability of the company.

Chris de Jager

Specialist Consultant

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A Great Loss: Len Geldenhuys

 

It is with great sadness that we say goodbye to Len Geldenhuys, who passed away unexpectedly on 20 July 2017. Len worked at our firm for the past 17 years as administrative manager. We will always remember his big smile and kind heart. He was truly part of the Unik family, as a colleague and a friend.

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