SECOND Quarter 2022 ngoLAW in Brief

CIPC COMPLIANCE UPDATE: THE ANNUAL CHECKLIST

For NPCs and PTYs, CIPC is in the process of rolling out a new compulsory compliance process which involves submitting a report to CIPC on which sections of the Companies Act the NPC or PTY has (or has not) complied with.

Because the language in the sections of the Act can be hard to navigate, particularly for non profits, ngoLAW has created an NGO-friendly checklist, and an online form which is easy to complete.

• For those of our clients where we are already filing your annual returns, you should shortly receive a link to our online form and instructions to follow. We guide you in your answers where needed compile a final version and lodge the required reports with CIPC.
• If your accountants or auditors are filing your annual returns, they should also be completing and filing this report. If they send to you a set of questions which you need assistance with navigating, please contact us for access to our NGO-friendly version.
• If you find that your accountants or auditors have filed the report without consulting the board or management for the details required, please note that there are penalties and fines for inaccurate responses and that the board should ensure that the proper process is followed and that answers are accurate.

The CIPC compliance checklist is a useful tool for the board and should be used to improve governance and as part of the annual compliance routine. For support and enquiries, please contact our compliance team at bandile@ngolawsa.co.za

WHO NEEDS TO HAVE AN AGM?

An annual general meeting (AGM) is a meeting of members or shareholders, and its usual function is to elect the board, hear the reports on the activities and plans of the organisation, and view the annual financial statements (AFS). For a non-profit which has members, the AGM is a fundamental part of the governance routine allowing the members a regular opportunity to receive information, and to exercise their basic function of holding the board to account and electing board members.

For a non-profit which has no members (a trust or a no-members non-profit company (NPC)), an AGM is not required, as the board has no-one to report to. For no members NPCs and trusts, the annual functions of approving the AFS and selecting new board members to replace those whose terms of office have come to an end will take place at a board meeting. (When lodging NPO reports for these organisations, you can say ‘no AGM required as no members’).

For a voluntary association, which has to have members in order to exist as a legal structure, an AGM is certainly required.

For a with-members NPC, the provisions of new Companies Act are somewhat confusing as:

• Section 61(7) makes an AGM mandatory only for public companies, and NPCs are not public companies under the new Act.
• However, with-members NPCs are required, in terms of sections 30(1) and 30(3) of the Companies Act to present the AFS to an annual general meeting.

Our view is that the requirement that the AFS be presented at an AGM effectively does make the AGM mandatory for all companies with members or shareholders.

Also, for NPCs with members, the members should be gathered together (in a room or virtually) at least once a year to play their basic role of holding the directors to account. If this annual routine is not followed, then the board is in danger of forgetting who the members are, and the members themselves might think that their services are no longer required. If it is worth having members, then one needs to keep them up to date and engaged. We too often see organisations which have neglected to follow the membership routines and the members fall into disarray and cannot play their role when they are needed.

CAN WE LEAVE OUR UNUSED TRUST DORMANT?

The functioning of the various Masters of the High Court being what they are (and the comparative speed and ease of use of CIPC being markedly better) we are quite often asked by clients who have decided to no longer use a trust as their main operating entity,

• whether they could and should just leave a trust which is not currently in use “dormant”, or
• whether they should take the active step of notifying the Master that it is being terminated and close officially it down.

Technically and in terms of the law as strictly applied, a trust does terminate as soon as it has no assets. However, the office of the Master does not seem to actively investigate or police this, and relies rather on trusts reporting to the Master that there are no assets, before they will take steps to close a trust down. We think that this is because the actual use of trusts (for all sorts of purposes) means that there must often be trusts which are intermittently without assets or being resuscitated after a spell of inactivity and lack of funds.

Therefore, most trusts which are no longer in use are merely left to lie ‘dormant’ and – the offices of the Master must be littered with dormant trusts, we think!

However, before deciding just to leave the trust to lie dormant, the existing trustees should be aware that there are some risks to leaving a trust dormant and also some ongoing administration requirements to be aware of like:

• Even dormant trusts need to file a tax return each year. And this would require keeping the letters of authority of the trust and the e-filing details current. And paying someone to do that.
• If a trust is being left dormant in case it is to be used in future, then the letters of authority should be maintained and updated as (from our deep personal experience) it is when these matters are left for too long (and those whose names appear on the letters of authority are long out of touch or even deceased) that it can become really difficult to get the trust back into working order. If a trust has been paused for too long, it is simpler, quicker and cheaper to set up a new legal entity, in which case one should really have closed the trust down long ago, and saved on the maintenance admin and costs; and
• While there are ‘live’ letters of authority and, perhaps, resolutions signed by trustees delegating authority to any one of them or to someone else, there is the risk that the someone may incur obligations or debt on behalf of the (dormant) trust, without the knowledge of the (other) trustees.

Before leaving a trust to lie dormant trustees need to consider whether they will be able to take care of the minimal maintenance required and to weigh up the risks of leaving their names on the letters of authority of the unused trust.

THE UNWANTED DIRECTOR

Boards of NPCs often find themselves in a position where, for one reason or another, they would like to remove one of their number from the Board.

If the MOI of the NPC stipulates terms of office for directors (and if those terms of office are usually observed) then the easiest route may be to wait it out, and simply not re-elect that director when their term ends.

If this is not an option or too far away to endure, and if some gentle persuading to resign bears no fruit, then the Companies Act does provide ways to remove a director, but there are some processes which must be strictly followed, for the removal to be legal and accepted by CIPC. Please note that these requirements are mandatory so, even if your MOI says ‘the board may remove a director who has not attended three meetings’, the provisions of the Companies Act override the MOI and must be adhered to.

For an NPC which has members, section 71 provides that, even if the MOI says otherwise, the members have the right to remove a director by ordinary resolution of members taken at a meeting of members provided that:

1. the director must be given adequate notice of the meeting and resolution; and
2. the director (or their representative) must be allowed to present their case to the meeting, before a vote is taken.

Additionally, in a NPC with members, the directors themselves may remove one of their number by resolution if the director:

• is ineligible or disqualified to be a director, on any ground set out in the Act;
• is incapacitated and unable to perform their duties now or within a reasonable time; or
• has neglected or been derelict in the performance of their duties.

Once again, the proper process must be followed of:

1. giving notice, adequate time to respond and details of the reasons for proposed removal; and
2. a reasonable opportunity to make their case at a meeting of directors.

The process for both sorts of removals is the same, but the directors may only remove for one of the reasons listed, whereas the members could just vote to remove a director who they determined to no longer be a good ‘fit’ or to be creating some sort of unhappiness at board level, for instance.

For an NPC with no members the route available to the directors to remove for good reason in terms of section 71(3) and (4) is certainly available.  The question is whether, there being no members, the ‘no fault’ removal by members in section 71(1) and (2) is still available, but to the directors.

In Schedule 1 to the Companies Act, 5(2) provides that:
‘If a non-profit company has no members, the Memorandum of Incorporation must set out the basis on which directors are to be appointed by its board, or other persons.’

In our view, the power to appoint directors (which would, in a with-members NPC lie with members) must include the power to dismiss directors.  The MOI of a no-member NPC will specify who (or what body) has the power to appoint and that person/persons/body will also have the power to remove, in the same way, that members may remove.

Therefore, in a no-members NPC which empowers directors themselves to appoint new directors, the directors must also be able to follow the ‘no-fault’ removal process available to members.  Whichever reasons are given for removal, however, the proper process of notice, time to prepare and an actual meeting held with opportunity to respond, must be followed in all cases.

SOME THOUGHTS ON MINUTES AND AGENDAS

Organisations often use standard formats for agendas and minutes but, if you are considering ways to make meetings more effective, we think it better to make up your own format and procedure, to be sure that they suit your organisation and support and invigorate the way it is governed.

Standard agendas can undermine effective meetings as they usually (unintentionally) obscure the main purpose of the meeting. People attending meetings need to be alerted to the intended focus points of the meeting so that they know how to prepare for the meeting. One (seemingly simple) idea for an agenda is to put the most important item first- so many times meetings cycle through the usual agenda items and then run out of time for the one crucial thing!

Most minutes record also that the meeting began with a review, corrections to, and then approval of the minutes of the previous meeting.

Now, although this is a rather standard approach, it often results in the meeting being bogged down in details from the very start and, especially if there has been a gap of more than a couple of weeks since that previous meeting, only those with superhuman powers of recall will be able to remember the discussions and decisions accurately enough to suggest substantive corrections. The corrections which are raised are most often spelling errors or typos, or when the item was about you, and then you do remember what was said!

It is best to check, correct and approve minutes as soon as possible after the meeting, while everyone still remembers it more or less accurately. Ideally, minutes should be sent out within a couple of days after the meeting with a request for corrections to be submitted within a week. The checking of previous minutes may then be omitted from the agenda of the following meeting, and only ‘action items’ referred to.

The following are suggested components of minutes:

• Record of who was present and whether there was a quorum;
• Record of any ongoing or arising conflicts of interest;
• Summary of key discussions;
• Decisions made clearly recorded as such;
• Notes on action points, who is accountable for which, and delivery dates; and
• Date of next meeting.

Don’t be afraid to change things around, and aim for accuracy, brevity, focus and then a springboard for action!