The extraordinary scale of corporate fraud at Enron and Worldcom has drawn worldwide attention to the need for greater public accountability of company directors. The process of examining the activities of a company and its directors in the course of liquidation proceedings should be open to the public or, at the very least, the public media. But while it would seem that anything less than automatic access (subject to the usual limitations) is unconstitutional and therefore has no part in South African law, this is not the case.
Section 417 of the Companies Act (61 of 1973) provides for an enquiry to be held to examine the activities of a company placed into liquidation. The section stipulates that any examination or enquiry under this section ..shall be private and confidential, unless the Master or the Courtdirects otherwise.
Several recent high profile liquidations have tested the right of the public, especially the media, to gain access to these enquiries. The most prominent case was the Regal enquiry, and more recently that of Consolidated News Agency.
Several recent high profile liquidations have tested the right of the public, especially the media, to gain access to these enquiries. The most prominent case was the Regal enquiry, and more recently that of Consolidated News Agency.
Access for the media to both these enquiries was granted after the media put forward arguments that included the following: the need for greater transparency in corporate governance;the publics interest in high profile cases (every little town has a CNA branch on the main street);the strong influence that companies and their directors exert in this country through their involvement in businesses that often include publicly listed entities;the rights contained in section 16 of the Constitution, in particular the freedom of the press; andrelevant sections of The Promotion of Access to Information Act (No 2 of 2000).
According to section 417 (7), the media must apply to the Master to exercise his discretion in granting permission to attend a section 417 hearing. The Masters decision is largely determined by the position of the liquidator and the commissioner, who have intimate knowledge of the matter and would know of the existence of any sensitive material. Effectively, the Masters role is a procedural one. Further, if an adverse outcome is reached, the media can always approach the court on an urgent basis to gain access. This seems an unduly complicated process that places unnecessary pressure on an already over-stretched Masters office and makes life difficult for the media.
The discretion to allow access to section 417 hearings was presumably given to the Master as the legislature felt that, if the proceedings were held in camera, people would be more forthcoming with information regarding the activities of directors and others involved in corporate shenanigans. However, Section 417 proceedings are effectively no different in nature to those being held in court or other commissions of enquiry which often deal with far more sensitive issues. Section 16 of the Supreme Court Act (59 of 1959) provides that unless there are special circumstances, all proceedings must be carried out in the open. Section 4 of The Commissions Act (8 of 1947) states that all the evidence heard by a commission shall be public and that the commissioner has a discretion to allow certain evidence to be given in camera. Therefore it seems that there is not only a potential statutory conflict, but also a lack of a logical basis for a different standard to apply to the corporate world.
Therefore it seems that there is not only a potential statutory conflict, but also a lack of a logical basis for a different standard to apply to the corporate world.
No doubt the CNA and Regal enquiries will not be the last ones that the media will want access to (in fact the press is faced with having to go through the same procedure for the second enquiry in the CNA matter, that of the Central News Agency). As the corporate world is forced to become increasingly transparent and the constitutional spirit becomes more entrenched, the Master will be called on more frequently in terms of section 417(7), wasting his time as well as that of the commissioner, the liquidator and possibly the courts in circumstances in which there is no reason for survival of this antiquated provision.
The legislature should abolish the current legislation and redraft a new section that automatically allows the public access unless there are special circumstances, which are to be determined by the Master / commissioner (being the individuals with an intimate knowledge of the facts) which dictate otherwise. The effect of this would be to:bring the Companies Act in line with other legal and constitutional trends;lower the costs and times of enquiries by allowing the commissioner to make on the spot decisions (obviously there would need to be a process for review of these decisions); improve the credibility of corporate governance structures without overburdening the bureaucratic systems; andimprove the often acrimonious relationship between big business, the media and the public.
In the long run, bringing the Companies Act in line with other legislation covering legal proceedings and enquiries may improve South Africas chances of encouraging local and foreign investment into the equity markets, which is so vital to the future of commercial and thereby national growth.
Greg Hamburger is a candidate attorney with Rosin Wright Rosengarten, a firm of attorneys specialising in entertainment and media law based in Johannesburg. Its areas of expertise include broadcasting, publishing, film, music, sports, commercial law, litigation, intellectual property and labour law.