ALERT CORPORATE & COMMERCIAL - Cliffe Dekker Hofmeyr
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8 APRIL 2020
CORPORATE
& COMMERCIAL
ALERT
IN THIS Claiming “COVID-19 made me do it” simply isn’t
good enough when deciding to defer or cancel
ISSUE the declaration or payment of a dividend
Limited Companies and Intellectual Property
Commission (CIPC) services during the National
COVID-19 Lockdown
Lockdown: Companies beware of ‘electronic
signatures’ whilst employees work remotely
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For more insight into
our expertise and
services
CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
The national lock-down and the The upshot of the JSE’s advisory letter
During the weeks international effects of the COVID-19 is twofold:
pandemic have wreaked havoc on
preceding the date companies’ cash flows and have in many
∞ subsequent to the occurrence of the
“finalisation date” (as contemplated in
of this article, a cases made it very difficult to predict the JSE Corporate Action Timetable, a
number of JSE-listed their short to medium term liquidity paraphrased version of the corporation
companies published position with any degree of confidence. action timetable applicable to cash
Many JSE-listed companies have dividends is displayed at the end of
announcements therefore been desperately scrambling this article) in relation to a declared
purporting to defer to cancel or defer their payment dividend, the declaration and/or
the payment of obligations in respect of dividends payment of such dividend cannot be
already declared or are hurriedly
declared dividends, cancelled by the issuer; and
devising strategies to avoid declaring
whereas others have dividends at all. These companies, while
∞ should an issuer, subsequent to the
finalisation date but prior to the LTD
purported to cancel/ appearing to have good commercial
(last day to trade) in relation to a
withdraw declared reasons for doing so, should ensure that
declared dividend, amend any of the
their actions are lawful and that they do
dividends outright. not expose themselves to legal risk.
pertinent details of such dividend
this would cause the JSE-approved
During the weeks preceding the date corporate action timetable to be
of this article, a number of JSE-listed terminated, and the issuer would be
companies published announcements required to start afresh and obtain JSE
purporting to defer the payment of approval for a new corporate action
declared dividends, whereas others have timetable in relation to the dividend.
purported to cancel/withdraw declared
While the JSE’s letter is instructive in
dividends outright. Common amongst
ensuring issuer compliance with the JSE’s
these announcements is the explanation
timetable for corporate actions, it by no
that the decision has been taken primarily
means tells the whole story in relation to
due to the uncertainty introduced by the
an issuer’s legal ability to cancel, postpone
COVID-19 pandemic.
or adjust dividends having been or to be
On 30 March 2020, the JSE issued a letter declared. Nor was the letter intended to
to sponsors and designated advisors do so, it appears, as the JSE issued a letter
in terms of which it confirmed that it of clarification on 2 April 2020, in which it
had been approached by a number of stated that communications by the JSE are
issuers with requests to cancel payment, always issued subject to the provisions of
postpone payment or adjust the quantum applicable legislation.
of dividends which have been previously
declared but not yet paid.
2 | CORPORATE & COMMERCIAL ALERT 8 April 2020
CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
In particular the JSE cites, in its follow-up Once these steps have been taken, the
At common law, the letter, the need to comply with the dividend has been declared and the issuer
Companies Act 71 of 2008 (Companies has incurred a legally binding obligation to
default position is that Act), and states that any cancelations and settle (i.e. pay) the dividend.
a dividend is payable changes to declared dividends can only
In our view, the date on which an issuer
immediately after it be implemented if such actions comply
declares a dividend may not, in all
in all aspects with the provisions of the
is declared (however, instances, also be the “declaration date”
Companies Act.
this position can be (per the JSE Corporate Action Timetable).
When deciding if, or how, to withdraw The declaration date is the date that
altered or modified
a declared dividend or postpone the effectively kicks off the JSE Corporate
by the terms of payment of it, the following considerations Action Timetable in respect of the payment
the declaration, as should be considered by all JSE-listed of a dividend. Where an issuer announces
discussed below). issuers that are subject to South African the declaration of a dividend but does
company law (noting that issuers with not include in that announcement the
inward listings on the JSE should have “declaration data”, then in our view:
regard to the company law dispensation in ∞ the dividend has been declared and
their jurisdiction of incorporation). the issuer has incurred a legally binding
When does an issuer incur the obligation obligation to settle payment of the
to pay a dividend? dividend; but
∞ the clock has not started ticking on the
The event that causes the issuer to incur
JSE Corporate Action Timetable.
the obligation to pay a dividend is the
declaration of the dividend. Once declared, when must payment of
the dividend be settled to shareholders?
For JSE-listed companies, a dividend
declaration usually comprises two At common law, the default position is that
(possibly amongst other) steps having a dividend is payable immediately after it
been taken: is declared (however, this position can be
∞ the board has applied the “solvency altered or modified by the terms of the
and liquidity test” (S&L Test), confirmed declaration, as discussed below).
it is reasonably satisfied that the issuer The Companies Act prescribes that once
will satisfy the S&L Test immediately the board has adopted a Declaration
after payment of the dividend and Resolution, the relevant distribution must,
has resolved to declare the dividend subject to section 46(3) of the Companies
(section 46(1)(c) Companies Act) Act, be carried out (section 46(2)
(Declaration Resolution); and Companies Act). But the Companies Act
∞ the issuer announced the declaration does not prescribe a time period within
of the dividend via SENS. which the declared dividend must be paid.
3 | CORPORATE & COMMERCIAL ALERT 8 April 2020
CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
Given that the Companies Act does not This payment prohibition is equally
There is a risk that prescribe when a declared dividend must applicable after the “finalisation date” in
be paid, the common law position, that a respect of a declared dividend in terms
shareholders recorded dividend is payable immediately after it is of the JSE Corporate Action Timetable,
in the register on the declared, applies. meaning that notwithstanding the
record date could, Are there circumstances in which an
issuer’s obligations under the JSE Listings
Requirements, the issuer must not in any
where payment issuer is precluded from making payment
circumstances make payment of a dividend
is deferred or the of a declared dividend?
where it does not reasonably appear
dividend is withdrawn The Companies Act provides that if a that the issuer will satisfy the S&L Test
altogether, lodge a declared dividend is not paid within immediately thereafter. Accordingly, there
120 business days after the board passed appears to be some tension between the
claim for payment of the Declaration Resolution, then the company law position and the JSE Listings
the dividend together issuer is precluded from paying the Requirements; non-payment at this
with a possible dividend until the board has re-applied juncture would seemingly cause the issuer
damages claim. the S&L Test and, then being reasonably to breach the JSE Listings Requirements,
satisfied that the issuer will satisfy the thereby exposing the issuer (and, possibly,
Whether any such S&L Test after payment of the dividend, its directors) to the risk of, amongst other
claims will ultimately passes the Declaration Resolution afresh things, censure and/or the imposition of a
succeed is a different (section 46(3) Companies Act). fine by the JSE.
matter. Where, prior to the expiry of the In addition, by the finalisation date the
120-business day period, there is a change issuer’s board would have determined
in the financial position or outlook of and announced the “record date” for
the issuer, there is in our view no reason participation in the dividend, leading
why the board should be precluded from investors to trade in the issuer’s securities
re-applying the S&L Test voluntarily. If on a cum dividend basis. There is a risk
the board, on a re-application of the that shareholders recorded in the register
S&L Test, is unable to reasonably conclude on the record date could, where payment
that the issuer will satisfy the S&L Test is deferred or the dividend is withdrawn
after payment of the declared dividend, altogether, lodge a claim for payment
then the issuer is in our view prohibited of the dividend together with a possible
from paying that dividend. The reason damages claim. Whether any such claims
for this is that an issuer is precluded will ultimately succeed is a different matter.
from making a distribution where it does
In these circumstances, the board is
not reasonably appear that the issuer
between the proverbial rock and hard
will satisfy the S&L Test immediately
place, where non-payment exposes
after completing the distribution
the issuer (and possibly its directors) to
(section 46(1)(b) Companies Act).
4 | CORPORATE & COMMERCIAL ALERT 8 April 2020
CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
the risk of punitive measures by the JSE prohibited by virtue of section 46(1)(b) of
There is no case-law and possible litigation by investors, but the Companies Act, it would be unlawful
payment would cause the directors to act for the issuer to defer payment of the
under section 46 of in contravention of the provisions of the dividend. In such circumstances the
the Companies Act Companies Act. deferral could provide grounds on which
that has held that a How can the payment of a dividend be
claims could be brought against the issuer
by investors.
unilateral withdrawal of validly deferred?
a declared dividend by While the inability to satisfy the S&L Test
Once declared, is it competent for an
issuer to unilaterally withdraw/cancel the
the issuer is competent. prohibits an issuer from making payment
dividend?
of a declared dividend, the board itself is
(in principle) capable, when declaring a Upon declaration of a dividend, the issuer
dividend, of modifying when and how the incurs an obligation to settle the dividend.
dividend will become due and payable. Conversely, the shareholders become
legally entitled to enforce the distribution
When declaring a dividend, the board is
(i.e. it becomes a debt owing to them).
capable of determining the terms on which
such dividend is declared. It appears to be There is no case-law under section 46
perfectly competent for a dividend to be of the Companies Act that has held that
declared such that the payment obligation a unilateral withdrawal of a declared
is deferred to a later time or that such dividend by the issuer is competent.
obligation is subject to fulfilment of certain
An analogous legal position may be found
conditions, thereby effectively modifying
in the law of contract (to the extent that
the default position under the common
the debtor/creditor relationship created
law that declared dividends become due
between an issuer and its shareholders
and payable immediately.
upon declaration of a dividend justifies
When determining whether an issuer has such analogy).
scope to defer the payment of a declared
Where a contractual obligation
dividend, regard should be had to:
becomes impossible to perform due to a
∞ the authority conferred on the board in supervening impossibility, this constitutes
the company’s constitution in relation grounds for (i) the suspension of the
to the manner in which dividends are obligation to perform until performance
to be declared and paid; and becomes possible or (ii) the termination
∞ the terms on which the dividend was of the contract. Whether a contract may
declared. be terminated by virtue of a supervening
impossibility of performance, turns on
Where the terms on which the dividend
whether the impossibility is temporary in
was declared do not leave scope for the
nature or causes performance under the
deferral of the payment obligation, then,
contract to be absolutely and inevitably
in the absence of the payment being
5 | CORPORATE & COMMERCIAL ALERT 8 April 2020
CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
impossible. Where the impossibility of For JSE-listed REITs, one such requirement
A failure to comply performance is temporary in nature, it is that a REIT must comply with the
provides a ground only for the suspension applicable distribution provisions
with this distribution of the requirement to perform and not for of the JSE Listings Requirements
requirement would the termination of the contract (see World (paragraph 13.49 JSE Listings
eventually result in the Leisure Holidays (Pty) Ltd v Georges 2002 Requirements).
(5) SA 531 (W)).
issuer’s REIT status In terms of paragraph 13.47(a) of the
being revoked by the A board being unable to reasonably JSE Listings Requirements, a REIT
conclude that the issuer will satisfy the must distribute at least 75% of its total
JSE (paragraphs 13.49
S&L Test immediately after the payment distributable profits as a distribution to the
and 13.50 JSE Listings of a dividend would, all else being equal, holders of its listed securities by no later
Requirements). constitute a temporary supervening than 4 months after its financial year end.
impossibly of performance and would A failure to comply with this distribution
therefore not justify the cancellation/ requirement would eventually result in
withdrawal of the dividend. the issuer’s REIT status being revoked by
the JSE (paragraphs 13.49 and 13.50 JSE
In our view, therefore, unless the terms on
Listings Requirements).
which the dividend was declared entitle
the issuer to unilaterally withdraw or However, the obligation to make the
cancel the dividend, it is not competent for distribution in terms of paragraph 13.47(a)
an issuer to do so. In such circumstances, of the JSE Listings Requirements is not
the unilateral withdrawal or retraction of absolute, but rather is expressly subject to
a declared dividend by an issuer would the REIT satisfying the S&L Test.
be unlawful.
Accordingly, where the REIT (i) fails to
Do REITs remain obligated to declare make the distribution within 4 months of
and pay dividends in order to retain their its financial year end and (ii) such failure is
reit status? a result of the issuer failing to satisfy the
S&L Test in relation to that distribution,
The obligation to declare and pay
then the failure to have made such
dividends is particularly important where
distribution should not result in it losing its
the issuer is a “REIT” (as such term is
REIT status.
defined in the Income Tax Act 58 of 1962).
In order for a REIT to enjoy the benefit of
the tax dispensation applicable to REITs,
it must (amongst other things) maintain
its REIT-status in terms of the rules of the
securities exchange on which its shares are
listed as shares in a REIT.
6 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
Miscellaneous matters for consideration Setting the record date for participation in
The term “distribution” Many other interesting questions have
a dividend
is defined in the arisen in this context: From a Companies Act perspective, the
Companies Act to record date for participation in a dividend
Share repurchases and redemptions
must not be more than 10 business days
include, amongst other The term “distribution” is defined in the prior to the date on which payment
things, the repurchase Companies Act to include, amongst other of the dividend is scheduled to occur
and/or redemption things, the repurchase and/or redemption (section 59(2)(a)(ii) Companies Act). The
of shares. To the extent that an issuer JSE Corporate Action Timetable prescribes
of shares.
implements any of the measures discussed that the record date must be the business
above (i.e. the withdrawal of a dividend day immediately prior to the payment date.
or deferral of payment of it) on the basis
For this reason it would generally not be
that it does not reasonably appear that the
possible to “freeze the register” of the
issuer will satisfy the S&L Test immediately
issuer for purposes of the distribution and
after completing the distribution, the
for the shares then to trade ex dividend for
issuer should be cognisant that any share
an extended period.
repurchases or redemptions are subject to
the same requirement and should likewise Will declared but unpaid dividends be seen
be refrained from. as debt for purposes of funding and other
covenants?
Capitalisation issues
If a board intends to declare a dividend on
Capitalisation issues, being the issuance
the basis that it will become payable at a
of shares to shareholders pro rata to
specified date or a date to be determined,
their shareholding, do not constitute a
the issuer should consider whether such
“distribution” and therefore the ability of
declared but unpaid dividend would
a board to undertake and implement a
constitute “financial indebtedness” or
capitalisation issue is not subject to the
“debt” and, if so, whether this would
S&L Test. However, where shareholders
have any ramifications under its funding
are offered cash as payment in lieu of the
agreements and/or funding covenants.
issue of capitalisation shares, this would
constitute a “distribution” and would
be subject to the same dispensation as
dividends.
7 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Claiming “COVID-19 made me do
it” simply isn’t good enough when
deciding to defer or cancel the
declaration or payment of a dividend
...continued
Will interest accrue on deferred dividends?
Interest would typically Interest would typically not be payable on deferred dividends unless the company’s
not be payable on constitutional documents provided otherwise. However, to the extent that pursuant to
deferred dividends the matter being litigated on, a Court were to find that a deferral of payment of a dividend
constituted non-payment of a debt which became due and payable, a Court may also grant
unless the company’s successful claimants default interest for the period between the due date and the actual
constitutional payment date.
documents provided
Miscellaneous matters for consideration
otherwise.
DAY EVENT DESCRIPTION
D – 13 Declaration date Publication of declaration data, this date
must be at least 13 business days before the
record date.
D–8 Finalisation date Publication of finalisation announcement.
D–3 Last day to trade (LTD) Must be 3 days before the record date, but
note that to be recorded in the register on
the LTD the trade must take place 3 days
prior as trades are settled on a T+3 basis.
D–2 List date Securities start trading ex dividend.
D+0 Record date Record date to determine who receives
dividend (must be on a Friday, unless Friday is
a public holiday in which case it must be on
the last business day of that week).
D+1 Pay date Electronic transfer of funds or cheques
posted/CSDP's and brokers credited.
For more information on our Listed Companies service offerings, please click here.
Peter Hesseling, Dane Kruger, Johan Green and Yaniv Kleitman
CDH Corporate & Commercial Listed Companies Working Group
8 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Limited Companies and Intellectual
Property Commission (CIPC)
services during the National
COVID-19 Lockdown
In response to the national COVID-19 lockdown (lockdown) that began at midnight on
The CIPC confirmed Thursday, 26 March 2020, and which is scheduled to end on 16 April 2020, the CIPC
announced certain operational measures that it would put in place for the duration of
that it would continue the lockdown.
to provide limited
The CIPC, on 24 March 2020, confirmed that it would continue to provide the following
services through limited services through either its e-Services and/or BizPortal online portals during
either its e-Services the lockdown:
and/or BizPortal
online portals during CIPC SERVICES
the lockdown. 1 The filing of annual returns (including annual financial statements or financial
accountability supplement)
2 The filing of compliance checklists
3 The incorporation of private companies (with the short standard memorandum of
incorporation and without name)
4 Enterprise searches
5 R30 disclosure requests
6 The filing of company and close corporation financial year end changes
7 The filing of company and close corporation address changes
8 The filing of auditor, accounting officer and company secretary changes
9 The filing of company name changes
10 B-BBEE certificate requests
11 Domain name registration
CDH is a Level 1 BEE contributor – our clients will benefit by virtue of the recognition of
135% of their legal services spend with our firm for purposes of their own BEE scorecards.
9 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Limited Companies and Intellectual
Property Commission (CIPC) services
during the National COVID-19
Lockdown...continued
It is understood that the CIPC will suspend Amendments to the documents governing
Unless a name has all of its service-related mailboxes and that a company
the upload functionality on its platforms
been reserved prior will be de-activated during the lockdown.
The documents governing a company may
to 24 March 2020, a comprise an MOI (or Memorandum and
In these uncertain times, it is important Articles of Association, if an MOI has not
customer will only be that the board of directors (board) and been adopted), a shareholders agreement
able reserve a name shareholders (shareholders) of companies (shareholders agreement) and governance
and file the relevant are aware of the implications that the rules (rules), if any.
limited services offering by the CIPC may
company name change Shareholders are generally entitled to
have on certain corporate actions. In this
after the lockdown. alert, we will revisit a few key concepts and
amend a company’s MOI, which includes
the adoption of a new MOI in substitution
principles relating to common corporate
of an existing MOI, by passing a special
actions that companies may wish to effect
resolution. Amendments to an MOI
during the lockdown.
adopted by shareholders (other than
Registration of new private companies name changes) will take effect on the
and company name reservations later of (i) the date on, and time at, which
the prescribed notice of amendment
During the lockdown, the CIPC will only
(notice of amendment) is filed with the
register new private companies with
CIPC, or (ii) the date, if any, set out in the
the short standard memorandum of
notice of amendment. Companies are
incorporation (MOI), as set out in the
required to file the prescribed notice of
regulations to the Companies Act 71 of
amendment within 10 business days after
2008 (Companies Act). The CIPC will
the amendment has been approved.
not register other profit and non-profit
companies during the lockdown. Based on the CIPC’s limited list of services
and the suspension of its service-related
Unless a name has been reserved prior
mailboxes, it is unlikely that companies
to 24 March 2020, a customer will only
will be able to file any amendments to
be able reserve a name and file the
MOIs (other than name changes in limited
relevant company name change after the
circumstances), with the consequence
lockdown. All company name reservations
that any such amendments will not take
that are due to expire during the period
effect during the lockdown. This may
of 25 March 2020 to 15 April 2020
have far-reaching, and potentially adverse
will automatically be extended until
consequences, for companies that require
30 April 2020.
amendments to their capital structure
10 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Limited Companies and Intellectual
Property Commission (CIPC) services
during the National COVID-19
Lockdown...continued
and/or changes to their governance In contrast to amendments to MOIs and
In contrast to provisions such as reserved matters and/or rules, the amendment of an existing
the powers of the board or shareholders shareholders agreement, or the conclusion
amendments to which may be necessitated by the of a new shareholders agreement, need
MOIs and rules, the changing economic climate in which not be filed with, or approved by, the CIPC
amendment of an companies currently operate. for it to become effective. The Companies
Act provides that shareholders agreements
existing shareholders Unless the MOI of a company provides
must be consistent with the MOI of a
agreement, or the otherwise, a board may make, amend
company. This means that the conclusion
or repeal necessary and incidental
conclusion of a of a shareholders agreement, or the
rules relating to the governance of the
new shareholders company, and which rules will take effect
amendment of an existing shareholders
agreement, may potentially be considered
agreement, need not be on a date that is the later of (i) 10 business
as a stopgap measure during the
filed with, or approved days after such rule/s is filed with the
lockdown should a company be required
CIPC or (ii) the date specified in the rule.
by, the CIPC for it to As with the amendments to MOIs, any
to respond to any short-term funding or
become effective. new or amended rules, which have not
governance needs.
yet been filed, will not take effect during
the lockdown.
CDH’S COVID-19
RESOURCE HUB
Click here for more information
11 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Limited Companies and Intellectual
Property Commission (CIPC) services
during the National COVID-19
Lockdown...continued
Changes to boards CIPC Annual Returns (Annual Returns) and
Companies will not be A prescribed notice of change of
compliance checklists
able to file any notices directors (notice of change of directors) Every company is required to file an
of change of directors must be filed with the CIPC within annual return in the form prescribed by
10 business days after a change of the CIPC within 30 business days after the
during the lockdown. information or composition of the board. anniversary of its date of incorporation.
Notwithstanding the latter, changes to a
Companies that are required to have their
board are not required to be filed with,
annual financial statements (AFS) audited
or be registered by, the CIPC for such
in terms of the Companies Act (e.g. public
changes to take effect in law.
companies, companies required to
Provided that a person is not ineligible or have audited AFS in terms of their MOIs,
disqualified to be a director, a person may companies with public interest scores of at
be appointed or elected to be a director of least 350, etc.) are also required to submit
a company, and such person will become their audited AFSs to the CIPC. All other
entitled to serve as a director when that companies are required to file a Financial
person has been validly appointed or Accountability Supplement setting out
elected and has delivered to the company certain basic information relating to the
a written consent to serve as its director. financial affairs of the company.
Similarly, resignations are final and
With effect from 1 January 2020, the
unilateral acts, and generally become
filing of a compliance checklist by all
effective when tendered.
companies, to confirm their compliance
Companies will not be able to file any status in respect of certain provisions of
notices of change of directors during the Companies Act, is mandatory.
the lockdown. The users of information
The CIPC has provided an indulgence to all
retrieved from the CIPC should therefore
companies that have Annual Return filing
take caution as the records of the CIPC
periods that fall between 25 March 2020
may not reflect changes made to boards
and 15 April 2020, by extending such filing
during the lockdown.
periods until 30 April 2020. The effect
of the latter is that penalties, the filing of
compliance checklists and the filing of
AFSs are also deferred to 30 April 2020.
12 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Limited Companies and Intellectual
Property Commission (CIPC) services
during the National COVID-19
Lockdown...continued
The CIPC also indicated that it will not CIPC is welcomed, it must be noted
The CIPC recognises take any action to place non-compliant that the suspension of the ability to file
companies and close corporations into amendments to MOIs of companies
that during the deregistration, or finally deregister any during the lockdown may potentially
lockdown it will not company or close corporation until place further strain on companies that
be able to provide its further notice. are required to effect changes to their
capital structures and governance
full suite of services, Impact
provisions in reaction to the fast-changing
and companies will The CIPC recognises that during the economic climate, largely triggered
equally find it difficult to lockdown it will not be able to provide by the COVID-19 outbreak which has
comply with their CIPC its full suite of services, and companies changed the economic landscape of at
will equally find it difficult to comply least 180 countries, including South Africa,
compliance obligations. with their CIPC compliance obligations. within a matter of weeks.
While the indulgences granted by the
Abrianne Marais and Etta Chang
#No1DealPartner
UN RIVALLED M&A LEGAL DEALMAKERS OF THE
DECADE BY DEAL FLOW: 2010-2019
13 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Lockdown: Companies beware of
‘electronic signatures’ whilst employees
work remotely
The universal digitisation of society In the recent case of Global & Local
Hackers are causing has completely transformed the way Investments Advisors (Pty) Ltd v Nickolaus
we do business today. Business may be Ludick Fouché (71/2019) [2019] ZASCA
chaos across multiple conducted with the touch of a single 08, the Supreme Court of Appeal (SCA)
industries and can button and contracts may be signed and had to determine whether Global & Local
cripple even the most entered into electronically. It is often far Investments Advisors (Pty) Ltd (Appellant)
resilient organisations more convenient to sign a document had breached its mandate to invest
electronically, opposed to having to and manage money entrusted to it by
by impacting on print a document, sign it and initial each Nickolaus Ludick Fouché (Respondent), by
market share, brand page, and scan it back in before sending releasing funds in response to fraudulent
and reputation. it off. Particularly during the next few emails, ostensibly sent by the Respondent.
weeks of lockdown being implemented In determining whether the Appellant was
within South Africa, persons may not in breach of its mandate, the SCA had to
have access to printers and scanners consider the question of what constitutes
and may often find themselves signing “signed” in certain circumstances.
documents electronically whilst working
The Respondent had given a written
from home.
mandate to the Appellant to act as his
However, with the increased level of agent and invest money with a bank on his
connectivity comes greater risk to behalf. The written mandate specifically
cybersecurity. Hackers are causing chaos stipulated that all instructions must be sent
across multiple industries and can cripple by fax or by email with client’s signature.
even the most resilient organisations by
Fraudsters hacked the gmail account of the
impacting on market share, brand and
Respondent and sent three emails to the
reputation.
Appellant instructing it to transfer specified
Whilst electronic signatures are amounts to other account. These three
perfectly valid in terms of the Electronic emails had no attachments and each email
Communications and Transactions Act 25 ended with the words “Regards, Nick” or
of 2002 (ECTA), companies must be alert “Thanks, Nick”.
to the wording contained in their written
agreements and whether electronic
signature suffices. If the form of an
electronic signature has not been expressly
agreed to, uncertainty potentially arises.
14 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Lockdown: Companies beware of
‘electronic signatures’ whilst employees
work remotely...continued
The Appellants completed the instructions Section 13(3) of the ECTA states that,
In Spring Forest an by paying out three consecutive payments where an electronic signature is required
into the listed bank accounts in the by the parties to an electronic transaction
agreement had been amount of R804,000 in aggregate. The (and the parties have not agreed on
entered into between Respondent, becoming aware of the the type of electronic signature), that
the parties, which cyberattack, notified the Appellants that requirement is met if:
the instructions had not come from him
required cancellation (1) a method is used to identify the person
and claimed the amount of R804,000
thereof to be ‘in writing’ on the basis that the Appellant had acted
and to indicate the person’s approval
of the information communicated; and
and to be ‘signed by contrary to their written mandate.
both parties’. The Appellant tried to argue that it
(2) having regard to all the relevant
circumstances at the time the method
complied with the written mandate, as
was used, the method was as reliable
the “Regards, Nick” or “Thanks, Nick”
and appropriate for the purposes
constituted an electronic signature, which
for which the information was
satisfied the mandate requirement of
communicated.
containing the client’s signature.
In Spring Forest an agreement had been
The Appellant tried to rely on section 13(3)
entered into between the parties, which
of the ECTA and the use thereof in the case
required cancellation thereof to be ‘in
of Spring Forest Trading CC v Wilberry (Pty)
writing’ and to be ‘signed by both parties’.
Ltd t/a Ecowash and another 2015 (2) SA
The parties subsequently cancelled the
118 (SCA), which dealt with the question of
agreement by way of email exchanges.
whether or not a person’s email signature,
The respondent later contended that the
which appeared at the foot of an email,
agreement had not been validly cancelled
was sufficient to satisfy the stock standard
due to the fact that the (electronic)
boilerplate provision in an agreement that
agreement of cancellation had not been
its terms could be varied or cancelled only
signed by both parties. The SCA, in this
by way of a written document signed by
case, held that the names of the parties
the parties.
at the foot of their respective emails
were (i) intended to serve as signatures,
15 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
Lockdown: Companies beware of
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(ii) constituted ‘data’ which was logically had actually written and sent the emails in
It is interesting that the associated with the data in the body of Spring Forest was not an issue as it is in the
the emails; and (iii) identified the parties present case and that the issue in Spring
two SCA cases have and accordingly, satisfied the requirement Forest case was whether an exchange of
opposite outcomes. of an electronic signature in terms emails between the parties could satisfy
of section 13(3) of the ECTA and had the the requirement imposed by them in the
effect of authenticating the information contract that ‘consensual cancellation’ of
contained in the emails. their contract be ‘in writing and signed’ by
the parties. There was no dispute regarding
In Global & Local Investments, however,
the reliability of the emails, accuracy of
the Respondent contended that the
the information communicated or the
instructions did not bear his signature,
identities of the persons who appended
whether manuscript or electronic.
their names to the emails.
The SCA found that, by definition,
Whereas, in Global & Local Investments,
sign, is “to affix one’s name to a writing
the emails in issue were fraudulent and
or instrument, for the purpose of
not written nor sent by the person they
authenticating or executing it, or to give
purported to originate from. It is perhaps
it effect as one’s act; To attach a name or
debatable whether this distinction made
cause it to be attached to a writing by any
by the court is entirely convincing: Had
of the known methods of impressing a
the Appellant acted on a forged manually
name on paper; To affix a signature to… To
signed instruction (and assuming the
make any mark, as upon a document, in
forgery would have fooled any reasonable
token of knowledge, approval, acceptance,
person in the Appellant’s position), it
or obligation” and ultimately found that
would still factually be the case that the
the instruction was not accompanied by
Respondent never signed the instruction
such a signature, concurring with the court
and that is was therefore unauthorised.
a quo that the funds were transferred
Yet the instruction would have appeared
without proper instructions and contrary
ex facie to be perfectly valid and compliant
to the written mandate.
– and arguably the Appellant would have
It is interesting that the two SCA cases been in the clear in that scenario. The
have opposite outcomes. The SCA in mandate was probably to be interpreted as
Global & Local Investments noted that the saying that the financial advisor’s reliance
distinguishing factor between the cases on a purportedly ‘signed’ instruction
was that the authority of the persons who was sufficient.
16 | CORPORATE & COMMERCIAL ALERT 8 April 2020CORPORATE & COMMERCIAL
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‘electronic signatures’ whilst employees
work remotely...continued
Perhaps the better distinction, then, is to mean. Possibly, a default presumption
Ultimately the two that of the intention of the parties as to is that it includes electronic signature
what the word ‘signed’ means in their (per Spring Forest) but in other cases, the
judgments prove that agreement, given the context and purpose parties’ intention would override this (per
the question of what of the particular agreement (and this may Global & Local Investments).
constitutes ‘signed’ or have been what the SCA was alluding to at
Ultimately the two judgments prove that
the end of the Global & Local Investments
‘in writing and signed’ the question of what constitutes ‘signed’ or
case when referring to the issue of the
can be contentious reliability of emails). Given the nature
‘in writing and signed’ can be contentious.
It is important that parties specify in
of a financial services mandate and the
their agreements whether they intend to
attendant risks, on probability, the parties
exclude all forms of electronic signature.
did not intend that a mere email signature
While a provision excluding electronic
could suffice – it needed to be manuscript.
signature may seem old fashioned, its
Those same considerations, arguably,
primary purpose is to avoid disputes of
were not present in Spring Forest, and so
this nature.
in that case it was more appropriate to
allow electronic signature. ‘Signed’ really
Yaniv Kleitman, Taryn Jade Moonsamy
just means what the parties intended it
and Ashleigh Gordon
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