By Melanie Schoombee
ANNUAL RETURNS: PUT IT ON THE ANNUAL CALENDAR!
The Commission for Intellectual Property and Companies (“CIPC”) issued a public statement on 11 October 2016, naming and shaming 20 listed companies, including the likes of Clicks Group Ltd, Pioneer Foods Ltd and Sasol Ltd, for under-disclosing or not disclosing the proper annual turnover values and therefore were not paying the correct annual return fees to the CIPC.
Section 187 (2) (b) of the Companies Act, No. 71 of 2008 (as amended) (“the Companies Act”) empowers CIPC to “monitor proper compliance with this Act”. CIPC announced in a previous media statements published in September 2016, that the regulator is in the process of “conducting a surveillance sweep” to identify non-compliance. Whilst CIPC seems to be focusing on listed entities at present, their mandate certainly includes all companies and close corporations, not matter the size of the entities or their turnover.
Listed companies have well-staffed company secretarial and financial departments to ensure that the listed company groups comply with the Companies Act. It is therefore difficult to understand how these entities can fail in disclosing the proper annual turnover and pay the incorrect annual fees to CIPC and it has been reported that certain of the listed entities has been underreporting multiple times. Private Companies, NPC, Limited Liability Companies and CC’s should take heed of their compliance requirements in respect of filing their annual returns to avoid the serious penalties and sanctions that may flow from non-compliance.
Why should companies and CC’s file annual returns?
The filing of an annual return triggers a flag with CIPC that the company/CC still has a pulse and is therefore still conducting business. Failure to file the return will place the company/CC on the road to deregistration, which is a tedious and admin intensive process to overturn. The legal effect of the deregistration process, is that the company/CC juristic ceases to exist and no longer has the legal personality to operate.
When should companies and CC’s file their annual returns?
Companies and CC are required to file annual returns once a year. Companies must file within 30 business days after the anniversary date of its incorporation while CC’s must file within the anniversary month of its incorporation up until the month thereafter.
How should companies/CC’s file their annual returns?
Annual return filings are only accepted electronically via the CIPC website by logging in as a customer. CIPC also provides a detailed step-by-step guide with an annual return fee calculator to assist entities to follow the prescribed process.
The annual return fee is determined based on the turnover of the Company/CC. How is turnover determined?
Regulation 164 provide the guidance to companies to calculate their turnover and in broadly defines the annual turnover of a firm as the gross revenue of that firm from income in, into or from SA, arising from the sale of goods, rendering of services and/or the use by others of the firm’s assets yielding interest, royalties and dividends, as recorded on the firm’s income statement for the immediately previous financial year. With CIPC taking a hard stance against the listed companies, there has been much debate on whether regulation 164 applies for purposes of calculating the annual return fee or if it only applies for purposes of section 175 (administrative penalties). In my view, the latter interpretation is incorrect, but clearly the interpretation of this regulation poses challenges for holding companies with subsidiary companies.
What are the annual return fees payable by Companies and CC’s?
For companies:
Annual Turnover Filing within 30 business days after anniversary date Filing more than 30 business days after anniversary date
Less than R1 million R100 R150
At least R1 million, but less than R10 million R450 R600
At least R10 million, but less than R25 million R2000 R2500
R25 million or more R3000 R4000
For CC’s:
Annual Turnover Filing within 2 months from beginning of anniversary month Penalty for each late lodgement date
Between 0 to R50 million R100 R150
R50 million and above R4000 R150
Are companies obliged to submit their annual financial statements (“AFS”) with their annual returns?
A company that is required to have its AFS audited, must file a copy of its latest approved audited AFS with its annual return, while a company that is not required to have its AFS audited, may file a copy of its audited or reviewed AFS with its annual return. CIPC currently requires only the filing of audited financial statements by emailing the financial statements to a designated CIPC e-mail address. A company that is not required to file AFS with its annual return or that does not elect to file its audited or reviewed AFS, must file a financial accountability supplement (CoR 30.2) with its annual return.
What are the consequences for non-compliance?
1) Incorrect calculation of annual turnover and submission of incorrect information: The act of knowingly providing false or misleading information to the CIPC is an offence in terms of Sections 214 (1) and 215 (2) (e) of the Companies Act. In the case of a contravention of Section 214 (1) of the Companies Act, a person upon conviction is liable to a fine or to imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment. In the case of a contravention of Section 215 (2) (e) of the Companies Act, a person upon conviction is liable to a fine or to imprisonment for a period not exceeding 12 months, or to both a fine and imprisonment.
2) Investigation by CIPC: CIPC has the authority to appoint an independent investigator to investigate whether a company is not complying with the provisions of the Companies Act. Such investigation can commence based on a third party complaint or unilaterally by CIPC. Once CIPC has received feedback on the investigation, it may excuse the company or individual, arrange a meeting to resolve the issue, refer the matter to the National Prosecuting Authority or issue a compliance notice.
3) Compliance notice: Section 171 of the Act provides that CIPC may issue a compliance notice in respect of the company’s breach of the Companies Act.
4) Fine: Should the company fail to comply with the notice, CIPC may make an application to court to impose and administrative fine as a penalty for non-compliance. Such fine may not exceed 10% of the company’s turnover during the period of non-compliance with the compliance notice or R1 million, whichever is the greater. Regulation 164 sets out the process for determining the turnover.
5) Winding-up application: In terms of section 81(1) (f), CIPC may apply to court for an order to wind up a company on the grounds that the company, its directors or prescribed officers or other persons in control of the company are acting or have acted in a manner that is fraudulent or otherwise illegal, the Commission or Panel, as the case may be, has issued a compliance notice in respect of that conduct, and the company has failed to comply with that compliance notice and within the previous five years, enforcement procedures in terms of this Act or the Close Corporations Act, 1984 (Act No. 69 or 1984), were taken against the company, its directors or prescribed officers, or other persons in control of the company for substantially the same conduct, resulting in an administrative fine, or conviction for an offence.
Companies and CC’s should not miss the boat and forget about their compliance obligations in respect of filing their annual returns. The process for compliance is relatively simple and the fees are not prohibitive for small and medium size companies and CC’s. In addition, if a company has been inactive for the preceding year, it may apply to CIPC for exemption to file its annual return in terms of regulation 30 (8), provided that its financial statement supports the application.