Corporate fraudulent Behaviour

Question 1

General background of corporate fraudulent behaviour

Answer 1

-1973 Companies Act had over 100 criminal offences
-King code IV= used for Self-regulatory recommendations regarding the managing and operations of a company
-National Prosecuting Authority: Discretion to institute criminal charge against either the company, its directors, or both

Question 2

Four alternative ways to address a complaint

Answer 2

1. Filing a complaint with the Companies and Intellectual Property Commission (CIPC) / Takeover Regulation Panel (TRP)
2. Alternative Dispute Resolution (ADR) procedures
3. Applying to the Companies Tribunal to adjudicate the dispute
4. Applying to the High Court

Question 3

Criminal liability of a company under criminal law

Answer 3

-A company may be charged and prosecuted and found guilty of almost any crime under criminal law

S 332 Criminal Procedure Act 51 of 1977:
-Can be fined; or assets/financial benefits may be forfeited
-Can be held vicariously liable

Question 4

S217: Magistrates’ Court has jurisdiction

Answer 4

Magistrates’ Court has jurisdiction to impose penalties as prescribed in S 216 of the Companies Act

Question 5

S213: Disclose any confidential informing

Answer 5

Offence to disclose any confidential informing concerning the affairs of any person obtained in terms of the administration of the Act- Penalty: Fine or imprisonment not exceeding 10 years.

Question 6

S 214: False statements, reckless conduct and non-compliance

Answer 6

1. Offence to falsify company accounts and to knowingly with fraudulent purpose provide false information about the company.
   -Criminal liability of a company under criminal law
   Penalty: Fine or imprisonment up to 10 years
   -Personal liability for director or prescribed officer (also in the case of non-compliance)
2. Reckless conduct includes reckless trading BUT is now only an offence if it was conducted knowingly and with fraudulent purpose
3. Non-compliance with a compliance notice given by the CIPC or TRP

Question 7

S 215: Hindering administration of Act and access to company records and information

Answer 7

Penalty: fine or imprisonment for a period not exceeding 12 months, or both a fine and imprisonment

Question 8

Ss 26, 28, 29, 31 and 35: Relate to financial records and access to financial records and use of the company’s name and registration number:

Answer 8

SS 26 and 31: An offence for anyone to hinder or obstruct such right of access to the company records and financial statements
S 28: An offence to mislead or deceive a person regarding accounting records or not to keep proper and accurate accounting records.
S 29: An offence to be a party to preparing, approving, disseminating or publishing financial statements that are not accurate or proper.
S 35: An offence to misuse or fail to use properly the Company’s name or registration number

Question 9

Specific instances of criminal or fraudulent behaviour

Answer 9

1) Fraud on the minority
2) Delinquency & Probation
3) Insider dealing
4) Market abuse
5) Money laundering
6) Bribery and corruption
7) Reckless and Fraudulent trading
8) Potential criminal activity in the operation, management and winding up of companies

Question 10

S 20(9): Statutory lifting of the corporate veil

Answer 10

S 20(9): The courts may lift the corporate veil in instances where there has been “unconscionable abuse” of the corporate identity of the company by its directors/members.

Question 11

Criminal liability: Directors and prescribed officers

Answer 11

S213- Disclosing confidential information
S214- False statements, reckless conduct and non-compliance
S215- Hindering administration of Act and access to company records and information
S217- Magistrate’s jurisdiction
Sections 26, 28, 29, 31 and 35