Commercial crime has increased in the last few years.
What makes commercial crime difficult to detect, and eventually prosecute, unlike your traditional crimes, is that a company is an entity and as such it is ‘faceless’.
Section 332 of Criminal Procedure Act 51 of 1977, however, provides legal procedure as to how a corporation and members of an association can be held criminally liable for an offence. Recent case law has also provided a good idea of how a corporation can be held liable for a commercial crime.
Case Law Interpretation
The case of The State v Quantum Property Group Ltd is a good example of how a company can be held criminally liable for a commercial crime.
This matter was heard in the Specialised Commercial Crime Court at Bellville. The accused in this matter was a public company with limited liability and was registered and incorporated in terms of the company laws of South Africa.
A written complaint was lodged with the Companies and Intellectual Property Commission (CIPC), highlighting two points
- an annual general meeting that was supposed to be convened for the 2012 financial year-end for the shareholders was not held, and
- the shareholders were not provided with audited financial statements for the 2012 financial year-end.
As a result, both omissions by the accused were considered to be in contravention with certain mandatory provisions of the Companies Act 71 of 2008 (“the Act”).
The CIPC conducted an investigation into the failure of the accused public entity to convene the general meeting of shareholders and to produce annual audited financial statements. Flowing from this investigation, the CIPC sent a letter to the board of directors of the company requesting them to explain their failure on the two issues raised. The accused responded that due to a lack of funds, no audit was conducted and consequently an annual general meeting could not have been convened.
The CIPC issued the company with a compliance notice to hold an annual general meeting and to produce the required annual financial statements. The accused however, did not comply with the compliance notice by the CIPC. The court then held that the failure of the concerned public entity was a serious crime.
The court highlighted the following as aggravating factors:
- The Company as a public legal entity is accountable to its shareholders.
- The place where shareholders can hold the company directly accountable is at its annual general meeting (AGM). By failing to call the AGM, the company denied the shareholders of exercising its rights under the ACT.
- It is incumbent upon the CIPC to protect the legal interests of the company and in turn its shareholders. Publicly listed companies will especially come under close scrutiny where they fall foul of the Act because the public who have invested in the company need their funds to be protected.
- The intervention of the CIPC makes it possible for the company to be held accountable without the shareholders incurring the exorbitant expense of approaching a civil court in order to enforce their rights.
- When the accused failed to comply with the compliance notice its actions amounted to undermining the statutory functions and rights of the CIPC.”
In the end, the accused pleaded guilty and there was an agreement reached as to a just and equitable sentence. The accused agreed to pay a fine of R40,000.00, of which R15,000.00 was suspended for 5 years on condition that the accused is not found to have contravened the Act again during the suspension period.
Though at times it may seem like an easy step for an entrepreneur to initiate a new business, one must always ensure compliance with the company laws of South Africa, be vigilant regarding the fiduciary duties placed on parties in company law, and continue to do so in order to remain accountable to their shareholders.