Accounting Officers’ Reporting Duties: CIPC Notice 56 of 2024 and Compliance under the Close Corporations Act
Introduction
The Companies and Intellectual Property Commission (CIPC) issued Notice 56 of 2024, highlighting a significant compliance concern among Accounting Officers of Close Corporations (CCs). The notice draws attention to non-compliance with statutory reporting duties prescribed under Sections 62(3) and 62(4) of the Close Corporations Act 69 of 1984 (“the CC Act”). This technical article explores the obligations of Accounting Officers, the reporting requirements in question, and the potential consequences for non-compliance under the CC Act and related legislation.
Overview of Accounting Officer Reporting Duties under the Close Corporations Act
The role of an Accounting Officer within a Close Corporation is not merely one of oversight but involves specific statutory obligations. Sections 62(1) and 62(2) of the CC Act require an Accounting Officer to compile a report, the Accounting Officer’s Report, which must accompany the annual financial statements. This report is a reflection of the Accounting Officer's opinion based on an engagement concerning the corporation's financial health, its adherence to the accounting framework, and whether financial statements fairly represent its affairs.
Duties of accounting officers
The accounting officer of a corporation shall, not later than three months after completion of the annual financial statements-
(a) subject to the provisions of section 58 (2) (d), determine whether the annual financial statements are in agreement with the accounting records of the corporation;
(b) review the appropriateness of the accounting policies presented to the accounting officer as having been applied in the preparation of the annual financial statements; and
(c) report in respect of paragraphs (a) and (b) to the corporation.
(a) If during the performance of his duties an accounting officer becomes aware of any contravention of a provision of this Act, he shall describe the nature of such contravention in his report.
(b)Where an accounting officer is a member or employee of a corporation, or is a firm of which a partner or employee is a member or employee of the corporation, his report shall state that fact.
However, in addition to this report, the Act imposes further reporting obligations under Section 62(3) on Accounting Officers, which are currently under scrutiny by the CIPC. See section 62(3) requirements below:
3. If an accounting officer of a corporation-
(a) at any time knows, or has reason to believe, that the corporation is not carrying on business or is not in operation and has no intention of resuming operations in the foreseeable future; or
(b) during the performance of his duties finds-
(i) that any change, during a relevant financial year, in respect of any particulars mentioned in the relevant founding statement has not been registered;
(ii) that the annual financial statements indicate that as at the end of the financial year concerned the corporation's liabilities exceed its assets; or
(iii) that the annual financial statements incorrectly indicate that as at the end of the financial year concerned the assets of the corporation exceed its liabilities, or has reason to believe that such an incorrect indication is given, he shall forthwith by registered post report accordingly to the Registrar.
CIPC’s Findings on Non-Compliance with Section 62(3) and 62(4)
CIPC has observed that many Accounting Officers are failing to comply with the additional reporting requirements under Section 62(3) of the CC Act. Specifically, they are not submitting the mandatory reports regarding certain contraventions or specific disclosures as outlined by the CC Act. Section 62(3) imposes a duty on Accounting Officers to report to the CIPC immediately when they become aware of such contraventions or irregularities in the financial statements of a Close Corporation.
Furthermore, the CIPC’s Notice 56 of 2024 also points out that the required reports are not being submitted within the prescribed timelines, exacerbating the compliance gap. In some cases, Accounting Officers fail to notify the Commission promptly when the situation has been rectified in subsequent financial statements.
Section 62(3) of the CC Act: Mandatory Reporting
Section 62(3) explicitly mandates Accounting Officers to report certain issues forthwith to the Commission. These issues may include discrepancies, contraventions, or financial irregularities identified in the annual financial statements of a Close Corporation. The term "forthwith" is critical as it emphasises that reporting must occur without delay. This provision underscores the importance of timely intervention, ensuring that the CIPC is informed as soon as possible of any significant risks that might affect stakeholders, creditors, or the broader public interest.
The failure to submit such reports places Close Corporations and their Accounting Officers in direct contravention of the CC Act. The repercussions of such non-compliance may extend to enforcement actions, which can include penalties or even legal proceedings under the Companies Act and its regulations.
Section 62(4) of the CC Act: Discretionary Reporting
In contrast to the mandatory nature of Section 62(3), Section 62(4) allows for a more discretionary approach. After having reported an issue to CIPC under Section 62(3), if the Accounting Officer observes that the situation has changed or been rectified in subsequent financial periods, they may submit a follow-up report to inform the Commission. However, this is not obligatory. Accounting Officers can decide whether or not to file such a report, based on their judgment of whether the rectification is significant enough to warrant additional communication.
While Section 62(4) provides flexibility, it still carries implications for the transparency and ongoing monitoring of a Close Corporation’s compliance and financial health. An Accounting Officer’s discretion here must be exercised with care to avoid further complicating a corporation's reporting responsibilities.
CIPC’s Actions and Practice Guideline
The CIPC’s Notice 56 of 2024 highlights the urgency of addressing non-compliance with Sections 62(3) and 62(4) by setting up a dedicated email address for Accounting Officers to submit their reports: s62report@cipc.co.za. Additionally, CIPC has provided a “Practice Guideline” to assist Accounting Officers in understanding their obligations and streamlining the reporting process.
It is imperative that Accounting Officers take note of these guidelines to ensure they are fulfilling their legal duties. CIPC’s practice guideline emphasises:
The need for immediate reporting of contraventions or financial irregularities.
The importance of submitting reports within the prescribed timelines.
The discretionary nature of follow-up reports under Section 62(4), provided that previous issues have been resolved.
Consequences of Non-Compliance
Failure to comply with Section 62(3) reporting obligations can lead to severe consequences. Under the CC Act and the Companies Act, such non-compliance is considered a contravention, subjecting both the Close Corporation and its Accounting Officer to enforcement actions. These may include:
Fines or penalties for statutory non-compliance.
Potential legal action against the Close Corporation or its officers.
Damage to the reputation of both the Accounting Officer and the Close Corporation, potentially leading to loss of business or stakeholder trust.
The members may loose the corporate veil afforded by the CC Act and become personally liable for obligations incurred by the CC whilst trading under the circumstances where they are in contravention of Section 62.
CIPC’s increasing focus on compliance with statutory duties also suggests that more rigorous enforcement actions may follow in the future, making it essential for Accounting Officers to familiarise themselves with the relevant provisions and act accordingly.
Conclusion
CIPC Notice 56 of 2024 serves as a critical reminder of the statutory duties imposed on Accounting Officers under Sections 62(3) and 62(4) of the Close Corporations Act. The failure to submit the mandatory Section 62(3) reports not only places Close Corporations at risk of non-compliance but also exposes Accounting Officers to enforcement actions. Immediate attention is needed to rectify the reporting deficiencies highlighted by the CIPC, and the dedicated reporting channels and practice guidelines provided should be utilised without delay.
By adhering to these statutory requirements, Accounting Officers can ensure the financial integrity of Close Corporations and maintain compliance with both the CC Act and related legislation.
