Date: 19 April, 2020
Author: John Henning

The CIPC monitors compliance with the Companies Act, issued a directive on Tuesday 24 March 2020, which says it will not invoke its powers under section 22 of the Act where a company is temporarily insolvent and still carrying on business or trading.

This, it says, “is only applicable where the commission has reasonable grounds to believe that the insolvency is due to business conditions, which were caused by the Covid-19 pandemic.”

The CIPC evidently believes that the impact of the 21-day national lockdown will cause economic fallout for some time beyond this period. Its directive, which it calls a practice note, will lapse 60 days after the declaration of a national disaster has been lifted.

The note, signed by CIPC commissioner Rory Voller, says section 22 of the Companies Act empowers the commission to issue notices, and if necessary compliance notices, to companies which it has reasonable grounds to believe is trading or carrying on business activity recklessly, with gross negligence or with a fraudulent purpose. This will now not apply to companies which have experienced trading difficulties caused by the virus.

Companies which were in trading difficulties before the pandemic will not be covered. “The regulator is trying to relax the application of the rules, but making it clear this is for companies forced into a situation by the virus which is not of their making. Companies need to work on the relationship side, to speak to their staff, bankers, suppliers and landlords.”