Canada: Highlights Of The CIPC Compliance Checklist

The Companies and Intellectual Property Commission (CIPC) has issued a Compliance Checklist which requires certain companies to declare their compliance status with specific provisions of the Companies Act No. 71 of 2008 and its regulations (the Companies Act).

The initial compliance checklist announced under notice 52 of 2019 (the 2019 Compliance Checklist) applied to all companies on a voluntary basis for a period of four months from 1 September 2019 to 31 December. This was to allow companies time to become familiar with the checklist. The 2019 Compliance Checklist subsequently became mandatory to all companies with effect from 1 January 2020 when submitting annual returns with CIPC.

CIPC has recently issued notice 9 of 2020 to announce the revised compliance checklist which took effect from 5 March 2020 (the 2020 Compliance Checklist).

The objective of the Compliance Checklist

By using the 2019 Compliance Checklist, CIPC intended to:

• ensure compliance with the mandatory requirements of the Companies Act;
• provide an educational tool for directors and company secretaries concerning their responsibilities in terms of the Companies Act; and
• monitor and regulate proper compliance with the Companies Act and where there is non-compliance, for CIPC to act accordingly.

These objectives appear to be line with CIPC's objectives and functions set out in sections 186 and 187 of the Companies Act, such as the promotion of compliance with the Companies Act and monitoring proper compliance thereof.

Companies affected by the 2020 Compliance Checklist

The 2020 Compliance Checklist is mandatory to all companies whose annual financial statements are audited or independently reviewed. This includes the following companies:

• state owned company (SOC);
• private (Proprietary Limited);
• personal liability (Incorporated);
• public (Limited); and
• non-profit company (NPC).

The key determinant of whether a company is required to perform an audit or an independent review is its public interest score – which considers factors indicating its public interest, having regard to the economic or social significance of the company.

It is not clear if the 2020 Compliance Checklist will apply to a private company, a personal liability company, or a non-profit company that is not required to comply with the extended accountability requirements in the Companies Act, but does so voluntarily in terms of its memorandum of incorporation.

Close Corporations are excluded from the application of both the 2019 and 2020 Compliance Checklist.

Completion of the 2020 Compliance Checklist

The 2020 Compliance Checklist can be found on the CIPC e-services platform and is completed by selecting the relevant option next to each question. It comprises 24 questions which include sections and regulations of the Companies Act ("24 provisions"), such as the solvency and liquidity test, financial assistance and the social and ethics committee.

The 2020 Compliance Checklist consists of "yes", "no" or "not applicable" answers. The 2019 Compliance Checklist received criticism for not making provision for explanations or comments, so the revised 2020 Compliance Checklist now contains a comment section for a company to provide an explanation for its answers. Furthermore, any questions or requests for clarity on the 2020 Compliance Checklist can now be sent to COR135.1complaints@cipc.co.za. The purpose of this email address in the 2019 Compliance Checklist was for rectifying incorrect information submitted while completing the checklist.

In contrast to the 2019 Compliance Checklist, the compliance year is now aligned with the anniversary date of the company's incorporation. As such, the 2020 Compliance Checklist must be submitted to CIPC within 30 business days after the anniversary of the company's date of incorporation. Further, the checklist has been made a standalone service, separate from the filing of annual returns. This clears up the confusion regarding discrepancies between the calendar year for the year of assessment; the anniversary date of the company's date of incorporation for filing annual returns; and the financial year of a company for purposes of preparing annual financial statements.

Consequences for non-compliance

CIPC relies on section 215(2)(e) of the Companies Act to ensure that the information provided is correct. This section provides that, a person who knowingly provides false information to CIPC commits an offence. Any person convicted of an offence in terms of the Companies Act is liable to a fine or to imprisonment for a period not exceeding 12 months, or to both a fine and imprisonment. Section 1 of the Companies Act defines 'knowing', 'knowingly' or 'knows' when used with respect to a person, and in relation to a particular matter, means that the person either-

1. "had actual knowledge of the matter, or
2. was in position in which the person reasonably ought to have-
3. • had actual knowledge;
   • investigated the matter to an extent that would have provided the person with actual knowledge; or
   • taken other measures which, if taken, would reasonably be expected to have provided the person with actual knowledge of the matter."

Given this wide scope of liability, it would be advisable for the 2020 Compliance Checklist to be completed by an experienced person with regard to the interpretation and application of the Companies Act.

CIPC provides that compliance with the 2020 Compliance Checklist does not constitute permission for non-compliance with the entire Companies Act. However, CIPC does not indicate why the "24 provisions" or questions listed in checklist were specifically selected or prioritized over others. For instance, while sections 44 and 45 in respect of financial assistance are included, section 46 which requires the board to authorise distributions did not make the list. The questions currently relate to the following sections of the Companies Act:

This bulletin was prepared by associate Thandiwe Nhlapho and reviewed by Fasken partner Michael van Vuren.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.