Against the aforementioned discussion and based on the sources quoted, the following conclusions are reached:

1. That the creation of a municipal entity to provide a specified municipal service or function, through the establishment of a private company or annexation of an existing company, is legally permissible and authorised. It should however be pointed out that the MSA in section 86 B refers to the establishment or annexation of a private company for purposes of establishing a municipal entity. This reference to a ‘private company’, which was also applied by the Court in the City Power v Grinpal case is misleading and possibly technically incorrect. In instances where a municipality establishes or annex a private company for purposes of creating a municipal entity, and therefore either owns the company 100% or have the effective control over such company, then the company cannot be regarded as a private company anymore and it rather becomes a state- owned company instead. (Refer again to the definition of a state-owned company, as provided in s 1 of the CA). It is suggested in this regard that since the MSA, as amended, dates back to 2003, at which time the 1973 Companies Act was still in force, which Act did not provide for a SOC, the reference to private company was used. Since the Companies Act of 2008 now clearly provides for the establishment of State-Owned Companies, the reference to private company in the MSA should be rectified. Also note that different requirements of the CA are distinguishable between private companies and state-owned companies, and that certain changes in the official registration of the company’s registration documents at the CIPC should be recorded;

2. That such a municipal entity is subject to the MSA, that authorises its establishment, but also clearly subjected to the provisions of other legislation, such as the MFMA and the Companies Act. The intention of the national legislature in this regard is clear and unambiguous;

3. That the directors of such private companies established as a municipal entity, which subsequently become state owned companies, are indeed bound by the duties and responsibilities provided for in the Companies Act for this type of company (SOC’s), provided that such requirements are not in conflict with provisions in the MSA or the MFMA;

4. And finally, that since a municipal entity, when established as a private company, functions as a private company under the Companies Act, stakeholders and functionaries, such as directors, board members and shareholders, are indeed subject and liable for the legal duties and responsibilities, including all statutory requirements under the Companies Act, in the fulfilment and compliance with their particular duties and obligations.

Perhaps it is apt to conclude this opinion with the closing words of the Court in OUTA v Myeni above, where it was commented in the last sentence in para 276 that:

“Not only the courts, but also government should hold Board members of SOE’s accountable when they fail to exercise their duties.”

Dr. Bernard Bekink

(BLC, LLB, LLM, LLD (Pret.)

Former Professor in Constitutional and Local Government Law (RET.) Department of Public Law, Law Faculty, University of Pretoria and Managing Practitioner: B Bekink & Associate Attorneys, Gauteng, Pretoria.

Disclaimer:

It should be noted (and recorded in general) that in view of the nature of a legal opinion, and although the author has taken all reasonable measures to ensure the correctness of the information provided in this opinion, the parties (instructor and author) agree that this legal opinion is provided without prejudice and the parties also agreed that the author and OUTA is not liable for any decisions or actions taken based on the content and opinions expressed or proposals made in this opinion. It is therefore agreed and confirmed that the author is fully exempted and disclaimed by the reader regarding any matter relating to this opinion.

JoburgCAN is part of the Joburg Crisis Committee and have been participating in the engagements with these organisations over the last two months. 

Please feel free to add constructively to this document if possible. 

Regardless of this document and engagement, JoburgCAN remains focussed on rolling out the strategy discussed with Community Organisations at the launch on 30 August 2023.