When one thinks of the term “confidentiality”, what potentially comes to mind is the disclosure (or not and if one must disclose, it must be to a limited audience) of as little detail as possible, if any.
In the recent decision of G.U.D. Holdings (Pty) Ltd v Companies and Intellectual Property Commission and Others, the Supreme Court of Appeal (SCA) was required to determine whether the information which was the subject matter of G.U.D Holdings (Pty) Ltd’s (G.U.D) confidentiality claim, constituted information of a confidential nature and consequently was not to be disclosed.
G.U.D was required in terms of its Memorandum of Incorporation, the Companies Act 71 of 2008 (the Act) and the Companies Regulations 2011, to have its annual financial statements (AFS) audited and submitted to the Companies and Intellectual Property Commission (the Commission) within 6 months of its financial year end. This is a requirement in terms of Section 30(1) of the Companies Act. Sections 29 and 30 of the Act sets out what is to be contained in financial statements.
Section 212(1) and (2) of the Act permits a party when submitting information in terms of the Act to, amongst others, the Commission, to claim that all or part of that information is confidential. The claim for confidentiality must be supported by written statements explaining (using cogent reasons) why the information is confidential.
G.U.D is a private company which conducts business in the automotive industry. It enjoys a high market share in certain of its product lines. On or about 21 February 2019, it submitted a claim for confidentiality as contemplated in Section 212(1) of the Act for the Commission to declare the entire contents of its annual financial statements as confidential. In support of its claim, G.U.D contended that the AFS contained confidential and sensitive information which pertained to:
• profitability, gross profit;
• annual turnover;
• asset base and liabilities; and
• company ownership and structure.
G.U.D contended that the disclosure of the information would prejudice the company and its shareholders if accessed by its competitors, customers, unions and the like. It also argued that it enjoyed a high market share in certain product lines which made the protection of its profitability from possible new competitors and customers even more pertinent and in protecting the interests of the company. Notwithstanding, the Commission refused GUD’s claim for confidentiality.
Unhappy with the outcome, G.U.D approached the Companies Tribunal (the Tribunal) which upheld its claim. The Commission likewise approached the High Court in order to review and set aside the Tribunal’s decision and it succeeded with its review. The matter ultimately came before the SCA for determination at the instance of G.U.D as appellant.
At the heart of what the SCA had to determine was whether the information sought to be declared as confidential by G.U.D was so, as contemplated in Section 212 of the Act. The Act does not provide a definition for the adjective “confidential”, used in Section 212(1). Thus, the protection of confidential information is not always absolute. What would amount to confidential information will always depend on the particular facts and circumstances of each case.
What is pertinent in determining whether information is indeed confidential is primarily and by way of example (1) the potential usefulness of the information to a rival, (2) and what is termed the public interest score (PIS) of a company. PIS is the measure of public interest in a specific company determined by its potential social footprint and impact on the public. Therefore, a company with a high PIS inevitably has a higher level of public interest and as a consequence is subjected to a higher level of regulation and higher standard of transparency and financial reporting. Thus, the higher the PIS, the greater the degree of transparency required.
Both the SCA and the Constitutional Court have on numerous occasions recognised that the manner in which companies operate and conduct their affairs is not a private matter. Accordingly, any person who establishes a private company for conducting business should anticipate the responsibilities associated with this activity which include but are not limited to statutory obligations and proper disclosure and accountability to shareholders. This ensures transparency and higher standards of corporate governance given the significant role enterprises play in the social and economic life of (in this instance) our nation.
That transparency is jealously guarded is evident from sections of the Act which by way of example permit any person upon payment of the prescribed fee to inspect any document filed under the Act. The Commission is enjoined to make the information in the register of the company sufficiently and effectively available to the public. Section 212 is thus enacted with these objectives in mind. It recognises that the establishment of a company is not strictly a private matter and may to some degree impact the public in several ways.
Section 212 is an exception to this and provides for the protection of a limited type of information that is demonstrated to be confidential. The SCA found that G.U.D had failed dismally (notwithstanding the reasons it provided) to demonstrate why the entire contents of its 2020 AFS should be declared confidential. Importantly, the SCA ruled that G.U.D failed to provide the level of detail with reference to each relevant item appearing in its 2020 AFS as to why it contended that such information was confidential. It also noted that the high level of its PIS score necessitated a higher degree of transparency and public accountability. Because of this, the SCA stated that G.U.D had to address why it would be justified in not disclosing the contents of its AFS given its high PIS score. Moreover, the information sought to be declared as confidential by G.U.D was of a general nature and akin to that which is conventionally disclosed and reported in AFS and further was in line with international financial reporting standards (IFRS) and the requirements of the Act. This the SCA stated G.U.D did not do. Instead, it provided generalised reasons for its claim for confidentiality.
GUD, supposedly in its pursuit of preserving the intended confidentiality, had redacted information pertaining to its directors’ remuneration and benefits. The court mystified by this stated that G.U.D could not decide what information to redact without the consent of the Commission.
The SCA accordingly dismissed G.U.D’s application which had the effect of confirming the High Court’s decision to refuse its claim for confidentiality.
The above decision demonstrably indicates that where one (as counter intuitive as this may be) seeks the protection afforded by Section 212 of the s Act for confidentiality, one has to provide cogent and detailed reasons to be afforded this protection. Particularly where the entity in question enjoys a considerable market share which necessitates a higher degree of oversight given the level of public interest it may attract. Where apposite and in circumstances where cogent and detailed reasons are provided, Section 212 may be taken advantage of as the question as to whether information is regarded as confidential will always depends on the circumstances of each case.
