The South African Companies Act of 2008 introduced provisions for the creation of ring-fenced companies. The primary purpose of ring-fenced companies is to separate and protect certain activities, assets, or liabilities of that company.
Ring-fenced companies are particularly relevant in financing transactions where the ring-fencing mechanism aims to mitigate risks to the financier and ensure the stability and integrity of the ring-fenced company.
Certain requirements of the Act must be satisfied in order for a company to qualify as a ring-fenced company which includes that the company's name should carry the suffix "(RF)" to draw attention of third parties to, inter alia, the restrictive conditions in the company’s MOI.
Third parties are deemed to have received “notice and knowledge” of such conditions in terms of the Act (known as the “doctrine of constructive notice”).
This doctrine can have far-reaching consequences for third parties if they fail to do the necessary due diligence when contracting with ring-fenced companies on the basis that the third party would be deemed to have notice and knowledge, for example, of the directors lack of authority.
Trevashan Pillay, thank you for bringing this topic to my attention.