Ring-Fenced (RF) Company : Meaning and its provisions
Meaning of Ring Fencing
Ring fencing is generally a practice by a company by which
it creates a separate legal entity different from itself in order to protect
some of its own assets.
Meaning of Ring-Fenced Company
A Ring Fenced company is a company whose Memorandum of
Incorporation(MOI) contains special conditions, which enables itself to give constructive
notice to the public about the contents of its public documents including its Memorandum, which apart from others, prescribes
limitation of powers of directors of a company.
Ring-fenced companies’ concept is more popular in
South Africa. You would understand the concept more clearly after going through
the following provisions.
South African Companies Act (“the Act”) - New
Companies Act, 2008
A company would be called as a Ring-fenced company if that
company’s MOI includes any provision as prescribed under section 15(2)(b) or (c) of the Act which restricts or prohibits the amendment of any particular
provision of the Memorandum.
of Constructive Notice:
Earlier under the old Act, the Public deemed to have Constructive
Notice of the company’s public documents (i.e. the documents which are filed
with the Commission or is available at the company’s office for inspection
including the Memorandum and Association of the company).
Thereby, in case any
party entering into any contract or arrangement with the company, executed by
its Director(s) on behalf of the company, who has acted beyond his powers i.e. an
ultra vires action while entering into that contract, then that party cannot
take the stand that he was not aware of the limitation of powers of that
director(s) as prescribed under the company’s Memorandum, and the law,
therefore, cannot consider that contract as void, just because the party was unaware of the limitations of director's powers.
In accordance with
the new Act, the Public will not
deemed to have Constructive Notice of the company’s public documents.
But there are two exceptions
to it, which are as follows.
(1) The above said
provisions under new Act do not apply to a Personal
(2) In case the Memorandum of Incorporation provides
with any restrictive provisions as per Section 15(2)(a)(iii) and
Section 15(2)(b) or (c) of the Act.
The provisions of above said sections are reproduced below.