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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.
  • Doctrine 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 Liability company.
(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.
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