ARTICLE
22 August 2019

Companies Amendment Bill: The New Scope Of Intra-Group Financial Assistance

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Tabacks (formerly Andersen Za)

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Perhaps the most significant change proposes that a special resolution of shareholders is not required when a company gives financial assistance
South Africa Corporate/Commercial Law

Perhaps the most significant change proposes that a special resolution of shareholders is not required when a company gives financial assistance to, or for the benefit of its own subsidiary.

This article serves as the third of five instalments dedicated to addressing the five most significant amendments proposed by the Companies Amendment Bill, 2018 (the "Bill") and the writer's comments thereon.

Perhaps the most significant change is the insertion of section 45(2A) to the Companies Act, 2008 (the "Companies Act") which proposes that a special resolution of shareholders is not required when a company gives financial assistance to, or for the benefit of its own subsidiary. Currently, section 45 of the Companies Act states that any financial assistance granted by a company to its subsidiary must be authorised by the board of the company and by the shareholders by way of a special resolution. Section 3 of the Companies Act defines a 'subsidiary' as a company of another juristic person if that juristic person or one or more other subsidiaries of that juristic person directly or indirectly control the company. This is a wide definition so the use of the words 'own subsidiary' as proposed by the new section 45(2A) is vague – does this mean that the reference to 'own subsidiary' confines the exclusion to only a subsidiary of a company held directly by the company? This is unfortunately unclear from the proposed wording of section 45(2A).

It is submitted that the application of section 45(2A) should only apply to wholly owned subsidiaries of a company. The reason being is that no prejudice will arise should the exclusion be implemented in the wholly owned structure but such exclusion will no doubt attract much risk in a structure in which minority shareholders are involved.

As it stands, much clarity is called for in respect of the new section 45(2A) and it will be interesting to see whether the legislature addresses the concerns raised above.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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