The Companies Amendment Bill, 2018 (the Bill) was published for comment on 21 September 2018. The proposed changes to the Companies Act contained in the Bill will be the first significant changes to the Act (the Act) since it became law in 2011. We set out below some of the key changes, although there are several other proposed changes; companies should consider these and contact their usual Dentons partner for further discussion.
Changes to the financial assistance prohibition
Under the Act, financial assistance given by a company to its subsidiary must be approved by the shareholders as well as the board. The Bill proposes a welcome relief for many companies by exempting the giving of financial assistance to or for the benefit of a company's subsidiary from the special resolution requirement.
Limitation of the takeover provisions to private companies
At present, private companies find themselves subject to the takeover provisions in Chapter 5 Part B of the Act if in the previous 24 months more than 10 per cent of the shares have changed hands. The Bill proposes to exempt private companies from these provisions unless the private company in question is required to have its financial statements audited or has elected in terms of its memorandum of incorporation (MOI) to be subject to the takeover provisions.
The Bill has inserted a provision requiring shareholder approval by special resolution for shares that are to be acquired by the company from either a director, a prescribed officer of the company, or a person related to a director or prescribed officer of the company. Shareholder approval by special resolution will also be required for any buyback that entails the acquisition of shares in the company other than due to:
- a pro rata offer made to all the shareholders of the company or a particular class of shareholders of the company; or
- transactions effected in the ordinary course on a recognised stock exchange on which shares of the company are traded.
Amendment to the MOI
Currently, any amendment to the MOI, except that of a name
change, comes into effect either when the amendment is filed at the
Companies and Intellectual Property Commission (CIPC) or on a date
specified on the Notice of Amendment.
The Bill proposes to create certainty on this by providing that an amendment will come into effect 10 business days after receipt of the Notice of Amendment, if not rejected by CIPC.
Directors' remuneration report
Following King IV recommendations, it is proposed that all public companies must prepare a directors' remuneration report, which must be approved by the board for each financial year of the company. The report will be in a prescribed form and must be presented to the shareholders at the annual general meeting.
Social and ethics committee
The Act currently allows for the Minister of Trade and Industry to prescribe that each category of companies each has a social and ethics committee.
The Bill proposes to make it compulsory for all public companies to appoint a social and ethics committee at each general meeting. Each member of this committee must be either a director or a prescribed officer and not involved in the day-to-day management of the company. This committee will be required to present a formal report to shareholders at the AGM. It will, however, not be necessary to appoint a social and ethics committee if the public company or state-owned company is a subsidiary of another company that has established a social and ethics committee and performs the function of such a committee on behalf of the subsidiary.
Dentons will continue to monitor developments in this regard.
Dentons would like to thank Vanessa Jacklin-Levin, Samantha Hogben and Kirith Haria at Dentons in Johannesburg for this month's newsletter.
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