ARTICLE
10 April 2024

Short Synopsis Of The 2023 Companies Amendment Bills

F
Fasken

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Fasken is a leading international law firm with more than 700 lawyers and 10 offices on four continents. Clients rely on us for practical, innovative and cost-effective legal services. We solve the most complex business and litigation challenges, providing exceptional value and putting clients at the centre of all we do. For additional information, please visit the Firm’s website at fasken.com.
The Minister of Trade, Industry and Competition has proposed the following amendments to the Companies Act, 2008 by way of the Companies Amendment Bill, 2023...
South Africa Corporate/Commercial Law
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The Minister of Trade, Industry and Competition has proposed the following amendments to the Companies Act, 2008 by way of the Companies Amendment Bill, 2023 (First Bill) and the Companies Second Amendment Bill, 2023 (Second Bill).

A select committee of Parliament was scheduled to consider the Companies Amendment Bills on Tuesday 26 March 2024.

The Fasken Corporate & Commercial Practice Group outline key notable amendments:

Section 38A - validation of the irregular creation, allotment or issuing of shares.

Section 38 states that the board may resolve to issue shares within the classes in accordance with section 36 if the shares have been authorised by the Company's MOI. If shares are issued but not authorised in terms of section 36 or in excess of the number of authorised shares of any particular class, the share issue must be retroactively authorised in terms of section 36 within 60 business days after the date of issue, failing which the share issue will be a nullity and any entry into the securities register will be void.

The proposed amendment in section 38A of the First Bill provides that on application by the company or any party holding an interest, a court may validate the creation, allotment or issue of shares if it is satisfied that it's just and equitable to do so. This proposed change is useful to companies and shareholders which find themselves in circumstances where retroactive authorisation has not occurred within the prescribed 60 business days period.

Section 45(2A) - financial assistance to subsidiaries.

The First Bill amends section 45, by inserting section 45(2A), which provides that the financial assistance provisions of section 45 do not apply where a company gives financial assistance to or for the benefit of its subsidiaries. The proposed carve out to this category of inter-group financial assistance should be welcomed given the current onerous requirements prescribed by section 45.

Section 48 – share buy-backs

In instances where a company wishes to acquire its own shares, it will no longer have to comply with the provisions of section 114 and 115. The proposed amendment to section 48(8), requires a special resolution of shareholders (and nothing else), if a company intends to acquire shares from a director of the company (or any person/s related to such director) or if the acquisition is not as a result of –

  • a pro rata offer made to all the shareholders of the company or holders of a particular class of shares; or
  • a transaction effected on a recognised stock exchange on which the shares are traded.

The result is that a company will not have to obtain an expert report in respect of transactions where the company acquires more than 5% of the issued shares of a particular class of its shares. This is another welcomed change as obtaining an expert report can be an expensive and time consuming exercise with arguably limited benefit.

Section 118(c) – takeover regulations 118 (1)(c)

The proposed amendment to section 118(1)(c) further limits the application of the takeover provisions in respect of private companies in that the provisions will now only apply to private companies if a company has 10 or more shareholders with direct or indirect shareholding in the company and meets or exceeds the financial threshold of annual turnover or asset value as determined by the Minister. The determination has not yet been made and will only be made when the Bills are enacted.

Section 40 (5) and (6)– retaining shares 'in trust'

The proposed amendment to sections 40 (5) and (6) is to clarify the use of the word 'trust' in this section. This section is an exception to the general rule that companies must issue paid up shares. If the consideration for the shares is in the form of an instrument where payment is deferred or in the form of an agreement for future services or benefits or future payment, the shares can be issued but the shares must be transferred to a 3rd party and held in a trust and later transferred to the subscribing party in terms of a trust agreement.

The amendment is to change the reference to this 'third party' to a 'stakeholder,' and the reference to a 'trust' or 'trust agreement' to a 'stakeholder agreement'. The amendment defines a stakeholder as an independent third party with no interest in the company or the subscribing party and may be an attorney, notary public or escrow agent. The stakeholder agreement is an agreement between the stakeholder and the company.

Section 16 - filing amended memoranda of incorporation

The Companies Act currently provides that amendments to the MOI take effect on the date on which the Notice of Amendment is filed at CIPC (or the date as set out in the Notice of Amendment). A non-binding advisory opinion given by CIPC on 2 November 2011 had a different view, being that CIPC had to first accept the filing and 'place it on file'.

The new amendment states that amendments to the MOI take effect 10 business days after receipt of the Notice of Amendment by the Commission, unless endorsed or rejected with reasons by the Commission prior to the expiry of the 10-business day period. The alternative of "or the date as set out in the Notice of Amendment" remains unaltered.

Disclosure of company records

  • Section 25 – the CIPC will now publish each company's notice which indicates where its records are available for inspection.
  • Section 26 – the number of a company's records or documents which may now be accessed by a third party has been increased and includes the MOI, the record of the company's directors, the annual financial statements (mentioned in section 24 (3)(c)(ii)), the securities register and the register of beneficial ownership. Companies with a public interest score below a certain threshold are exempt from the requirement of disclosing their annual financial statements mentioned above.
  • Section 30 – currently the annual financial statements of a company, where the financial statements must be audited, must disclose the remuneration of each director and each prescribed officer. Now these directors or prescribed officers must be named. Please note that section 30 (5) requires that the remuneration to be disclosed for a director of a company includes renumeration for services as a director of other companies in the same group and otherwise in connection with the carrying on of the affairs of the company or any other company within the same group of companies.

Section 30 A and 30 B - duty to prepare and present the company's remuneration policy.

These two new sections require all public and state -owned companies to prepare and present a remuneration policy for shareholders' approval. The renumeration policy, together with a background statement and an implementation report must be presented for approval at the annual general meeting of all public and state - owned companies. The section describes what information the implementation report should contain and then also the consequences if this report is not approved by ordinary resolution at an annual general meeting and the next. The term "remuneration" is widely defined.

Section 72 – exemptions from having to appoint a social and ethics committee.

Section 72 (5) now requires that a company must (in the prescribed manner) publish its intention to lodge an application for such an exemption with the Tribunal. In the past, it was a requirement for an exemption that other legislation must prescribe a similar mechanism. This requirement has been removed. The requirement of a similar mechanism alone will be sufficient.

The new section 72 (6) A introduces a new exemption to the requirement of having a social and ethics committee – namely that if the company is a subsidiary of another company that has a social and ethics committee, and such committee will perform the functions required by section 72 on behalf of the subsidiary company, then the subsidiary is not required to have such a committee.

Sections 162 and 77 – applications to declare a director delinquent or under probation.

The Second Bill proposes to extend the time periods within which a court may declare a director delinquent or under probation (section 162) and the prescription period for claims against directors for loss or damages (section 77(7)).

Sections 135 – post commencement finance for landlords.

Section 135 of the Companies Act will be amended to include post-business rescue amounts due to a landlord as post commencement finance as indicated in red below.

Ranking of Claims in Business Rescue – Proposed by the Bill

  • Fees and expenses of the BRP and costs of the business rescue proceedings [the Billincludes post-commencement financing in this category – which is unclear given the ranking below]
  • Post-business rescue employees' remuneration and reimbursement for employment related expenses
  • Post-business rescue amounts due to a landlord in respect of all public utility services, such as an entity's share of rates and taxes, electricity, water, sanitation and sewer charges paid by the landlord to third parties during business rescue
  • Secured PCF
  • Unsecured PCF
  • Secured pre-business rescue creditors (paid in accordance with the value of their security as provided for in section 134(3))
  • Pre-business rescue employees' remuneration
  • All unsecured creditors.

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.

ARTICLE
10 April 2024

Short Synopsis Of The 2023 Companies Amendment Bills

South Africa Corporate/Commercial Law

Contributor

Fasken is a leading international law firm with more than 700 lawyers and 10 offices on four continents. Clients rely on us for practical, innovative and cost-effective legal services. We solve the most complex business and litigation challenges, providing exceptional value and putting clients at the centre of all we do. For additional information, please visit the Firm’s website at fasken.com.
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