On 30 July 2024, the Companies Amendment Act and the Companies Second Amendment Act were published in the Government Gazette, following the President’s signature of the final bills. The commencement date/s of the amendments have not been proclaimed.
The Companies Amendment Act aims to enhance transparency and provide for more disclosure by companies. It also aims to reduce red tape to enhance the ease of doing business in South Africa and clarify certain technical provisions in the Companies Act.
The Companies Second Amendment Act follows from the recommendations made by the Zondo Commission of Inquiry into State Capture and aims to extend the time bars applicable to applications for director delinquency and proceedings to recover loss because of director liability.
The key provisions in the Companies Amendment Acts are briefly set out below.
COMPANIES AMENDMENT ACT
New remuneration provisions applicable to public and state-owned companies
Public and state-owned companies will have a duty to prepare and present a remuneration policy (once every three years or whenever there are material changes to the policy) and a remuneration report (each year at the annual general meeting) for approval by ordinary shareholder resolution.
Remuneration disclosures, including pay-gap disclosures, must be made in the implementation report forming part of the remuneration report.
If the remuneration report is not approved at the AGM, at the next year’s AGM, the remuneration committee must explain how shareholder concerns have been addressed, and non-executive directors on the remuneration committee (serving 12 months or more) must stand for re-election as remuneration committee members.
Thereafter, there are further consequences if the remuneration report is again not approved, including that in-scope non-executive directors must stand down from the committee for two years. They can, however, remain as directors on the board if they successfully stand for re-election.
Application of takeover provisions in respect of private companies
The takeover provisions will now apply to affected transactions involving a private company that:
- has 10 or more shareholders with a direct or indirect shareholding in the company; and
- meets or exceeds a financial threshold of annual turnover or asset value to be determined by the Minister of Trade, Industry and Competition.
A private company will be considered a regulated company in this instance for purposes of application of the takeover provisions. The Takeover Regulation Panel (TRP) may exempt a transaction involving an in-scope private company.
Individual directors and prescribed officers to be named
With respect to companies required to have their annual financial statements (AFS) audited under the Companies Act, each individual director and prescribed officer must be named in the remuneration particulars in the AFS.
Third party access to company records
Third parties will have the right to access a company’s Memorandum of Incorporation (MOI), the records in respect of directors, the AFS and the register of disclosure of beneficial interests (where required), directly from a company. This is in addition to the securities register and register of directors to which third parties have access.
Certain companies below a specified public interest threshold (less than 100 in the case of internally prepared AFS and less than 350 in the case of independently prepared AFS) will be exempted from providing access to their AFS.
SEC requirements
Refinements to the provisions relating to a company’s social and ethics committee (SEC) have been made, including:
- Refined exemption criteria allowing a company that has a formal mechanism within its structures that substantially performs the functions of an SEC to apply for an exemption from the requirement to have an SEC, irrespective of whether there is legislation requiring it to have the formal mechanism.
- For public and state-owned companies, most of the SEC members must be non-executive directors who have not been involved in the day-to-day management within the previous three financial years.
- Public and state-owned companies must elect the SEC every year at the AGM, and the SEC must present its report to shareholders at each AGM.
- For other companies, the board must annually appoint the SEC, and the SEC must present its report annually at a shareholders’ meeting or by written resolution.
- The SEC report must be prepared in the “prescribed” manner and form (not yet prescribed).
Validation of irregular share creation and issues
On receipt of an application, a court may validate an invalid share creation, allotment, or issue if the court finds it just and equitable to do so. The shares will be deemed valid after payment of all the “prescribed” fees.
Effective date of MOI amendments
Amendments to the MOI (other than a name change) will take effect 10 business days after receipt by the Companies and Intellectual Property Commission (unless endorsed or rejected with reasons sooner) or a later date specified in the Notice of Amendment.
Financial assistance exemption in certain instances
A company that provides financial assistance to its subsidiary (as defined in the Companies Act; essentially South African-incorporated subsidiaries) will be exempted from section 45 financial assistance provisions. This exemption therefore does not apply to a foreign entity beneficiary that otherwise meets the subsidiary definition.
Relaxation of share repurchase requirements
The previous provision that a repurchase of more than 5% of the shares is subject to the requirements of sections 114 and 115 of the Companies Act will no longer apply.
All share repurchases will now require the passing of a special resolution by shareholders unless the repurchased shares are acquired because of:
- a pro-rata offer made to all shareholders of a particular class of shareholders; or
- transactions effected on a recognised stock exchange on which the shares are traded.
COMPANIES SECOND AMENDMENT ACT
Extension of director liability time bar
A court may, on good cause shown, extend the three-year period in which to bring proceedings under section 77 of the Companies Act to recover any loss for which a director or prescribed officer may be held liable under the section. The Prescription Act does not apply in respect of proceedings to recover loss under section 77(7).
Extension of time bars to bring director delinquency and probation applications
The period within which to make an application to declare a person a delinquent director or under probation has been extended to 60 months after that person ceases to be a director. A court may, on good cause shown, further extend such period.
Addressing the impact of the amendments
Companies should promptly begin addressing the impact that the new amendments, once effective, will have on their corporate and strategic operations if they have not started doing so already.
Public and state-owned companies should review the structures of their remuneration policies and reports to align with the new requirements, including pay gap disclosures. They should also amend their template AGM notices and agendas to cater for the presentation and approval of the remuneration policy and remuneration report, and re-election of non-executive directors as required under the new provisions. They should also assess director rotation and appointment provisions.
Private companies that are party to current and planned affected transactions should assess whether they will be subject to the takeover provisions. Where they will be involved in an upcoming affected transaction, they should prepare for the potential impact of complying with takeover-related obligations or consider requesting an exemption from the TRP. In-scope private companies involved in pending transactions may need to assess the application of the takeover provisions to their transaction and whether a TRP exemption is needed.
Companies should review their MOIs to ensure alignment with the amendments, including assessing financial assistance, share repurchases, and SEC-related provisions.
If amendments to an MOI are a step in a contemplated transaction, companies should build in the requisite time to cater for the delayed effective date of the MOI amendments.
Companies should seek expert advice to help them navigate the new amendments and their impact on their businesses.
Next steps
Several amendments in the Companies Amendment Act require the manner and form of documents, fees, or other items to be prescribed or determinations to be published, for purposes of implementation of the relevant amendment. These would typically be set out in regulations.
Now that the Companies Amendment Acts have been gazetted, we expect that updates to the Companies Regulations will be published. The Department of Trade, Industry and Competition has not, to date, provided any indication of the timing of publication.
For a detailed snapshot of the final amendments, read A snapshot of the key amendments in the Companies Amendment Bills, 2023.
This article was written by Madelein van der Walt, a partner at Webber Wentzel, and Nasrin Kharsany and Serena Kalbskopf, who are senior knowledge lawyers at the same firm.
Disclaimer: This summary is not intended to, and does not, constitute legal advice, and may not be relied upon.
