SOUTH AFRICA: AMENDMENTS TO THE COMPANIES ACT
The long-awaited amendments to the Companies Act have made their way into Parliament and will likely be promulgated imminently.
The amendment Bills are largely similar to previous drafts. The most material changes simply add clarity or relax requirements, with the only new provisions empowering the court to extend the periods (i) for director and public officer liability under the Act, and (ii) for delinquency and probation applications post cessation of a seat.
Private, non-profit and personal liability companies can sigh in relief to know the Bill now clarifies that private company shareholder communication will not become public. Further, annual financial statements of companies will only need to be made available to the public for inspection and filed with the CIPC together with annual returns if certain public interest scores are exceeded.
Public, state owned and other triggered companies will be equally relieved that the Bill has relaxed proposed amendments such that a social and ethics committee report will no longer require shareholder approval. Further, a remuneration report, although still requiring shareholder approval, if rejected will not trigger a requirement for non-executive directors on the committee to stand down as directors of the company (only as committee members).
Also noteworthy is the clarity that has been provided around social and ethics committee membership. Following oscillation on the point in previous Bills, the Bill now retains current membership requirements for all companies except public and state owned companies for which all members (of which there must be at least three) must be non-executive directors who have not been involved in the management of the company during the previous three financial years.
Arguably the most highly anticipated changes coming from the amendments are those easing requirements for intra-group financial assistance and for buy-backs respectively. These sections have been finessed in this draft but remain in substance.
Some other changes since previous drafts include (i) removal of director and public officer personal and criminal liability for not accommodating information requests, and (ii) layering alternative dispute resolution provisions under the Act, which will now have to be arbitrated through the Tribunal, with the ability to object to an assigned arbitrator if that arbitrator was unable to resolve the matter through mediation or conciliation.
It is also noteworthy from a transaction perspective that the new private company triggers for takeover regulation approval or waiver when implementing affected transactions have not been changed since the second round of the Bill in 2021. The trigger will therefore shift away from the current ‘10% security transfer in the past 24 months’ to rather catch companies with ten or more direct or indirect shareholders that also exceed financial thresholds. To date, no threshold or transition period has been provided, but companies should keep this new trigger in mind from a conditionality perspective if they are likely caught by these new thresholds.
Although we had hoped to see more material overhaul of the new remuneration provisions and the legislature capitalising on the opportunity to improve some of the other troublesome sections of the Act (such as those pertaining to personal financial interest (section 75) and the new beneficial ownership obligations (section 56)), it is evident that the legislature has pushed back against any changes that might require public consultation in an effort to enact the more settled amendments. These and other proposals not captured in the Bill, such as employee representation on the board, may well make their way into future amendments, 2023 having marked the start of a new phase in the life of the 2008 Companies Act and the way that the legislature and business bring it to life.