South Africa: Draft Guidelines on Minority Shareholder Protection published

The South African Competition Commission (Commission) has published Draft Guidelines on Minority Shareholder Protections (Guidelines) for public comment.

The Guidelines, published in terms of section 79(1) the Competition Act 89 of 1998 (as amended) (Act) are intended to provide guidance to investors on the circumstances in which the Commission will regard the acquisition of minority shareholding as conferring ‘control’, and therefore, potentially triggering notification as a ‘merger’ in South Africa (if the prescribed monetary thresholds are also met).

The Guideline focuses on the rights and protections afforded to minority shareholders and when those rights are likely to be considered by the Commission as conferring a form of positive or negative ‘control’ as envisaged in section 12(2)(g) of the Act. 

This ‘catch all’ section contemplates that a person will acquire or establish ‘control’ over a firm if it gains the ability to materially influence the policy of a firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control as set out in section 12(2)(a) – (d) of the Act’.

The draft guidelines helpfully distinguish between:

• ordinary investment protections: such as the right to approve and/ or decline any decisions relating to any change to the dividend policy of the firm; or the appointment or removal of the auditors of the firm). These provisions do not confer control. Affording a minority shareholder the right to block a departure from the company’s annual budget by more than 50%, would also not confer ‘control’. Neither would affording a minority shareholder the right to veto the statutory special resolutions set out in the Companies Act.
• Rights that enable a minority shareholder to exercise a form of ‘control’: These include, for example, the right to approve and/ or veto the:
  – company’s strategy, business plan, or budget;
  – appointment of the CEO and CFO, or the amendment of the material terms of their appointments.

These are of course non-exhaustive examples: the draft emphasises that the Commission will adopt a case specific, contextual assessment under section 12(2)(g) of the Act.

Parties uncertain about whether a merger notification is required are encouraged to seek advisory opinions from the Commission.

The Guidelines are generally aligned with the approach taken to date by the Competition Tribunal and Competition Appeal Court, as well as international practice, particularly the European Commission’s Consolidated Jurisdictional Notice on the Control of Concentrations between Undertakings. 

The closing date for public comments is 20 January 2025.