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South Africa: Positive developments on proposed amendments to the Companies Act

5 December 2023
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Overview

  • Following the hearing of public comment on the proposed amendments to the Companies Amendment Bills published in September, revised drafts of the Bills have now been sent to the National Counsel of Provinces (Draft Bills).
  • Companies should be starting to prepare for the structuring of binding remuneration policies, alignment of remuneration reporting and pay gap disclosures and new social and ethics committee requirements.

Following the hearing of public comment on the proposed amendments to the Companies Amendment Bills published in September, revised drafts of the Bills have now been sent to the National Counsel of Provinces (Draft Bills).

Notably for public and state owned companies, in a positive move, the Draft Bills propose (i) changing the previous ‘one strike rule’ to a ‘two strike rule’ as it pertains to the requirement for non-executive directors on remuneration committees to step down in the case of a failed vote on a remuneration report; and (ii) aligning social and ethics committee membership requirements more closely with King IV requirements, by only requiring a majority of the committee members to be non-executive directors.

Clarification has also been provided for any issue of unpaid shares to a ‘stakeholder’, that the ‘stakeholder’ must be independent, and that the stakeholder agreement must be in writing. Further, as it pertains to director delinquency and probation claims and director liability, it has been made clear that a court may extend the period for bringing these claims regardless of whether or not the initial period to bring a claim has expired or if the circumstances occurred prior to the promulgation of this amendment.

Unfortunately, there are no changes to the proposed public disclosure requirements for private company annual financial statements (and resultantly director and public officer remuneration disclosers for private companies that are required to be audited), a topic that was hotly debated during the public consultations.

Public and state owned companies’ remuneration disclosure requirements and the new ‘two strike rule’

The Draft Bills appear to have heeded business calls to shift from the ‘one strike rule’ to a ‘two strike rule’ for non-executive directors that sit on the remuneration committee of public and state owned companies. This in response to the concern that a ‘one strike rule’ would thwart the very intent and purpose of introducing remuneration disclosure requirements.

As before, the new proposal involves an annual vote on the remuneration report. However, rather than immediately disqualifying non-executive directors who sit on the committee for a single failed vote on the remuneration report, if the remuneration report is not approved for a single year, the committee will be under an obligation at the next AGM to present an explanation on how shareholder concerns have been taken into account. Non-executive directors who wish to remain on the committee will also have to stand for re-election.

If, however, for a second year running the remuneration report for the previous financial year is also not approved, the non-executive directors on the remuneration committee will not be eligible to serve on the committee for a period of two years thereafter. The non-executive directors may, however, continue to serve as directors of the company provided that they successfully stand for re-election.

Members who have served for less than 12 months in a year under review will be exempted from the consequences of a failed vote (i.e. the need to stand for re-election or ineligibility for two years).

Public and state owned companies’ social and ethics committee membership requirements

Public and state owned companies will no longer need all social and ethics committee members to be non-executive directors as previously proposed. The Draft Bills contemplate that for these companies, a majority of the members will need to be non-executive directors.

The Draft Bills also correct the error in drafting such that for all other companies, at least one of the three social and ethics committee members will need to be a non-executive director.

Companies should be starting to prepare for the structuring of binding remuneration policies, alignment of remuneration reporting and pay gap disclosures and new social and ethics committee requirements.