The long-awaited First and Second Companies Amendment Bills have been signed into law by the President according to a Presidential announcement last night (26 July 2024).

The most material changes introduced by the Bills are those pertaining to remuneration disclosures and, from an M&A transaction perspective, the new thresholds that will trigger the requirement for private companies to comply with the Takeover Regulations and the scrutiny of the Takeover Regulation Panel (TRP) when implementing affected transactions.

Once gazetted we will be in a position to advise on the effective date of the changes. The next step will then be to watch for amendments to the Regulations to bring them into line with the new provisions.

In the interim, the time is nigh for:

• Public and state-owned companies to prepare for the structuring of binding remuneration policies, alignment of remuneration reporting and pay gap disclosures, and new social and ethics committee requirements;
• Private companies with 10 or more direct or indirect shareholders that are contemplating an affected transaction to ready themselves for the potential of additional regulatory scrutiny of their deals by the Takeover Regulation Panel;
• All companies to give thought to the alternative dispute resolution mechanisms that they have agreed to in their corporate documents and whether or not these are still appropriate considering amendments; and
• Corporates to be aware that their annual financial statements and any disclosures included in their financials, director and officer remuneration or otherwise, will become public information.

A brief summary of the most noteworthy provisions follows below. As a reminder, the majority of the provisions are contained in the Companies First Amendment Bill which was first tabled in 2018 and has undergone several iterations of changes since then. The Second Amendment Bill includes changes proposed by the Zondo Commission coming out of the State Capture enquiry and extending time bars for director delinquency and director liability for fiduciary duties.

Remuneration disclosures

There have been two noteworthy changes to remuneration disclosures, one noteworthy for private and public companies that are already required to be audited under the Act, and the second for public and state-owned companies.

For public and private companies required to be audited under the Act (section 30(4)), remuneration disclosure requirements in annual financials will now need to list each individual director and officer by name rather than by grouping or anonymously. This is noteworthy in that these annual financial statements will now also be available to the public since the new threshold rendering private company annual financial statements public aligns largely with the thresholds for financials to be audited. This amendment is anticipated to result in greater public scrutiny of private company affairs where companies are large enough to meet this threshold of public interest.

For public and state-owned companies (section 30A) there is a new duty to prepare a remuneration policy for directors and prescribed officers, to be approved by ordinary resolution at the annual general meeting of the company and thereafter every three years or whenever there is a material change. If not approved, it must be presented at the next annual general meeting or shareholder meeting of the company called for the purpose, until approved. Changes may not be implemented until approved.

There will also be an obligation on public and state-owned companies to prepare a remuneration report consisting of:

• a background statement;
• remuneration policy;
• implementation report (with details of remuneration and benefits of each director and officer);
• the total remuneration including salary and benefits of the highest paid employee;
• the total remuneration including salary and benefits of the lowest paid employee;
• the average and median remuneration of all employees; and
• the remuneration gap of the top 5% highest paid and the bottom 5% of lowest paid employees.

The remuneration report must be approved by the board of the company, presented to shareholders at the annual general meeting, and voted on by ordinary resolution. Where the implementation report is not approved, the remuneration or director committee for remuneration must present at the next annual general meeting to explain how shareholder concerns have been taken into account. Non-executive directors must stand for re-election as members of the remuneration committee at the annual general meeting at which the explanation is presented.

If, at the next annual general meeting, the remuneration report for the previous financial year is not approved, the non-executive directors who serve on the remuneration committee may continue to serve as directors provided that they successfully stand for re-election, but they are not eligible to serve on the remuneration committee for two years after such non-approval. Members of the remuneration committee who have served for less than 12 months in a year under review will be exempt from the consequences flowing from a failed shareholder vote (ie, the need to stand for re-election or ineligibility for two years after non-approval).

Where the director’s remuneration report becomes subject to audit, company policies and the background statement of the remuneration report must not be made subject to such audit.

Social and ethics committees

There have been numerous changes to the provisions of the Act dealing with social and ethics committees. Most of these changes do not, however, result in material adjustments in practice. The existing provisions of the Regulations which to date have contained the bulk of the requirements for the social and ethics committee have not yet been amended and will remain in force and effect until that date, but will be trumped by the new provisions of the Act to the extent of the inconsistency.

The triggers to appoint a social and ethics committee remain unchanged. The requirements apply to state-owned companies, listed public companies and other companies that have in any two of the last five years scored above 500 public interest points, excluding companies that are subsidiaries of another that has a committee that performs its functions, or if it has been exempted by the Tribunal.

In so far as exemption provisions are concerned, requirements have been slightly relaxed, in that exemptions may be made to the Tribunal if it is not reasonably necessary in the public interest having regard to the nature and extent of the structure and activities of the company (as is the current position) or if the company has a formal mechanism that performs the functions of the social and ethics committee, even if that alternative structure is not a requirement by other legislation (previously an additional requirement). Exemption applications will also now be more public, in that there is a new requirement for companies to publish an intention to lodge the application for exemption in the yet to be prescribed manner. Exemptions still last five years or such shorter period determined by the Tribunal.

Social and ethics committee membership requirements will be unchanged for all companies except public and state-owned companies which will now require that a majority of the members must be non-executive directors who have not been involved in the management of the company during the previous three financial years. As is the current position, all companies must have a minimum of three members. For companies other than public and state-owned companies, members may be directors or prescribed officers and at least one must be a non-executive director, independent for at least the previous three financial years.

As is currently the position, companies have 12 months to make membership appointments (from the effective date of the relevant provisions or the date on which the requirements are triggered).

Social and ethics committee member appointments must be made annually at an annual general meeting for public and state-owned companies and by a board for other companies. Vacancies must be filled within 40 days.

The social and ethics committee report must be prepared in a ‘prescribed manner and form’ describing how the committee performed its functions. The report must be presented at the annual general meeting of a public or state-owned company or for other companies, annually at a shareholder meeting or with a resolution.

Revised triggers for private company takeover regulation

There will be a new trigger for private companies under the takeover regulations. This amendment will replace the current trigger (if a company has in the previous 24 months had a transfer of 10% or more of its securities other than between related or interrelated parties).

Instead, private companies will be caught by the takeover regulations if they:

• have 10 or more shareholders with a direct or indirect shareholding in the company; and
• meet or exceed the financial threshold of annual turnover or asset value to be determined by the Minister in general or about specific industries. This threshold has not yet been provided.

The result of this amendment is that companies not previously caught by these additional requirements, when implementing affected transactions (ie a sale of all or a greater part of the assets or undertakings of a company; a merger; a scheme; a change in beneficial shareholding in increments of 5%; mandatory offers or squeeze outs; etc), will have to comply with or obtain exemptions from compliance with the takeover regulations.

Companies that are in the throes of a deal should take this into consideration from a timing and conditionality perspective.

Relaxation of intra-group financial assistance provisions

The giving of financial assistance to, or for the benefit of, an entity’s subsidiary will be excluded from the requirements of section 45. Section 45 otherwise requires that the giving of financial assistance to directors, officers and related and inter-related entities requires the passing of a special resolution, a solvency and liquidity and fair and reasonable board resolution, and notice to shareholders and trade unions.

This amendment is welcomed and will materially reduce the administrative burdens of doing business for group companies. It is however noteworthy that the amendments do not exempt approval requirements for certain intra-group financial assistance, such as where financial assistance is provided in 30/30/40 structures or to an offshore subsidiary. Companies should be sure to understand these exceptions to the exemption.

Relaxation of approval requirements for a buy-back

These amendments have also been welcomed because they reduce cost and timing barriers when implementing a buy-back.

The old section 48(8)(b) of the Act sets out certain onerous requirements where a company intends to enter into a buy-back transaction. Notably, this includes a requirement for independent expert reports; 164 appraisal rights; and special resolution requirements if the buy back pertains to more than 5% of the shareholding of any class of shares. This onerous requirement has now been deleted in its entirety.

Instead, a special resolution will be required for a buy-back:

• if any shares are to be acquired from a director, a prescribed officer, or a person related to a director or prescribed officer; or
• if it entails the acquisition of shares other than as a result of a pro rata offer made to all shareholders of a class or a transaction effected on a stock exchange licensed under the Financial Markets Act.

Other requirements for a buy back, such as the obligation to comply with solvency and liquidity requirements, remain unaltered.

Director liability

The two main amendments pertaining to director liability and delinquency are contained in the Second Amendment Bill following recommendations received from the Zondo Commission.

In relation to director and officer liability, on good cause, the period to make a claim under section 77 (director and officer liability) may be extended by a court beyond the existing three-year prescription period.

When it comes to director delinquency and probation, the period to declare a person delinquent or under probation will be extended from two years to five years after that person ceases to be a director, or such longer period determined by a court on good cause.

Both of these provisions apply retrospectively.

Other

Some of the other more noteworthy amendments are as follows:

• The issue of shares with delayed consideration: Where shares are issued with delayed consideration, they will need to be issued to a third party, independent ‘stakeholder’ in terms of a written ‘stakeholder agreement’ (as opposed to a trust) and later transferred to the subscribing party.
• Validation of irregular share issues: The 2023 Bills reintroduce the old 1973 Act provisions for court validation of an irregular issue of shares, deleting registration requirements by the CIPC and clarifying the meaning of interested parties.
• Amendments to the memorandum of incorporation of a company: Memorandum of incorporation amendments will be effective within 10 business days of filing with the Companies and Intellectual Property Commission (CIPC), unless a later date is elected or the CIPC rejects the filing during that 10-business day period (as opposed to on ‘filing’, which has been the subject of much debate).
• Company records: A company will need to publish where its records are kept (in a manner still to be prescribed). In addition to a company’s MOI, director register and security register (as is currently the position), any person has a right to inspect and copy a company’s beneficial interest register, and (except for private, non-profit and personal liability companies where annual financials are internally prepared and the public interest score of the company is less than 100 or where they are independently prepared and the public interest score is less than 350) annual financial statements. Access must be granted in 10 (instead of the current 14) business days and may have a charge (subject to a maximum to be prescribed).
• Annual returns/ financials: The annual financials of a company will need only be filed with annual returns for companies that exceed the thresholds mentioned above (a shift from the current position where filing is required for companies that are required to be audited, but less onerous than earlier proposals that all companies should make these filings). Where filed, it must be the latest annual financials and they must be approved by the board.
• Beneficial interest and ownership provisions: Clarity has been provided that every company must maintain a beneficial interest register; that the threshold for beneficial interest disclosures is 5% (or such other percentage prescribed by the Minister); and that a register of beneficial interests must be made available for inspection by any person (these proposed changes clarify current conflicts between the regulations and the Act).
• Public company annual general meetings: These meetings must include a presentation of the social and ethics committee report and the remuneration report and the appointment of the social and ethics committee.
• Auditor appointment and cooling-off periods: Amendments reduce the cooling-off period for appointment of auditors from five to two years (such that to be appointed as auditor, the person or firm must not for two years have been a director or prescribed officer; an employee or consultant engaged for more than one year in maintenance of financial records or statements; a director, officer or employee of a person appointed as company secretary; or a person alone or with a partner or employees who habitually performs the duties of accountant, bookkeeper or related secretarial work). Confirmation has also been provided that auditor appointments for private companies need not be at an annual general meeting.
• Employee share schemes: The definition of an ‘employee share scheme’ has been corrected to include transfers of shares (not issues only). This is relevant to enquiries regarding whether or not the offer of shares to employees under an employee share scheme triggers the Companies Act requirements associated with offers to the public.
• Securities definition: The definition of securities has been limited to shares and debentures. This is a change from the current Act by deletion of ‘other instruments’.
• Company names: There is a new right in favour of applicants to approach the Commission to replace a company name with its registration number where that company is required to change its name but fails to do so.
• Alternative dispute resolution: Reference to ‘accredited entities’ resolving disputes has been deleted from the Act. Section 166 now only references the Tribunal for mediation, conciliation or arbitration under the Act. In the event of arbitration, the arbitrator’s award is final and binding. Any party wanting to object to the arbitration also being conducted by a member of the Tribunal who had attempted to resolve the matter through mediation or conciliation, may do so by filing an objection with the Tribunal and another member will be substituted.
• Tribunal on BEE: The Tribunal has been empowered to conciliate, mediate, arbitrate or adjudicate on any administrative matters affecting any person in terms of the Act as may be referred to it by the B-BBEE Commission, and can make an appropriate order.
• Business rescue: Further protections are afforded as it pertains to post-commencement finance.