Certain provisions of the anticipated Companies Amendment Act (16 and 17 of 2024) have come into force, effective from 27 December 2024. While it is anticipated that the remaining provisions will become effective within the first half of 2025, below is an overview of the current changes. The first set of amendments are focused predominately on simplifying or filling in gaps in the current legislation, and improving transparency and accountability.
Section 1: Amendment of the definition of “Securities”
The definition of “securities” has been amended by deleting “other instruments” and thereby limiting it to shares and debentures only. This removes the ambiguity caused by the previous wider definition and brings it in line with practice.
Section 16: Effective date of amendments to a company’s MOI
To avoid the ambiguity surrounding the date on which an amendment to a company’s MOI takes effect, the Act now provides that amendments to an MOI takes effect ten business days after receipt of the Notice of Amendment by the CIPC, unless endorsed or rejected with reasons by the CIPC prior to the expiry of the ten-day period, or any later date as set out in the Notice of Amendment.
Section 40: Updated arrangement for issuing shares with delayed consideration
Generally, companies may only issue shares where the consideration has been paid. Sections 40(5) and (6), which have been refined by the current amendments, offer an exception in instances where the consideration for the shares is delayed. In these circumstances, companies must now transfer the shares to a “stakeholder” (instead of a “third party”) to be held in terms of a “stakeholder agreement” (instead of a “trust”) and later transferred to the subscribing party in accordance with the stakeholder agreement. The term “stakeholder” has been defined as an independent third party, who has no interest in the company or the subscribing party, who may be in the form of an attorney, notary public or escrow agent while a “stakeholder agreement” has been defined as a written contract between the stakeholder and the company. This has made the requirements less onerous and more practical to implement.
Section 45: Easing financial assistance to subsidiaries
Financial assistance requirements no longer apply to instances where a company provides financial assistance to or for the benefit of its subsidiaries. This significantly eases the administrative burden placed on group companies, as historically, these transactions required a company to pass a special resolution, ensure the company would be able to pass the solvency and liquidity test post the financial assistance, ensure that the terms of the financial assistance are fair and reasonable, ensure compliance with its MOI (to the extent applicable), and that is has issued the prescribed notice to shareholders and trade unions, where applicable. Whereas, this is a welcome relief it does not apply in all instances, and where one is dealing with 30/30/40 structures or offshore subsidiaries one must consider the requirements for providing financial assistance.
Section 48: Easing company buy-back provisions
Historically, a company who wished to buy back its shares from a director was required in certain circumstances to comply with sections 114 and 115 of the Act, and by implication section 164, which included the appointment of an independent expert, dissenting shareholder appraisal rights, and a special shareholders resolution. Following the amendments, however, a company is now only required to obtain a special shareholders resolution (without more), and then only in instances where:
The shares are going to be acquired from a director, prescribed officer or a person related to a director of the company; or
The transaction entails the acquisition of shares in the company other than shares acquired as a result of:
A pro rata offer made by the company to all shareholders or a particular class of shareholders; or
Transactions effected on a recognized stock exchange on which the shares of the company are traded.
While the burden on a company wishing to purchase its own shares is significantly reduced by the amendments, it is important to note that companies are still required to comply with the remaining requirements of a buy-back, including the solvency and liquidity test.
Section 61 read with section 72: Social and Ethics Committee
There have been several noteworthy changes affecting these Social and Ethics Committees (“SEC”). First, aligning to King IV requirements, public and state-owned entities are now required to provide a SEC report (together with a remuneration report) at the AGM. The amendments also provide that the SEC report must be prepared in the “prescribed manner and form” describing how the SEC performed its functions in terms of the Act however, this provision is not yet in effect.
Secondly, while not all entities are required to appoint a SEC,[1] and although provision has always been made for companies who are required to appoint a SEC to be exempt therefrom, new exemption provisions now apply.
In the first instance, exemption applications have become more open in that a company must now publish its intention to lodge an exemption application with the Companies Tribunal (“Tribunal”) in the prescribed form. The Tribunal may grant the exemption if it is satisfied that:
The company has a formal mechanism within its structures, which substantially performs the functions of a SEC; or
It is not reasonably necessary, having regard to the nature and extent of the company’s structures, activities and public interest, to require it to have a SEC.
While the second exemption has always been in place, the first was subject to an additional requirement that the alternative mechanism must have been prescribed by other legislation to warrant an exemption.
Subsidiaries are now also automatically exempted (without being required to apply to the Tribunal) from the requirement to appoint a SEC if the company to which it is a subsidiary already has one which will perform the SEC functions on behalf of the subsidiary.
Thirdly, while King IV already recommends that the number of non-executives appointed to a SEC is increased to no less than a majority of members (instead of limiting it to one member), the Amendments have now ensured that at least state-owned and public entities mandatorily apply the majority requirement. The rest of the membership requirements prescribed by the Act have remained the same. However, the amendments now make provision for the Minister to prescribe the minimum qualifications, skill and experience for its composition (although this provision has not yet come into effect).
Lastly, companies have 12 months to constitute a SEC from:
The effective date of the amendments (27 December 2024);
It receives a determination from the Tribunal on its exemption application, in the event that such exemption is rejected; or
The date on which it falls within the category of companies required to appoint a SEC.
Thereafter, a company is required to appoint its SEC members annually and any vacancies must be filled within 40 days.
Section 77 read with section 162: Director liability and applications to declare a director delinquent or under probation
The amendments affect director liability and delinquency in two ways.
Firstly, a court may, on good cause shown, extend the prescription period in respect of director liability to more than three years regardless of whether the period has expired or not or whether the director’s conduct that resulted in the loss, damage or cost contemplated by the Act occurred prior to the promulgation of the amendments.
Secondly, the period to declare a director delinquent or under probation has been extended from two years to five years following termination of their directorship. A court may further, on good cause shown, extend this period. This is in line with the Zondo Commission’s recommendation that there be an extension of time for the processing of delinquent director applications.
Section 90: Appointment of an auditor
A company must appoint an auditor, where it is a requirement, at a shareholders meeting at which the requirement first applies and then thereafter annually at the shareholders meeting. This makes it clear that the appointment of an auditor for a private company does not need to be at its AGM.
In addition, the amendment has reduced the number of years (from five to two years), that a person who has formerly been connected to the company, may be appointed as the company’s auditor. In other words, a person who has been a director, prescribed officer, employee, or consultant of the company, or a director of its company secretary, or the company’s accountant or bookkeeper, must now only wait two years to be eligible for appointment as the company’s auditor.
Section 95: Employee share schemes
The amendment now makes it possible for an employee share scheme to be established by means of the purchase of shares in the company in addition to the issuing of shares.
Section 135: Business rescue
Post commencement finance is now afforded to a landlord of a company in business rescue, which will now rank below claims from employees but ahead of all secured and unsecured claims against a company.
Section 160: Replacement of company names
In the event that a company fails to adhere to a directive or administrative order issued by the Tribunal regarding whether or not a company name satisfies the requirements of the Act within the timeframe prescribed by the Tribunal, an applicant who lodged the application to enquire with the Tribunal may now approach the CIPC to substitute the name of the company with its registration number.
Section 194: Companies Tribunal
These amendments deal with the appointment of members to the Tribunal and their functions.
Section 204: Financial Reporting requirements
These amendments provide for financial reporting requirements by the Financial Reporting Standards Council.
Further anticipated amendments are expected to become effective within the first half of the year, including amendments to third party access to a company’s records, remuneration disclosures and takeover regulation thresholds. These will be discussed in further detail once they have been signed into law.
Conclusion
Since the law is always evolving, it is recommended that you consult legal counsel when effecting any changes to a company structure or engaging in transactions related to shares and/or corporate finance.
Should you have any questions regarding the current amendments, contact us on 010 109 1055.
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