The long awaited South African Companies Amendment Bill (Bill) was published last week Friday for comment. This is the first time that substantive changes to the South African Companies Act (Companies Act), which became law in 2011, have been proposed. Comments may be submitted to the SA Department of Trade and Industry by 20 November 2018, and we encourage business to consider the changes, and to provide feedback to the Department.
The key proposals relate to the following
- Effective date of amendments to memoranda of incorporation: Presently, an amendment to a company’s memorandum of incorporation takes effect on the later of the date on, and time at which, the notice of amendment is filed or the date, if any, set out in the notice of amendment. In practice, the Companies Commission has adopted the approach that the amendment will only take effect once the filing has been “accepted”, which is not provided for in the Companies Act. The Bill now proposes that amendments will take effect 10 business days after receipt of the notice of amendment, if the Companies Commission, after the expiry of the 10 business days, has not endorsed the notice of amendment or has failed to reject the amendment with reasons.
- Disclosure of remuneration payable to “prescribed officers”: It is proposed that remuneration and benefits received by a “prescribed officer” must also be disclosed in the audited annual financial statements of the company, in addition to that which is disclosed for each director. A “prescribed officer” is typically an executive who is in a position to influence the management of the company.
- Share capital structure of companies: The Companies Act does not allow for a company to fix its share capital structure where it contains errors. It is proposed that a company or any interested person be permitted to approach a court to apply for an order validating the creation, allotment or issue of shares. Historically, this type of court application was allowed for under the old 1973 Companies Act. The proposed change is welcomed, as there is presently a gap in the legislation.
- Financial assistance within a group of companies: Presently, any financial assistance granted by a company to its subsidiary must be authorised by the board and the shareholders by way of a special resolution. The Bill now proposes that the special resolution requirement should not apply where a company gives financial assistance to its own subsidiary.
- Share buy-backs: The Bill requires that a share buyback must be approved by a special resolution of shareholders if shares are to be bought back from a director, a prescribed officer or a person related to a director or a prescribed officer. A special resolution will also be required if the buyback entails an acquisition other than a pro rata offer made to all shareholders or transactions effected in the ordinary course on a stock exchange.
- Social and ethics committees: In terms of the Bill, it is mandatory for a public company or a state owned company to appoint a social and ethics committee at each annual general meeting. It sets out the composition of that committee and its functions. It also allows companies to apply to the Companies Tribunal for an exemption from these requirements if the company has another mechanism within its structures to perform the functions of the committee or if it is not necessary in the public interest to require the company to have a committee, having regard to the nature and extent of the activities of the company.
- Appointment of auditors: Section 90 of the Companies Act deals with the appointment of auditors. The provisions are designed to ensure that an auditor is independent of the company of which he or she audits. The Companies Act presently prohibits a person who has enjoyed a close working relationship with the company (for example a director, a prescribed officer, employee or consultant) within the past five years from being appointed auditor. It is proposed that the five year period be reduced to two years.
- Application of the Takeover Regulations to private companies: It is proposed that the Takeover Regulations should only apply with respect to an “affected transaction” or “offer” involving a private company or its securities, if the private company is required to have its annual financial statements audited or if it's memorandum of incorporation requires it to do so. The change should be embraced as, to date, the Takeover Regulations apply to many transactions undertaken by private companies where it is simply inappropriate and unnecessary.
- Business rescue and the treatment of landlords: The Bill provides that any amounts due by a company under business rescue to a landlord will be regarded as “post commencement financing” and the landlord will have a voting interest in the business rescue proceedings. Post commencement finance, whether secured or unsecured, enjoys preference over unsecured creditors.
- Disputes concerning company names: In terms of the Companies Act, the Companies Tribunal may deal with disputes regarding company names. It is proposed that where a company has been ordered to change its name, and it fails to do so, the Companies Commission may substitute the name of the company in question with its registration number.
- Black economic empowerment: The Bill seeks to give the Companies Tribunal the power to adjudicate cases referred to it by the B-BBEE Commission. This is not surprising, given the need to ensure cooperation amongst the different regulators.
Contact Stephen Kennedy Good (firstname.lastname@example.org) for more info on how these proposed changes affect your business?