Big changes to companies in South Africa – what you need to know
Amendments to the South African Companies Act have come into force, which significantly impacts various aspects of corporate law.
President Cyril Ramaphosa proclaimed that certain sections of the Companies Amendment Act and the entirety of the Companies Second Amendment Act are now in force, with effect from 27 December 2024.
The Department of Trade, Industry and Competition (DTIC) described the amendments as a key milestone for corporate law in the country, which “focuses on the ease of doing business by clarifying, simplifying and strengthening certain sections of the Act.”
Legal experts from Cliffe Dekker Hofmeyr, Yaniv Kleitman and Roxanne Bain, explained that these amendments touch on several key areas of corporate law.
However, they also highlighted that some of the amendments, such as those concerning public access to financial statements and remuneration disclosures, will only come into effect at a later date.
Looking at the amendments in effect, one of the most notable changes is that to the share buyback process.
Under the new provisions, all share buybacks will require approval through a special resolution by shareholders, with two key exceptions: pro-rata offers to all shareholders and buybacks conducted on the stock exchange by listed companies.
Previously, repurchases of more than 5% of a company’s shares were subject to complex rules, leading to confusion around classification and whether they triggered takeover laws and appraisal rights.
The amendments clarify that one-on-one buybacks are not considered schemes of arrangement.
Another significant amendment affects the appointment process for members of the Social and Ethics Committee (SEC) in public and state-owned companies, who must now be elected by shareholders at the Annual General Meeting (AGM), rather than being appointed by the board.
Furthermore, the majority of SEC members must be non-executive directors, each with at least three years of experience in that capacity.
Employee share ownership plans (ESOPs) also see changes, with new rules expanding the statutory definition to include ESOPs that involve the purchase of shares, not just subscriptions or issuances.
These ESOPs now qualify for certain exemptions related to financial assistance, share issuances to directors, and public offer rules, provided they appoint a compliance officer.
The position of landlords in business rescue proceedings has also been strengthened.
Claims for charges like utilities, rates, and taxes are now considered “post-commencement finance,” giving them priority over pre-commencement claims, although they will still rank behind employee claims.
This change takes immediate effect on ongoing business rescue processes.
Furthermore, the amendments provide clarity on the process for amending a company’s Memorandum of Incorporation.
Amendments now become effective 10 business days after the Companies and Intellectual Property Commission (CIPC) receives them unless the CIPC intervenes sooner.
Another change also relates to financial assistance within corporate groups.
The amendments exclude financial assistance given to subsidiaries from the requirements of Section 45 of the Act, reducing administrative burdens for group companies.
However, this exemption does not apply to all intra-group financial assistance, particularly for offshore subsidiaries, 30/30/40 structures, or transactions involving the purchase of shares in the company or its related entities.
The Companies Second Amendment Act looks to address recommendations from the Zondo Commission on State Capture.
A major provision extends the time limit for filing a court application to declare a director delinquent or under probation from 2 years to 5 years.
This change is retroactive, meaning it applies to actions that took place before the amendment was passed.
Additionally, courts now have the discretion to extend the time limit for holding directors accountable for damages or losses resulting from breaches of fiduciary duties, with further extensions possible under special circumstances.
Amendments not yet in force
Importantly, some significant amendments are not yet in force.
These include:
- Public access to annual financial statements, including those of certain private companies;
- The requirement for public companies to publish remuneration policies and reports for shareholder approval (sections 30A and 30B). This includes the proposed “two-strike” rule for remuneration committee members if the implementation report is voted down.
- The updated definition of a “regulated company,” particularly concerning private companies. This affects whether the Takeover Regulations apply to certain transactions.
The new provision allows interested parties to apply to the court for the retroactive regularisation of irregular share creations, issues, or allotments.
The DTIC said that these will only commence after the regulations have been finalised sometime in 2025.
Overall, Kleitman and Bain urge companies to familiarise themselves with the new amendments and make the necessary adjustments.
AGM notices, in particular, may need revisions, although the delay in implementing sections 30A and 30B means the changes will not be too drastic for now.
Nonetheless, legal experts say that it is advisable for companies to prepare for the upcoming amendments not yet in force.
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