As has become common practice, significant amendments to the Companies Act took effect in late December 2024. For ease, we have set out below the amendments that are now effective and which necessitate action from companies.
- Public and state-owned company annual general meetings: These meetings must now include a presentation of a social and ethics committee report and a remuneration report and approval must be obtained for the appointment of the social and ethics committee.
This must be in compliance with existing requirements for these documents pursuant to the King IV Report on Corporate Governance and otherwise, since the requirements of the Act pertaining to these reports are not yet effective. Many companies are however already pro-actively complying with the new requirements in good faith.
- Social and ethics committees: 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.
However, exemption requirements have been slightly relaxed. An exemption may be made to the Tribunal if a social and ethics committee 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. Companies must publish an intention to lodge the application for exemption in a 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 (27 December 2024) 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.
Some of the amendments pertaining to the social and ethics committee have not yet come into force, including the requirement that:
(i) the social and ethics committee report must be prepared in a ‘prescribed manner and form’ describing how the committee performed its functions; and
(ii) the report must be presented for all companies, in addition to public and sate owned companies, annually at a shareholder meeting or with a resolution.
The minimum qualification requirements of committee members are also still pending.
Because the existing regulations dealing with social and ethics committees are still in the process of being amended, those provisions remain effective; however, the Act will take precedence to the extent of any inconsistency.
Madelein van der Walt, Nasrin Kharsany and Serena Kalbskopf 2 Aug 2024
Corporate actions
In addition, companies contemplating the following corporate actions will need to take note of the following amendments that are now effective:
- 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). These timing adjustments should be factored in when finalising transactions or implementing time-sensitive corporate document changes.
- 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. The nuances of the stakeholder agreement need to be carefully considered.
- Relaxation of intra-group financial assistance provisions: The giving of financial assistance to, or for the benefit of, an entity’s subsidiary is now excluded from the requirements of section 45, thus materially reducing the administrative burden of doing business for group companies.
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.
Companies must, however, note 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 must be sure to understand these exceptions to the exemption.
- Relaxation of approval requirements for a buy-back: Previous onerous requirements to implement a buy back are no longer required. This includes the 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.
Instead, a special resolution is now required for a buy-back:
(i) if any shares are to be acquired from a director, a prescribed officer, or a person related to a director or prescribed officer; or
(ii) 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.
- 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 and offers: 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.
- Business rescue: Further protections are afforded as it pertains to post-commencement finance.
Changes in effect
Also noteworthy are the following changes which are now in effect:
- Director liability: 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 has been 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.
- 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.
- 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’.
Excluded from these amendments are the more material and controversial changes pertaining to:
(i) remuneration disclosures;
(ii) access to private company financials; and
(iii) from a M&A transaction perspective, the new thresholds that will trigger the requirements for private companies to comply with the Takeover Regulations and the scrutiny of the Takeover Regulation Panel when implementing affected transactions.
Other changes that remain subject to promulgation include those
(i) removing the right of ‘accredited entities’ performing alternative dispute resolution in favour of using the Tribunal for this function;
(ii) provisions enabling the validation of irregular share issues; and
(iii) provisions placing additional obligations on Companies to publish where their records are kept and when financial statements need to be filed.
These provisions, along with the requisite regulations, are expected to take effect later this year.
Further proposed amendments to the Companies Act to clamp down on beneficial ownership and interest filings
In an effort to address the deficiencies identified by the Financial Action Task Force (FATF) and remove South Africa from the grey list, National Treasury has also published further proposed amendments to the Companies Act in the recently published draft General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2024 (accessible here).
If enacted, non-compliance with securities register, beneficial owner, and beneficial interest register filing requirements may result in:
- the defaulting company being deregistered; and
- a fine of up to R10m and 10% of turnover for the period during which the company failed to comply with a compliance notice received from the Commission.
The proposed changes are open for public comment until 6 February.
