The Revision of the South African Companies Act

In October, a new draft of the Companies Amendment Bill was published. Although the Bill clarifies many important companies’ law issues; several ambiguities which exist in the current Act remain. Submissions were welcomed until the end of October, and a revised draft is expected early this year. The new bill revises the 2008 Companies Act and brings it in line with the King IV Report on Corporate Governance in South Africa. It is vital for every company to be aware of the Companies Act and follow its provisions. We, therefore, include this summary of the new Bill’s proposals. We recommend that readers wanting further information consult their law firm.

The key proposed amendments to the Act at present, are summarised below:

• Companies must publish a remuneration report in their annual statement, setting out their remuneration policy and how the policy was implemented by the board; and
•  table their remuneration policy and implementation report for shareholder approval, by way of two separate non-binding advisory votes at each AGM.
• The report, policy, and implementation report are to be approved by shareholders at the AGM every 3 years or whenever any material change is made.  The policy and implementation report must be approved separately, each by ordinary resolution.
• If the implementation report is not approved at the AGM, the remuneration committee must at the next AGM explain how concerns had been addressed; and the non-executive directors on the committee must stand down for re-election every year of the rejection of the implementation report.
• The remuneration report must include: (i) a background statement; (ii) the remuneration policy; (iii) the implementation report with details of remuneration received by directors and prescribed officers; (iv) total remuneration and benefits (including bonuses, incentives, fund contributions, share options, and awards) of the highest remunerated employee; (v) total remuneration of the employee with the lowest remuneration in the company; and (vi) the average remuneration of all employees, median remuneration of all employees and the remuneration gap reflecting the ratio between the total remuneration of the top 5% highest-paid employees and the remuneration of the bottom lowest-paid employees of the company.
• The Social & ethics committee (SEC) must consist of at least 3 directors (and may, in addition, include prescribed officers), provided that: (i) for public and state-owned companies the majority of directors must not be involved in the day-to-day management at the time or the previous 3 years (non-executive); and (ii) for other companies at least 1 director must be non-executive.
• The members of the SEC must be elected every year at the AGM in the case of public and state-owned companies (and by the board in the case of other companies), similar to the Act’s requirements for the election of the audit committee.
• The SEC must prepare a formal report to present to shareholders at each AGM (or at a general meeting annually if no AGM is required) and the report must be approved by ordinary resolution. Currently, the Regulations only require a member of the SEC to report to shareholders at the AGM.  If the report is not approved the SEC must engage with shareholders who voted against the report and are willing to engage, and within 4 months publish a statement as to engagement steps. The outcome and action to be taken to address the issues raised by dissenting shareholders and the statement must be presented at the next AGM.
• The financial assistance requirements in section 45 of the Act will no longer apply to financial assistance by a company to its own subsidiary company. This is a welcome exemption for group companies and is in line with the proposal in the 2018 Bill.
• All repurchases of shares will require the passing of a special resolution by shareholders unless it entails a pro-rata repurchase from all shareholders or repurchase in the ordinary course on a recognised stock exchange on which the shares are traded.
• The 2021 Bill proposes to limit the scope of takeover provisions only to private companies that have 10 or more shareholders with a direct or indirect shareholding in the company, and which meets or exceeds the financial threshold or annual turnover or asset value to be determined by the Minister. This is a material proposed amendment as it limits the scope of application of the takeover provisions substantially as far private companies are concerned.
• On application by the company or an interested party to the relevant court, an invalid creation, allotment, or issue of shares, may be validated or the terms confirmed should the court find it to be equitable to do so.
• A private company that is required to be audited must appoint an auditor annually at a shareholders’ meeting (not necessarily at the AGM, as is currently the case). The 2021 Bill proposes to reduce the disqualification period for a person contemplating to serve as an auditor who has served as a director, prescribed officer, employee, company secretary, or bookkeeper of the company for the 2 financial years preceding the date of appointment of the auditor.
• The 2021 Bill provides some much-needed clarity on the effective date of amendments to MOIs. The 2021 Bill proposes that amendments to MOIs (other than in relation to a name change) will take effect only after 10 business days of being filed if not rejected by CIPC. As changes can no longer be made with immediate effect, this proposal will impact the timing of transactions requiring amendments to MOIs, including amendments to the authorised shares.
• The 2021 Bill requires that Companies must file a copy of their securities register and register of disclosure of beneficial interest annually with the CIPC, with their annual returns. This is a material proposed amendment as 3rd parties presently do not have public access to the securities register unless they request the information at the relevant company’s registered office. The information will now be accessible at the CIPC on an anonymous basis (i.e. without disclosing the identity of the person to the company.
•  The 2021 Bill introduced a new definition, that of “true owner” who would in essence be the natural person who is the ultimate and true owner and last person in the chain of holders of a specific security in a company, who can direct the registered holder or for whose benefit the securities exist.  The definition is relevant for purposes of the term “beneficial interest” in the Act which will now include the true owner.
• The 2021 Bill also requires companies to know who their beneficial shareholders are and if not known, to enquire from registered shareholders, beneficial shareholders, and the true owner for confirmation.
• The 2021 Bill proposes that, as regards larger companies, third parties also be given access to the MOI of the company, the list of directors, the annual financial statements, and the register of beneficial shareholders.  Shareholders also have the right to request financial statements, in addition to the rights already in the Act.
• Two new offenses are proposed in the 2021 Bill, for directors and prescribed officers who do not act reasonably when a party requests information it is entitled to.

The DTI has also pointed out that it intends to include worker representation on company boards and the extension of directors’ duties in favour of a multiplicity of stakeholders (as opposed to the present position of directors owing duties to the company) in a further Bill after consultation.

Source Webber Wentzel