The Bill proposes some important amendments to the current provisions of the Companies Act, No. 71 of 2008 ("Companies Act").  In this article we provide a brief overview of some of the most important changes we see being proposed in the new redrafted Bill on its current wording.

It is proposed in the Bill that public and state-owned companies prepare a remuneration report in their annual statements, setting out their remuneration policy and how the policy was implemented by the board. This is to include details of the remuneration and benefits received by each director and prescribed officer of the company.

The Bill goes further than the original 2018 Bill, now requiring a remuneration gap analysis setting out:

The Companies Act currently limits the information which companies are obliged to disclose to persons who are not registered or beneficial shareholders, to the inspection of the company's securities registers only.

The amendments under the Bill, however, would require all companies to file a copy of its securities register with the Registrar of Companies each year when completing its annual return renewal filings, making such information accessible to any interested persons from the Registrar on an anonymous basis.  

On its current wording, the Bill provides no obligation to file any interim changes to shareholding and so it seems information filed at the Companies and Intellectual Property Commission could become outdated as any changes in shareholding may only be reflected in its records upon the next annual return filing.  

The Bill requires that the identity of beneficial owners of shares of a company (now including private companies) be disclosed within a suitable register.  A company will furthermore have compliance duties to make quarterly enquiries to verify its beneficial owner register. 

The Bill introduces a new definition of "true owner", requiring companies to record the individual (i.e., natural person) in a chain of holders who ultimately owns the beneficial interest in its shares.  If the company is obliged to be audited, it will then furthermore need to publish in its annual financial statements a list of beneficial interest holders (including the "true owner") if such person/s, directly or indirectly, hold 5% or more of the company's shares in issue.

The Bill proposes that, in the case of larger private companies, third parties become entitled to upon request receive copies of a company's memorandum of incorporation, list of directors, annual financial statements and the register of beneficial interest disclosures.  

The right to access a company's annual financial statements has been limited to companies which meet a certain public interest score threshold of either: (i) at least 100 if the financial statements are internally prepared; or (ii) at least 350 if the financial statements are independently prepared.

Importantly, the Bill has also proposed the inclusion of wording which will extend criminal liability to directors or prescribed officers who do not reasonably accommodate or otherwise interfere or are obstructive in providing access to financial records in terms of section 31 of the Companies Act.

Section 45 of the Companies Act regulates the providing of "financial assistance" by a South African company to its own directors or prescribed officers or to a related or inter-related company or corporation (or director or prescribed officer of the aforegoing). Such transactions currently require prior special approval by shareholders and are subject to passing solvency and liquidity requirements by the board of directors. 

Similar to the 2018 Bill, it is proposed in the new Bill that the requirements of section 45 no longer apply to the providing of financial assistance by a holding company to its subsidiaries.  Such amendment will ease the compliance burden imposed on intra-group financing transactions.  

The Bill proposes that all share buy-back transactions will require approval from shareholders by way of special resolution unless done as pro rata repurchase from all shareholders in the company or as a repurchase in the ordinary course on a recognised stock exchange on which the shares are traded.  

The amendments also propose that share buy-backs involving more than 5% of the company's shares in issue will no longer need to comply with prescribed formalities and requirements of sections 114 and 115.  

While on the one hand the changes proposed increased corporate approval requirements for share buy-back transactions, on the other hand, the removal of requirements pertaining to a scheme of arrangement to give effect to a share buy-back will significantly reduce complexities and costs associated with the retaining of an independent expert to prepare a fair and reasonableness report when executing a share repurchase.  

The Bill proposes to now limit the application of the Takeover Regulations insofar as it concerns private companies to instances where such private company has ten or more shareholders with "direct or indirect shareholding" in the company and provided such company has an annual turnover or asset value which exceeds the threshold which will need to be determined by the Minister of Trade, Industry and Competition.  

The new Bill proposes a simplified approach compared to the prior draft 2018 Bill and is a welcomed change to avoid the application of the onerous requirements in the Takeover Regulations to companies to which such provisions were seemingly never intended to apply. 

 

The amendments proposed in the Bill have not been enacted into law and are subject to potential changes in wording prior to promulgation.  

The Department of Trade, Industry and Competition has invited the public to submit written comments on the Bill by or before 31 October 2021 before proceeding to Parliament for enactment.  

Given that much of the new Bill is in many respects materially similar to the prior draft 2018 Bill, it does seem unlikely that many further changes will follow from this redraft and that the Bill will in all likelihood be tabled with the National Assembly in the near future.