South Africa Companies Amendment Bill, 2021- Potential changes to share repurchase requirements
In our previous articles published on 6 and 13 October 2021, respectively, we explored the proposals of the Companies Amendment Bill, 2021, as published on 1 October 2021, (the “Bill”) with reference to sections 45 (intragroup financial assistance), section 26 (access to company records) and section 48(8) (share buybacks) of the Companies Act, 71 of 2008, (Companies Act).
We now explore the proposed changes to section 118 (the application of the takeover provisions to private companies), and section 16 (the effective date of amendments to a Memorandum of Incorporation (MOI) of the Companies Act.
Currently, the provisions in relation to affected transactions and the takeover regulations issued in terms of the Companies Act (collectively “the Takeover Provisions”) apply to private companies if more than 10% of the shares in the company were transferred in the 24 months preceding an affected transaction, irrespective of the turnover of such private company.
In such an instance, any affected transaction in relation to the company’s assets or shares (i.e. a transaction that falls within the parameters of section 117 of the Companies Act) would fall under the authority and oversight of the Takeover Regulation Panel (TRP), with the result that the applicable private company and any offeror would (in terms of the requirements of section 121 of the Companies Act) be required to adhere to the requirements of the Takeover Provisions and would need to obtain a compliance certificate or exemption from the TRP prior to being able to give effect to the particular affected transaction.
The Bill seeks to substantially limit the application of the Takeover Provisions to private companies. The proposed amendment to section 118(1)(c)(i) of the Companies Act will limit the application of the Takeover Provisions only to a private company if (i) the private company has 10 or more direct or indirect shareholders; and (ii) the annual turnover or asset value of the particular private company exceeds a financial threshold to be prescribed by the Minister in consultations with the TRP. The exact financial threshold that would apply is still unclear. A very similar regime previously applied in terms of the old Companies Act of 1973 and the financial threshold that applied, at the time, was R5 million.
Furthermore, the Bill aims to grant the TRP a wider discretion to grant exemption applications submitted by private companies as the mooted amendments will allow the TRP to exempt any particular transaction affecting a private company.
The proposed amendments to section 118(1)(c)(i) are to be welcomed and would also reduce the administrative burden that is currently placed on the TRP – seeing that, in terms of the current legislative regime, small private companies (that only constitute “regulated companies” within the meaning of section 118 of the Companies Act as a result of a shelf company customization process that took place in the past 2 years) are also required to adhere with the requirements of the Takeover Provisions. These companies then often need to request prescribed exemptions (from the application of the Takeover Provisions) from the TRP.
Hopefully, the financial threshold to be determined by the applicable Minister in consultation with the TRP will be determined in a realistic manner and with due regard to the mischief that the legislature is aiming to cure, which is to ensure, amongst other things, fairness and transparency to the holders of shares of large companies.
As a result of a non-binding opinion issued by the Companies Intellectual and Property Commission (CIPC), there is currently uncertainty in the market as to when amendments to the MOI of a company would become effective.
The reason for this is that section 16(9)(b) of the Companies Act provides that any amendments to a MOI will become effective on the later of (i) the date and time on which the notice of amendment (NOA) is filed at CIPC, or (ii) the date for commencement as set out in the NOA. However, CIPC indicated in their non-binding opinion that it does not consider a NOA to be filed unless the NOA has been accepted by the CIPC and, as such, unless CIPC has issued a form COR 15.2 in relation to such an amendment.
The Bill seeks to address this uncertainty by clarifying that amendments to a MOI will become effective 10 business days after the CIPC has received the NOA, unless the CIPC has endorsed or rejected the NOA prior to the expiry of the 10 business days. If the CIPC fails to endorse the NOA, or reject the NOA with reasons, within 10 business days, then the NOA will take effect upon the expiry of the 10 business days.
This proposed amendment to section 16 is to be welcomed as it will create legal certainty for companies as to whether or not a particular amendment to an MOI has become effective and would enable parties to more accurately plan the envisaged timelines for the closing of a transaction where an amendment to an MOI is required.
It is worth noting that the proposed amendment to section 16 will not be applicable to company name changes because the Companies Act already provides certainty regarding the effective date in these circumstances. In particular, section 16(9)(a) provides that a name change will become effective when the amended registration certificate reflecting the name change is issued by CIPC.
The certainty introduced by the proposed amendments in the Bill as discussed above are to be welcomed. Clyde & Co intends to submit comments to the Bill by the deadline of 31 October 2021. Please contact Ernie van der Vyver or Hielien Venter if you have any questions or would like to participate in the process to consolidate such comments ahead of this deadline.
The Bill can be accessed here.
Our articles of 6 and 13 October 2021 can be accessed here: