Today the Department of Trade and Industry (DTI) published a draft of the long-awaited Companies Amendment Bill, 2018 (Bill) for public comment. Comments on the Bill must be submitted to the DTI by 20 November 2018. The Bill proposes amendments to the Companies Act, 2008 (Act). The Bill, in its current form, does not propose any amendments to the Companies Regulations, 2011 (Regulations).
The key proposed amendments to the Act are summarised below.
Public access to securities register of companies
Companies must file a copy of their securities register annually with the Companies and Intellectual Property Commission (CIPC), with their annual returns. This is a material proposed amendment as third parties presently do not have public access to the securities register and list of shareholders unless they request the information at the relevant company’s registered office (which parties have been reluctant to do). The information will now be easily accessible at the CIPC on an anonymous basis.
Intra-group financial assistance
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.
Certain share repurchases exempted from shareholder approval
A share buyback will no longer require the approval of shareholders by special resolution if it entails a pro-rata repurchase from all shareholders or a repurchase in the ordinary course on a recognised stock exchange on which the shares are traded.
Limitation of scope of application of the takeover provisions to private companies
Currently, the provisions in relation to affected transactions (Parts B and C of Chapter 5 of the Act) and the takeover regulations only apply to private companies if more than 10% of the shares in the company were transferred in the preceding 24 months. The Bill proposes to limit the scope of application of the takeover provisions only to private companies that at the time of the particular affected transaction, are required to be audited under the Act (or if the Memorandum of Incorporation (MOI) requires the company to be subject to the takeover provisions). This is a material proposed amendment as it limits the scope of application of the takeover provisions substantially insofar as private companies are concerned.
Power of the court to rectify invalid creation, allotment or issue of shares
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 thereof confirmed. Currently, the Act does not allow a court to do so.
Requirements for appointment of auditors
A private company required to be audited in terms of the Act or its MOI must appoint an auditor annually at a shareholders' meeting (not necessarily at the AGM, as is currently the case). The Bill also proposes to reduce the disqualification period for a person contemplating to serve as auditor but who served as a director, prescribed officer, employee, company secretary or bookkeeper of the company for the two financial years preceding the date of appointment of the auditor. Currently, the disqualification period is longer, being five financial years.
Effective date of amendments to MOIs
The Bill provides some much needed clarity on the effective date of amendments to MOIs. The current provisions of the Act are unclear and many adopted the view that the amendments were effective immediately upon filing. The 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 the CIPC. This proposal will impact on the timing of transactions requiring amendments to MOIs, such as amendments to the share capital. It is also not clear what the effective date of MOI amendments will be if the CIPC rejects the filing.
Disclosure of directors' and prescribed officer's remuneration and benefits
The Bill intends to clarify the disclosure requirements of section 30(4) of the Act in terms of which the remuneration and benefits received by each individual director must be disclosed in the company's audited annual financial statements (in the case of companies required to be audited under the Act). These disclosure requirements will now also apply to prescribed officers and each director and prescribed officer must be referred to by name.
Directors' remuneration report for public companies
The Bill seeks to align the provisions of the Act with the recommendations of the King IV Report on Corporate Governance in South Africa (King IV) in relation to remuneration governance. King IV recommends that companies publish a remuneration report in their annual statement, setting out their remuneration policy and how the policy was implemented by the board. In addition, King IV recommends that companies table their remuneration policy and implementation report for shareholder approval, by way of two separate non-binding advisory votes at each AGM. The provisions of the Bill mirror those of King IV in that it introduces a new requirement for public companies to prepare a similar directors' remuneration report annually. However, the Bill does not go as far as King IV as it only requires the report to be approved by the board. The Bill does not envisage a shareholder non-binding advisory vote on the report. It only proposes that the report be presented to shareholders at the AGM.
Social and ethics committee - appointment, composition and reporting
Currently, the Regulations set out the types of companies required to appoint a social and ethics committee (SEC). These include state owned companies, listed companies, and any other company that has, in two of the previous five years, scored above 500 points as their public interest score. The Bill proposes to amend the Act to include a requirement that all public companies, whether listed or unlisted, must appoint a SEC. In addition, the Bill seeks to amend the SEC composition requirements contained in the Regulations by inserting new provisions in the Act. The Bill also contemplates that the social and ethics committee must prepare a formal report to present to shareholders at each AGM. Currently, the Regulations only require a member of the SEC to report to shareholders at the AGM. The Bill does not provide guidance on what the formal report should cover. Some of the proposed amendments in relation to SECs may have fit better in amended Regulations in order to avoid any confusion or conflicts between the provisions of the Act and the Regulations. As mentioned, the Bill is open for comment until 20 November. Webber Wentzel will be submitting comments on this Bill, including that the Bill does not, in its present form, address certain ambiguous provisions of the current Act.