At STBB, our corporate governance specialists have extensive experience interpreting and applying the provisions of the Companies Act and accompanying regulatory instruments. As reported in January, various amendments to the Companies Act took effect late last year. Six months after the operationalisation of these amendments, our company law experts note that many clients are still navigating the changes. Accordingly, this article provides a useful recap of these key corporate amendments.
Amendments in terms of the Companies Amendment Act
The vast majority of the now operational revisions to the Companies Act (‘the Act’) are contained in the Companies Amendment Act, which are detailed below:
Amending a Memorandum of Incorporation
Under section 16 of the Act, an amendment to a company’s Memorandum of Incorporation will take effect 10 business days after CIPC receives the Notice of Amendment, unless the Commission endorses or rejects the amendment with reasons within that period. Notably, the existing provision allowing the amendment to take effect on a date specified in the Notice remains unchanged.
Consideration for shares
The amendments to section 40(5) and (6) of the Act, which deal with shares issued for future consideration, clarifies key terminology. The term ‘trust’ is replaced with ‘stakeholder agreement’, and the reference to a ‘third party’ is replaced with ‘stakeholder’, to more accurately reflect the commercial relationship. importantly, this section remains an exception to the general rule that shares must be fully paid upon issue.
Financial assistance
in a welcome move, financial assistance granted by a company to or for the benefit of its own subsidiaries is now expressly excluded from the financial assistance requirements and restrictions otherwise imposed by section 45.
Company or subsidiary acquiring company’s shares
Under section 48 of the Act, a company repurchasing its own shares is no longer required to comply with the procedures under sections 114 and 115, which generally apply to fundamental transactions. However, if the company intends to acquire shares from a director or a related person, or if the repurchase is not done via:
- A pro rata offer to all shareholders (or a class of shareholders); or
- A transaction on a regulated stock exchange, then a special resolution of shareholders is required under section 48(8).
Shareholders’ meetings
Per section 61(8) of the Act, public companies are now required to present both a social and ethics committee report and a remuneration report at their AGMs. In addition, they are mandated to appoint a social and ethics committee at the AGM.
Board committees
Section 72 of the Act regulates the appointment and exemption from appointing a social and ethics committee. Pursuant to various amendments, the following is now required:
- Section 72(5) requires companies seeking an exemption to publish notice of their intention to apply to the Companies Tribunal.
- Section 72(6A) introduces a new exemption: A company is not required to have its own social and ethics committee if it is a subsidiary of another company that has one, and that committee will fulfil the necessary functions on its behalf.
- New subsections 72(7A), (8A), (9A), and (11) detail the composition and functioning of these committees.
Appointment of auditor
This revision of section 90 of the Act clarifies that where a company is first required to have its annual financial statements audited, it must appoint an auditor at the shareholders’ meeting where that requirement first arises, and thereafter on an annual basis.
Application and interpretation of Chapter 4
An amendment to section 95 of the Act includes the purchase of shares as an additional mechanism – alongside the issue of shares and options – through which an employee share scheme may be established.
Post-commencement finance
Under section 135 of the Act, in the context of business rescue proceedings, post-commencement rent and other amounts due to landlords are now included as post-commencement finance, giving them priority in repayment.
Disputes concerning reservation or registration of company names
An amendment to section 160(5) of the Act grants CIPC new enforcement powers to ensure compliance with company name changes where a company has failed to effect such change as required.
Appointment of Companies Tribunal
Section 194(1A) of the Act, which relates to the appointment and remuneration of office bearers of the Companies Tribunal, has been amended.
Functions of Financial Reporting Standards Council
An amendment to section 204(1) of the Act empowers the Financial Reporting Standards Council to issue financial reporting standards, which aligns South Africa’s corporate reporting framework with evolving standards.
Amendments in terms of the Companies Second Amendment Act
Crucially, the twin amendments under the Companies Second Amendment Act extend the prescription periods for two important legal mechanisms involving directors.
Application to declare a director delinquent or under probation
Under section 77(7) of the Act, the prescriptive period for applications requesting a court to declare a director delinquent or place them under probation for damages or losses is extended to 60 months.
Liability of directors and prescribed officers
Per section 162 of the Act, the three-year time limit in which to institute proceedings to recover losses incurred by a director or prescribed officer – flowing from a breach of fiduciary duties – may now be extended by a court where good cause is shown.
In light of these extensive legislative updates in the company law context, it is essential for businesses to conduct a thorough review of their policies and procedures. Let STBB’s skilled and experienced corporate law attorneys handle the legal minutiae so you can focus on what matters most – expanding and preserving your enterprise.
For expert legal support, contact our professionals at commercial@stbb.co.za.
This content is the property of STBB. We encourage the sharing of our content for informational purposes. However, if you wish to copy or reproduce our content on your own platform or website, please ensure that proper credit is given to STBB.
