The long-awaited South African Companies Amendment Bill was published on 21 September 2018 for public comment.
According to Stephen Kennedy-Good, director at law firm Norton Rose Fulbright, the bill makes substantial changes to the South African Companies Act, and it is important that businesses consider the changes and provide feedback.
“Many of the changes are technical in nature and would be of interest to lawyers who often work with the Companies Act,” he said.
“There are however a number of proposals that will be of interest to corporate South Africa.”
Below Kennedy-Good broke down the seven biggest changes that South African businesses should be aware of.
Pay disclosure
Stakeholders are always interested in directors’ pay, and the law provides that directors’ remuneration must be disclosed in the financial statements.
It is proposed that remuneration and other benefits received by “prescribed officers”, in addition to directors, must be also be disclosed.
These so-called “prescribed officers” are typically executives who are in a position to influence the management of the company or one of its significant divisions. The directors of a public company will also have to prepare a directors’ remuneration report for presentation to shareholders at the AGM.
Share buyback
From time to time, corporates enter into arrangements where they buyback their own shares from shareholders – acting as a mechanism to exit a shareholder or to reduce a particular shareholder’s interest.
The bill requires that a share buyback must be approved by a special resolution of shareholders if shares are to be bought back from a director, a prescribed officer or a person related to a director or a prescribed officer.
A special shareholder resolution will also be required if the buyback entails an acquisition other than an equal offer made to all shareholders or transactions effected in the ordinary course on a stock exchange.
These changes bring about additional protection to shareholders, as 75% of shareholders will need to vote in favour of the deal for it to go ahead.
Social and ethics committee
Social and ethics committees have enjoyed quite some prominence, with the enhanced focus on ethical governance.
The Companies Act obliges certain companies to set up a social and ethics committee, and the King Report on Corporate Governance goes further and provides that the social and ethics committee should be responsible for oversight and reporting on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships.
The idea is to grow these committees from mere compliance structures to actually creating value for the organisation.
In terms of the bill, it is mandatory for a public company or a state-owned company to appoint a social and ethics committee at each annual general meeting.
It sets out the composition of that committee and its functions.
It also allows companies to apply to the Companies Tribunal for an exemption from these requirements if the company has another mechanism within its structures to perform the functions of the committee or if it is not necessary in the public interest to require the company to have a committee, having regard to the nature and extent of the activities of the company.
The committee’s report will have to be presented to shareholders at the AGM which will give scope to get gender, LGBTI+ and other equality rights to the fore in corporate governance.
Auditors
The Companies Act deals with the appointment of auditors and the provisions are designed to ensure that an auditor is independent of the company which he or she audits.
The Companies Act presently prohibits a person who has enjoyed a close working relationship with the company (for example a director, a prescribed officer, employee or consultant) within the past five years from being appointed auditor.
It is proposed that the five year period be reduced to two years. It seems that the proposed change is aimed at achieving independence, whilst also ensuring that companies are able to appoint audit specialists from a rather small pool of skills.
Business rescue
The bill also deals with changes to the business rescue provisions and the treatment of landlords.
It provides that any amounts due by a company under business rescue to a landlord for rent or services will be regarded as “post commencement financing” and the landlord will have a voting interest in the business rescue proceedings to the extent of its claim.
Post-commencement finance, whether secured or unsecured, enjoys preference over unsecured creditors.
The reason for this change is that lessors have to keep funding rates, electricity, water and other third party charges payable as part of the rent while the company potentially stays for free. Lessors are effectively financing the company’s occupation.
B-BBEE Commission
The bill seeks to give the Companies Tribunal the power to adjudicate cases referred to it by the B-BBEE Commission.
This is not surprising, given the need to ensure cooperation amongst the different regulators.
This is an effort from the B-BBEE Commission to forge strategic partnerships with various South African regulators to ensure compliance with our empowerment laws. The B-BBEE Commission has entered into arrangements with a number of other regulators including the Companies Commission, the Special Investigating Unit and the Competition Commission.
Naming
The Companies Act also protects names of companies and corporates cannot register names that may create confusion.
Any disputes regarding names can be dealt with by the Companies Tribunal. It is proposed that where a company has been ordered to change its name, and it fails to do so, the Companies Commission may substitute its registration number as the name of the company in question.
This is a positive proposal as it empowers the Companies Commission to swiftly deal with offenders who have failed to comply with orders.
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