Recent amendments to the South African Companies Act have introduced significant reforms to corporate law, impacting various aspects of business operations.
Effective Date of Amendments
President Cyril Ramaphosa announced that parts of the Companies Amendment Act and the full Companies Second Amendment Act came into force on 27 December 2024. The Department of Trade, Industry, and Competition (DTIC) described the updates as a crucial step in simplifying and improving corporate law.
Key Changes Explained
Legal experts from Cliffe Dekker Hofmeyr, Yaniv Kleitman, and Roxanne Bain outlined several key areas impacted by the amendments. Some changes, such as public access to financial statements and remuneration disclosures, are yet to take effect, but others have already been implemented.
Share Buyback Process
One of the most significant changes involves the share buyback process. Under the new rules, all share buybacks require shareholder approval through a special resolution, except in two cases: pro-rata offers to all shareholders and buybacks conducted on stock exchanges by listed companies. Previously, share repurchases exceeding 5% of a company’s shares were subject to complex and often confusing rules, which sometimes triggered takeover laws. The amendments clarify that one-on-one buybacks are not considered schemes of arrangement.
Changes to Social and Ethics Committees
The amendments also revise how Social and Ethics Committee (SEC) members are appointed. In public and state-owned companies, SEC members must now be elected by shareholders at the Annual General Meeting (AGM), rather than being appointed by the board. Additionally, a majority of SEC members must be non-executive directors with at least three years of relevant experience.
Updates to Employee Share Ownership Plans (ESOPs)
The amendments expand the statutory definition of Employee Share Ownership Plans (ESOPs) to include plans involving share purchases, not just subscriptions or issuances. These updated ESOPs qualify for exemptions from financial assistance, director share issuances, and public offer rules, provided they appoint a compliance officer.
Enhanced Rights for Landlords in Business Rescue
Landlords now have stronger rights in business rescue proceedings. Charges such as utilities, rates, and taxes are classified as “post-commencement finance,” giving them priority over pre-commencement claims, although they remain secondary to employee claims. These changes are effective immediately and apply to ongoing business rescue processes.
Streamlined MOI Amendments
The process for amending a company’s Memorandum of Incorporation (MOI) has been streamlined. MOI amendments now automatically take effect 10 business days after submission to the Companies and Intellectual Property Commission (CIPC), unless the CIPC intervenes earlier.
Financial Assistance Exemptions for Subsidiaries
Intra-group financial assistance rules have been relaxed. Financial aid to subsidiaries is now exempt from Section 45 of the Act, reducing administrative burdens for group companies. However, this exemption does not cover assistance to offshore subsidiaries, 30/30/40 structures, or share transactions involving the company or related entities.
Addressing State Capture Recommendations
The Companies Second Amendment Act implements key recommendations from the Zondo Commission on State Capture. A notable provision extends the timeframe for filing court applications to declare directors delinquent or under probation from two to five years, with retroactive application. Courts may also extend the time limit for holding directors accountable for fiduciary breaches under special circumstances.
Amendments Not Yet in Force
Some significant amendments are still pending and will only come into effect once supporting regulations are finalized, expected in 2025. These include:
- Public access to annual financial statements, including those of certain private companies.
- Requirements for public companies to publish remuneration policies and reports for shareholder approval, including a “two-strike” rule for remuneration committee members if the implementation report is rejected.
- Updates to the definition of a “regulated company,” which will determine the application of Takeover Regulations to certain transactions.
The pending amendments also allow courts to retroactively regularize irregular share creations, issues, or allotments.
Preparing for the Changes
Kleitman and Bain urge companies to familiarize themselves with the amendments and adjust their practices accordingly. While the delayed implementation of Sections 30A and 30B reduces the immediate impact, companies should begin preparing for the upcoming changes to ensure compliance.