NEWS AND INSIGHTS

Key Amendments to the Companies Act: What Businesses Need to Know

25 February 2025

AUTHOR: SIENNA BARNES

The Companies Act has undergone several significant amendments, some of which are already in force while others are still pending enforcement. These changes impact various aspects of corporate governance, share transactions, financial assistance, and compliance requirements. Below, we provide an overview of the key amendments and their implications for businesses.

Amendments Already in Force

Amendments to the Memorandum of Incorporation (MOI)

The uncertainty surrounding the effective date of amendments to a company’s MOI has been clarified. Any amendments now take effect 10 business days after receipt by the Companies and Intellectual Property Commission (CIPC), unless the CIPC rejects or endorses them. This resolves previous uncertainties regarding when filings were deemed effective.

Shares Issued for Future or Delayed Consideration

Shares issued for future consideration must now be held by an independent stakeholder, such as a notary public, attorney, or escrow agent. The previous approach of holding such shares under a trust arrangement has been discarded. This change definitively removes any ambiguity regarding whether such shareholding arrangements qualify as registrable trusts under the Trust Property Control Act.

Financial Assistance

Section 45 of the Companies Act has been amended to remove certain requirements when financial assistance is granted by a holding company to a subsidiary. Previously, such transactions required:

• A shareholder special resolution,
• A fairness and reasonableness assessment, and
• Solvency and liquidity considerations. These requirements no longer apply. However, companies must still comply with approval requirements when providing financial assistance within corporate groups, including offshore subsidiaries or structured financing arrangements.

Share Buybacks

A special resolution of shareholders is now required for all share buybacks, except where the buyback is executed:

• Through a pro-rata offer to all shareholders, or
• On a stock exchange by a listed company. Previously, share buybacks exceeding 5% of a share class were subject to Sections 114 and 115, which regulate schemes of arrangement. The amendments clarify that individual buybacks are not considered schemes of arrangement and are therefore exempt from certain regulatory requirements, such as obtaining an independent expert report and shareholder appraisal rights under Section 164.

Social and Ethics Committees (SECs)

State-owned and public companies must now have their SEC members appointed by shareholders at the Annual General Meeting (AGM), rather than elected by the board. Additionally, a majority of SEC members must be non-executive directors who have held such positions for at least the previous three financial years.

Employee Share Schemes

Employee share schemes that involve the purchase of shares under Section 95 are now classified as statutory employee share schemes. As a result, they qualify for:

• Financial assistance under Sections 44 and 45,
• Share issuances to prescribed officers or directors under Section 41, and
• Public offer regulations, provided they comply with Section 97’s requirement to appoint a compliance officer.

Directors’ Breach and Time Bars

• Section 77, which governs a company’s right to claim damages from a director for fiduciary breaches, now allows courts to extend the three-year prescription period where justified.
• Section 162, concerning applications to declare a director delinquent for fraudulent conduct, has seen its limitation period increase from two to five years, with further extensions permitted at the court’s discretion.
• Director misconduct amendments now apply retrospectively.

Landlords in Business Rescue

Landlords’ claims for rates, utilities, and similar charges in business rescue proceedings are now classified as post-commencement finance. This means that such claims will rank:

1. 1. After employees’ claims, but
   2. Before all secured and unsecured pre-commencement claims.

Amendments Pending Enforcement

Public Access to Financial Statements

Under Section 26, certain categories of private companies will be required to make their annual financial statements publicly accessible.

Enhanced Disclosure for Public Companies

Sections 30A and 30B will introduce stricter transparency rules, including:

• Mandatory disclosure of remuneration policies and reports for shareholder approval,
• Implementation of a two-strike rule, which could require changes to a company’s remuneration committee if shareholders reject the remuneration report.

Anti-Money Laundering Compliance

To address concerns raised by the Financial Action Task Force (FATF) and facilitate South Africa’s removal from the grey list, the General Laws Anti-Money Laundering and Combatting Terrorism Financing Amendment Bill, 2024 has been proposed. If enacted, companies failing to comply with the securities register and beneficial ownership filing requirements may face severe penalties, including:

• Company deregistration,
• Fines up to R10 million, and
• Turnover-based penalties of 10% for non-compliance.

Conclusion

These amendments significantly impact corporate governance, shareholder rights, and regulatory compliance. Businesses must review their MOIs, financial assistance policies, share buyback procedures, and governance structures to ensure compliance.