The Companies Amendment Bill, 2021 for public comment

• South Africa

• Corporate
• Corporate secretarial services

02-12-2021

The Companies Amendment Bill, 2021 ("the Bill") was published for public comment on the 1st of October 2021, by the Minister of Trade, Industry, and Competition (“the DTIC”) and seeks to amend the Companies Act, 71 of 2008 ("Companies Act") in several respects.

The amendments in the Bill aim to achieve three broad categories of policy objectives; (i) to improve the ease of doing business - which will not only attract foreign investors but allow for efficient and effective conduct of the domestic economy and job creation (ii) providing for greater transparency and equity between directors and senior management on one hand and shareholders and workers on the other – this is driven by public concerns regarding high levels of inequality in society, and (iii) address money laundering issues.

Some of the proposed changes are as follows:

 1. Section 16 (Amending memorandum of incorporation) – this would provide certainty as to the effective date of the amendment to a Company’s MOI as notice of amendment will take effect 10 business days after receipt of the notice of amendment of the MOI, if the Commission, after expiry of the 10 business day period, has not endorsed the notice of amendment or otherwise failed to deliver a rejection with reasons;

 2. Section 38A (Validation of irregular creation, allotment or issuing of shares) – providing, on application to Court, for the ratification and validation of an invalid allotment of shares in certain circumstances i.e. insufficient authorised capital as the point of allotment. This provision was in the previous companies act (1973) but was omitted in the Companies Act;

 3. Section 45 (Financial assistance) – the exclusion of the provision of financial assistance by a company to, or for the benefit of, its subsidiaries. This will provide relief to companies who participate in inter-group lending arrangements by reducing the compliance burden;

 4. Section 118 (Application of Takeover Regulations) – amending the application of when a private company will fall under the jurisdiction of the Takeover Panel. For this provision, a private company must have 10 or more shareholders with shareholding in the company and meet or exceed financial thresholds determined by the Minister in consultation with the Panel, for it to fall within the ambit of the Takeover Panel;

 5. Section 135 (Post-commencement finance) – allowing for any amounts due by a company under business rescue to the landlord in terms of a contract, where the landlord is obliged to pay third parties (municipal service providers for rates, taxes, water, electricity etc.), to be regarded as post-commencement finance and rank appropriately.

 There are further provisions proposed whereby remuneration and benefits received by company directors or prescribed officers, must be named in the annual financial statements. This is limited to companies required to have their annual financial statements audited in terms of the Companies Act. Furthermore, the Bill proposes to oblige public companies and state-owned companies to prepare and present a director’s remuneration report for approval to the board of the company and disclose information on the pay gap between directors and workers in their annual financial statements and annual reports. The remuneration policy report would be presented at an AGM for approval by ordinary resolution. Public companies and state-owned companies would also be required to publish details of their highest paid employee, lowest paid employee, average remuneration, median remuneration and the delta between the top 5% highest paid with the bottom 5% lower paid employees. Whilst the rationale for the latter proposed amendments are driven by the need for transparency and to empower shareholder governance and participation, it is likely to be a contentious amendment and which will certainly create heated debate amongst stakeholders.

Nevertheless, many of the proposed amendments are certainly welcome in potentially reducing the administrative burden on businesses, remedying ambiguities and eliminating deficiencies within the Companies Act. This will pave the way for effective governance, transparency and ease of doing business in South Africa.