The long-awaited Companies Amendment Bill 2023 ("Bill") was today signed into law by the President, thereby introducing some key amendments to the Companies Act No. 71 of 2008 ("Companies Act"). The Bill started out as a series of intended technical amendments to the Companies Act to address some practical issues with the Companies Act, but over time and as a result of, inter alia, protracted negotiations between organised business, Government and labour at the National Economic Development and Labour Council (Nedlac), it came to include some substantive amendments. These amendments, notably issues such as the disclosure of directors' remuneration as well as the consequences of failing to get a remuneration report approved by shareholders, amongst other issues, were the subject of a series of written and oral submissions received from the public spanning from 2021 to early 2024.
Many of the amendments enjoy general widespread support as they remove certain procedural requirements that many saw as unnecessary hurdles which stifled the ease of doing business. For example section 48(8)(b) (the so called "5% buy-back rule") has been abolished and replaced with a regime that requires companies wishing to repurchase shares to obtain a special resolution when repurchasing shares from directors, prescribed officers and persons related thereto. The decision of the board to acquire shares in the company is also subject to a special resolution unless:- (i) the shares are being acquired as a result of a pro rata offer made by the company to all the company's shareholders, notwithstanding that such offer may include directors, prescribed officers or persons related thereto, or (ii) the acquisition of shares is as a result of transactions effected on a recognised stock exchange. As a result of this new regime the percentage being repurchased is no longer relevant and all repurchases now require a special resolution unless (i) it is being done as a pro rata offer to all shareholders, or (ii) the repurchase transaction is effected on a licensed stock exchange. Note that the JSE listing requirements currently require a special resolution to authorise both specific and general buy-backs.
Another amendment enjoying broad support is that the requirements for financial assistance set out in section 45 no longer apply to the giving by a company of financial assistance to or for the benefit of its subsidiaries.
In relation to the funding of companies in business rescue, landlords will welcome a long awaited amendment to the effect that any amounts due by a company under business rescue to the landlord in terms of a contract (i.e. generally a lease) where the landlord has paid for public utility services, rates and taxes, electricity and water, sanitation and sewer charges of the company during business rescue proceedings will now be seen as post commencement financing, meaning they enjoy a preference on those amounts required to keep the company operational.
With the above amendments widely welcomed, other amendments were the subject of much debate, particularly those aimed at promoting greater transparency including access to company records and disclosure of directors' individual remuneration. For instance, the amendment to section 26(1) provides that the company records to which certain persons have a right to access also include the register of the disclosure of beneficial interest. Furthermore, section 26(2), which previously only gave persons with no beneficial interest the right to inspect or copy a profit company's securities register, has been amended so that these persons now have the right to inspect and copy a company's securities register, as well as the MOI, director records, register of the disclosure of beneficial interest and the annual financial statements ("AFS"). However, the right to inspect the AFS does not apply to a private company, non-profit company or personal liability company wherein an AFS is (i) internally prepared in a company with a public interest score ("PI Score") of less than 100 or (ii) independently prepared in a company with a PI Score of less than 350.
Section 30 has been amended so that companies required to have their AFS audited must include in their AFS the remuneration and benefits received by each individual director and prescribed officer, each of whom must be named.
Consequently, a person who relies on their section 26(2) right is able to, by having access to a company's AFS, identify each director and prescribed officer and will now have visibility of their remuneration and benefits, provided of course that the company in question falls above the aforementioned PI Score thresholds.
In relation to remuneration, all public and state-owned companies are now under a duty to prepare and present a remuneration policy and remuneration report. The newly inserted section 30A sets out the requirements for the remuneration policy which must be approved by a company's shareholders at the AGM by an ordinary resolution which, if approved, will remain in force for 3 years and must be approved every 3 years thereafter.
Section 30B(4) (also a newly inserted provision) addresses the remuneration report which must be prepared in respect of the previous financial year for presentation and approval at the AGM. The amendment introduces a "two-strike" rule (initially proposed as a very contentious "one-strike" rule) in respect of non-executive directors serving on the remuneration committee ("Remco") with the following effect:
- if the report is not approved at this AGM, the Remco must, at the next AGM, present an explanation on the manner in which the shareholders' concerns have been taken into account and the non-executive directors who serve on the Remco must stand for re-election as members of the Remco at the AGM at which this explanation is presented; and
- thereafter, if at the AGM in the year immediately following the year above the remuneration report in respect of the previous financial year is also not approved by an ordinary resolution of shareholders, the non-executive directors serving on the Remco will not be eligible to serve on the Remco for a period of 2 years thereafter, however, they may continue to serve as directors provided they successfully stand for re-election at that AGM.
We note, however, that the aforementioned consequences applicable to non-executive directors serving on the Remco do not apply to Remco members who have served for a period of less than 12 months in the year under review.
Section 30B(3)(c) sets out the contents that must be included in the remuneration report specifically in relation to the so called "wage gap". In addition to disclosing total renumeration of each director and prescribed officer (mentioned above), the implementation report must include (i) total remuneration in respect of the employees with the highest remuneration and lowest remuneration, and (ii) the average total remuneration and median remuneration of all employees, as well as the remuneration gap reflecting the ratio between the total remuneration of the top 5% highest paid employees and the bottom 5% lowest paid employees of the company. Notably, total remuneration is defined to include salary and benefits received including any employer contributions to benefit funds and any short or long-term incentives including share options and incentive awards. We note that this is different to the broader definition of remuneration under section 30(6) which as read with sections 30(4) and (5) is relevant for the purposes of remuneration disclosure in the AFS.
For completeness, we note that the Companies Second Amendment Bill 2023 has also been signed into law which, in essence, amends the Companies Act to extend the time bar to declare a director delinquent from 24 to 60 months. This is a welcome amendment that flows from recommendations from the Zondo Commission of Enquiry into State Capture. This now enacted bill further grants the court discretion to extend the period in respect of which proceedings to recover any loss, damages or costs may be commenced, which is currently within 3 years after the act or omission that gave rise to the liability.
Should you have any questions regarding the above, please feel free to reach out to any of your regular contacts or practitioners within the ENS corporate and commercial department.
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