Amendments to Companies Act aimed at transparency and disclosure

The amendments to the Companies Act that were signed into law and published in the Government Gazette recently include provisions to enhance transparency and provide for more disclosure by companies, as well as extending the time bars applicable to applications for director delinquency and proceedings to recover loss due to director liability.

The commencement dates of the amendments have not yet been proclaimed, as the amendments require the manner and form of documents, fees or other items to be prescribed or determinations to be published, for purposes of implementation.

These would typically be set out in regulations, Madelein van der Walt, partner, Nasrin Kharsany, senior knowledge lawyer and Serena Kalbskopf, senior knowledge Lawyer at Webber Wentzel, say.

“The Companies Amendment Act aims to enhance transparency and provide for more disclosure by companies. It also aims to reduce red tape to enhance the ease of doing business in South Africa and clarify certain technical provisions in the Companies Act.

“The Companies Second Amendment Act follows from the recommendations made by the Zondo Commission of Enquiry into State Capture and aims to extend the time bars applicable to applications for director delinquency and proceedings to recover loss due to director liability.”

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Companies Amendment Act include new remuneration provisions

The key provisions in the Companies Amendment Act include new remuneration provisions applicable to public and state-owned companies, application of takeover provisions for private companies, naming of individual directors and prescribed officers, third-party access to company records and social and ethics committee (SEC) requirements, Van der Walt, Kharsany and Kalbskopf say.

Public and state-owned companies will have a duty to prepare and present a remuneration policy once every three years or whenever there are material changes to the policy and a remuneration report to present at the annual general meeting for approval by ordinary shareholder resolution. Remuneration disclosures, including pay gap disclosures, must be made in the implementation report forming part of the remuneration report.

If the remuneration report is not approved, the remuneration committee must explain how shareholder concerns were addressed at the next meeting and non-executive directors on the remuneration committee, serving 12 months or more, must stand for re-election as remuneration committee members.

The takeover provisions will now apply to affected transactions involving a private company that has ten or more shareholders with a direct or indirect shareholding in the company; and meets or exceeds a financial threshold of annual turnover or asset value to be determined by the minister of trade, industry and competition.

With respect to companies required to have their annual financial statements (AFS) audited under the Companies Act, each individual director and prescribed officer must be named in the remuneration particulars in the AFS.

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Third parties to have access to company’s Memorandum of Incorporation (MOI)

Third parties will have the right to access a company’s MOI, the records in respect of directors, the AFS and the register of disclosure of beneficial interests (where required), directly from a company, in addition to the securities register and register of directors to which third parties have access.

Certain companies below a specified public interest threshold (less than 100 in the case of internally prepared AFS and less than 350 in the case of independently prepared AFS) will be exempted from providing access to their AFS.

The SEC requirements include refinements to the provisions relating to a company’s social and ethics committee. Other requirements include validation of irregular share creation and issues, the effective date of MOI amendments, financial assistance exemption in certain instances and relaxation of share repurchase requirements, Van der Walt, Kharsany and Kalbskopf say.

The Companies Second Amendment Act covers the extension of director liability time bar and extension of time bars to bring director delinquency and probation applications.

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What companies must do now

According to Van der Walt, Kharsany and Kalbskopf, companies should promptly begin addressing the impact the new amendments, once effective, will have on their corporate and strategic operations if they have not started already. These include:

• public and state-owned companies should review the structures of their remuneration policies and reports to align with the new requirements, including pay gap disclosures. They should also amend their template AGM notices and agendas to cater for the presentation and approval of the remuneration policy and remuneration report and re-election of non-executive directors as required under the new provisions. They should also assess director rotation and appointment provisions
• private companies that are party to current and planned affected transactions should assess whether they will be subject to the takeover provisions. Where they will be involved in an upcoming affected transaction, they should prepare for the potential impact of complying with takeover-related obligations or consider requesting an exemption from the Takeover Regulation Panel. In-scope private companies involved in pending transactions may need to assess the application of the takeover provisions to their transaction and whether a TRP exemption is needed
• companies should review their MOIs to ensure alignment with the amendments, including assessing financial assistance, share repurchases and SEC-related provisions and
• if amendments to an MOI are a step in a contemplated transaction, companies should build in the requisite time to cater for the delayed effective date of the MOI amendments.

Van der Walt, Kharsany and Kalbskopf say companies should seek expert advice to help them navigate the new amendments and their impact on their businesses.