A veritable sea change has occurred in the field of commercial law, with not one but two Amendment Acts being signed into law in July 2024. Parts of the Companies Amendment Act 16 of 2024 (“First Amendment”) as well as the entirety of the Companies Second Amendment Act 17 of 2024 (“Second Amendment”) came into effect on 27 December 2024, with the publication of Government Gazette 51837 (“the Gazette”).
These Acts have wide-ranging implications for all registered companies. The Gazette proclaimed that the amendments listed in the following sections of the First Amendment came into effect upon the publication in the Gazette. These include a limitation of the scope of the definition of the term “securities” as contained in section 1 of the Companies Act 71 of 2008 (“Companies Act”). Previously, the term had a wider ambit, as it included “other instruments”. Following the change, the term “securities” now refers to only “shares or debentures, irrespective of their form or title, issued or authorised to be issued by a profit company.” References to the term “securities” are littered throughout the Companies Act, meaning that each use of the term now solely refers to “shares or debentures”.
The various amendments to section 72 of the Companies Act have introduced a new exemption pertaining to Social and Ethics Committees. In addition to the potential exemptions contained in section 72(5)(b)(i) and (ii) (which were given a slightly broader ambit with the First Amendment), the introduction of section 72(6A) exempts companies from having a Social and Ethics Committees in the event that said company is a subsidiary of a company with an existing Social and Ethics Committee who will perform the functions required by the Companies Act on behalf of the subsidiary company. This is very helpful and practical provision, especially for subsidiary and parent companies with closely linked operations. Further insertions into section 72, namely subsections (7A), (8A), (9A) and (11), govern guidelines for the composition and functioning of the Social and Ethics Committees.
Other amendments relevant to subsidiary companies include the amendment to section 45 of the Companies Act. Section 45(b)(2A) now specifically excludes from the definition of “financial assistance”, the “giving of a company of financial assistance to or for the benefit of its subsidiaries”. Section 48, pertaining to a company or a subsidiary acquiring a company’s shares (share buyback), has been amended to the effect that the existing section 48(8)(b)[1] is no longer applicable. Instead, the decision of the board of a company, must be approved by a special resolution if the shares are being repurchased from a director or prescribed officer or a person related to a director or prescribed officer of the company. A special resolution is also required for any acquisition of shares in the company, other than shares acquired as a result of a pro rata offer made by the company to all shareholders of the company or to a particular class of shareholders (even if this includes directors, prescribed officers or their related persons) or transactions on a recognised stock exchange.
Other procedural changes are made by the First Amendment being made effective. One such example of this is the amendment of section 16 of the Companies Act, which previously provided that a company’s Memorandum of Incorporation (“MOI”), other than one which changed the name of the company, would come into effect when a Notice of Amendment was filed. The amendment to section 16 provides that a MOI (in cases where there is no change to the name of the company takes place) takes effect only 10 business after the Commission receives the Notice of Amendment by the Commission, if such Notice is not rejected with reasons or endorsed before the expiry of the 10 business day period. This amendment is practical and creates a greater degree of the certainty than the previous position.
The First Amendment contains a number of provisions that have not yet come into effect, including amendments relating to, inter alia:
- B-BBEE;
- Changes to stipulations regarding the location and access to company records;
- Changes in respect of annual financial statements and the audit thereof;
- The introduction of sections relating to the duty to prepare and present a company’s remuneration policy and report;
- Changes in respect of which companies must file annual returns in terms of section 33(1) of the Companies Act;
- The inserting of a section regulating validation of irregular creation, allotment or issuing of shares (which provides a court the discretion to authorise the irregular creation, allotment or issuing of shares, where the court is satisfied that it is just and equitable to do so – a very interesting mechanism indeed);
- Further regulations for Social and Ethics Committees;
- Further regulations relating to alternative dispute resolution; and
- Added powers of the Companies Tribunal.
The Second Amendment, which is currently in force in its entirety, has, interestingly, overridden the operation of the Prescription Act 68 of 1969,[2] and stipulated that proceedings in terms of liability of directors and prescribed officers in terms of section 77 of the Companies Act may not be commenced more than three years after the act or omission that gave rise to that liability (therefore, in terms of normal prescription timelines), but that a court may, on good cause shown, extend the three-year period. This provision strengthens the enforcement of claims against directors and further bolsters the incentive for directors to act diligently in accordance with the provisions of the Companies Act.
Section 162 of the Companies Act has also been amended by the Second Amendment. Previously, an application to have a director declared delinquent would concern a current director of the company or a person who had been a director of said company within 24 months immediately preceding the application. The amendment has lengthened this period to 60 months. Therefore, companies now have up to five years after a director leaves a company to institute applications for delinquent directorship against them. The amendment further provides the possibility of another extension if good cause is shown. Again, this acts as incentive to directors to act more carefully and provides a practical purpose. If a company is dealing with the aftermath of the actions of a delinquent director, there may be no capacity in a company with new directors to hold previous directors liable in a two-year period. It seems that the Legislature’s intention is to strengthen mechanisms to hold delinquent directors liable for their actions and for their contraventions of the Companies Act.
It is evident from the above, which covers only some of the myriad amendments to the Companies Act which took effect in 2024, that it is crucial to have a thorough understanding of the nitty gritty of not only the Companies Act, but also periodic amendments thereto, and when such amendments will take effect. The alternative is to misunderstand duties imposed by the Companies Act and possibly be liable for penalties or other sanctions under Chapter 9 of the Companies Act. Furthermore, properly understanding the relevant regulations and potentially applicable exemptions can save companies costs in their attempts at compliance therein. Therefore, it is always recommended to engage a commercial attorney, for any enquiries regarding or issues with the application of the Companies Act.
- [1] Section 48(8)(b), which is now scrapped in its entirety, previously stated that a decision by the board of a company contemplated in section 48(2)(a) was subject to sections 114 and 115, if, considered alone, or together with transactions in an integrated series of transactions, it involves the acquisition by the company of more than 5% of the issued shares of any particular class of the company’s shares.
- [2] Prescription is a legal concept which, in the interest of promoting legal certainty, typically extinguishes liability for debt older than three years (with exceptions for different classes of debts like negotiable instruments and mortgage bonds).
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as legal advice.
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