On 25 July 2024, President Ramaphosa assented to the Companies Amendment Act, 2024 and the Companies Second Amendment Act, 2024, each of which will come into operation on a date to be fixed by the President by proclamation in the Gazette.

Much has been written about the changes to the Companies Act, 2008 (the Act) with regards to the remuneration policies and reports which will need to be prepared by public and state-owned companies. However, there are also some lesser-known changes, including changes to the provisions for financial assistance (Section 45) and share buybacks (Section 48).

Financial assistance and buybacks

Under Section 45 of the Act, subject to the provisions of the memorandum of incorporation of the company, a board of directors may authorise the company to provide direct or indirect financial assistance to a related or inter-related company or corporation if, within the previous two years, the shareholders of the company have approved such assistance, either for the specific recipient, or generally for a category of potential recipients and the specific recipient falls within that category. The amendment to Section 45 means that a special resolution will not be required when a company gives financial assistance to, or for the benefit of, its subsidiaries.

Section 46 of the Act will still apply which states that a company must not make any proposed distribution unless, among other things, the board has applied the solvency and liquidity test and has reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.

Section 48 of the Act currently allows a board of directors to determine that the company will acquire a number of its own shares; provided that such a decision “must be approved by a special resolution of the shareholders of the company if any shares are to be acquired by the company from a director or prescribed officer of the company, or a person related to a director or prescribed officer of the company”; and is subject to the requirements of Sections 114 and 115 of the Act if, considered alone or together with other 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.

Independent expert report

Section 114 of the Act requires the company to appoint an independent expert to prepare a report to the board concerning the proposed arrangement, which report must be distributed to all holders of the company’s securities.

Section 115 of the Act requires, among other things, that a meeting is called, with a minimum quorum present, at which meeting the adoption of the special resolution will be considered, and that dissenting shareholders will have appraisal rights as contemplated in Section 164 of the Act.

The Companies Amendment Act, 2024 will remove the cross-references to Sections 114 and 115 of the Act. Furthermore, once the Amendment Act is in force, a special resolution of the shareholders of the company will not be required when a share buyback is the result of a pro rata offer made to all shareholders of the company or all shareholders of a particular class (including, if applicable, directors, prescribed officers and persons related to a director or prescribed officer of the company) and will also not be needed for transactions effected on a recognised stock exchange.

The Takeover Regulation provisions of the Act may also apply to a share buyback by a company. We suggest that you contact your corporate attorney for advice regarding the applicability of the Takeover Regulation provisions to your company and any particular offer or transaction.

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