The Companies Amendment Bill published on October 1 by the Department of Trade, Industry and Competition (dtic) for public comment is a revision of the bill published for comment on September 21, 2018, which resulted in a three-year scrutiny and discussion between government and interested parties.
The revised bill contains amendments proposed by the Specialist Committee on Company Law, which was established in 2011, amendments proposed by stakeholders, and amendments to “keep up with the current trends and to close some loopholes” in the present act.
The extensive public engagement between government and interested persons and organisations included the Specialist Committee on Company Law, the SA Institute of Chartered Accountants, the Banking Association of SA, the SA Institute of Professional Accountants, the SA Property Owners Association, Strate, the Johannesburg Stock Exchange, the Institute of Directors in Southern Africa, the Independent Regulatory Board for Auditors, investigative journalism organisation AmaBhungane, the Helen Suzman Foundation, the B-BBEE Commission, the Companies and Intellectual Property Commission, the Companies Tribunal, the Takeover Regulation Panel, the Association of Black Securities and Investment Professionals, and Who Owns Whom (Pty) Ltd.
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The technical changes include making provision for:
- The right of members of the public to inspect and copy a company’s Memorandum of Incorporation including any amendments, the records in respect of the company’s directors, annual financial statements, securities register and the register of the disclosure of beneficial interests of the company. This provision will not apply to companies below a certain size.
- The granting of financial assistance by a holding company to its subsidiary has been freed from the unnecessary requirements contained in the act.
- Minimum qualification requirements for members of the social and ethics committee, the appointment of members, and the filing of vacancies. The social and ethics committee report requires approval by means of an ordinary resolution of shareholders, that is, 50%.
- A public company must publish a statement on its website and the Stock Exchange News Service (Sens) that shall form part of the committee report, which must show the steps taken to engage with any dissenting shareholders.
- Mandatory audit firm rotation commences in 2023, and the cooling-off period relating to auditors is reduced from five years to two.
- Disbursements to third parties in business rescue proceedings – for example, costs incurred for utilities such as rates and taxes, electricity, water, sanitation and sewer charges by landlords – can now be included in ‘post-commencement finance’ and enjoy the relevant preferential ranking.
- The judicial rectification of invalid or irregular issue of shares. This provision was contained in the prior Companies Act of 1973 (prior to the Companies Act, 2008).
- An amendment that a special resolution will not be required when a company is implementing a share buyback by means of an offer made pro-rata to all shareholders.
- A new definition of a private company for the jurisdiction of the Takeover Regulation Panel over private companies. For this purpose a private company must have 10 or more shareholders with direct or indirect shareholding in the company, and must meet or exceed the financial threshold of annual turnover or asset value which shall be determined by the minister in consultation with the panel.
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Disclosure of executive remuneration
The bill has proposed the following amendments/insertions:
- Directors or prescribed officers of companies that are required to be audited who receive remuneration and benefits must be named in the annual financial statements.
- Public companies and state-owned companies must present a directors’ remuneration report for approval by the board. Once approved by the board, the report must be presented to the AGM for approval by ordinary resolution, meaning 50% of shareholders need to vote against the remuneration report for the provisions of the act to be triggered. Thereafter the report must be presented to the AGM every three years, or whenever material changes are made.
Companies must publish details of their highest-paid employee, lowest-paid employee, average remuneration, median remuneration and the gap between the top 5% highest paid and the bottom 5% lowest paid employees.
- The department said: “The amendments proposed in the bill are also required to tackle the injustice of excessive pay. The pay gap has been a historical challenge in South Africa and a contributor to the country’s inequality.”
- The bill introduces a requirement for approval by ordinary resolution on a remuneration implementation report.
- The bill does not propose what the ideal gap between executive and worker pay should be, but proposes transparency and “empowers shareholders to be more effective”.
Organised labour and business differ on two prime issues, that is, whether the shareholders’ vote on the remuneration report should be binding (labour prefers a 75% binding vote) or advisory, and the basis for the calculation of the ratio between the highest and lowest paid employees.
Business and labour have not reached agreement on the definition of ‘remuneration’.
Further, business does not agree on disclosing bonuses (this causes ‘peaks’) in the remuneration figure, and labour favours disclosing the executives’ actual annual remuneration.
To circumvent the skewing of the amount for the lowest-paid employees by outsourcing the lowest paid, it has been proposed that the salaries of sub-contracted employees are disclosed. But this has not been addressed in the bill.
Public comment has been invited on whether the ratios should reflect pre-tax or post-tax remuneration.
The bill provides a definition of ‘true owner’ and introduces several measures that companies will have to implement to establish and report their true ownership.
The bill defines a ‘true owner’ to be a natural person who has the power to direct the registered holder of a share with regard to the share, or who ultimately benefits from the shareholding.
The bill provides that the company must request registered holders of shares to disclose the identity of the ultimate beneficial shareholders, for whose benefit the shares are held. Further, companies must establish and maintain a register of owners of beneficial interests in their shares.
The company must also publish in its audited financial statements details of all persons who alone or in aggregate hold beneficial interests amounting to 5% or more of the total number of shares of that particular class of shares.
Companies must require this information from registered shareholders once every quarter.
The bill notes that shareholders may fragment their economic interest through multiple smaller shareholdings held through nominee companies, and requests comments from the public on the overall approach to beneficial ownership in the bill, and specifically on the threshold for requiring information as to the identity of the holders of beneficial interests in the shares.
Another bill on the cards
Worker representation on company boards and the extension of directors’ duties in favour of a multiplicity of stakeholders will be dealt with in a further bill to be introduced “later this year, after appropriate consultation”.
Interested persons may submit written comments on the proposed bill no later than 30 calendar days from the date of publication of the notice on October 1, by sending an email to [email protected]