Companies Amendment Acts

The Department of Trade and Industry has been discussing changes to the Companies Act 71 of 2008 (Companies Act) for some time and finally the Companies Amendment Act 16 of 2024  (Companies Amendment Act 2024) and the Companies Second Amendment Act 17 of 2024 (Companies Second Amendment Act 2024) was signed by the President on 30 July 2024.

The following changes is of importance to companies registered in South Africa:

MOI changes (Section 16)

The Companies Act states in section 16(9)(b) that the MOI changes are effective on the date that the Notice is filed or a later date as set out in the Notice. The CIPC in a non-binding opinion, stated that the filing will only be accepted after the amendments are verified and the CIPC has ensured that the amendments comply with the Companies Act and Regulations. The amendments are therefore only effective after acceptance of the changes by the CIPC by issuance of a form CoR 15.2.

This created uncertainty as the CIPC does not always respond timeously or companies do not receive the response.

The Companies Amendment Act, 2024 clarifies that the Notice to change the MOI will be effective 10 business days after the CIPC has received the Notice, unless the CIPC has endorsed or rejected, with reasons, within those 10 days. Where a date is specified in the Notice, it must be after the 10 business days in S16(b)(i).

Address and location (Sections 25 and 26)

The Companies Act requires that companies file a notice setting out the location as to where records are kept.  The CIPC will in future publish this notice. It should be easier for persons that require access to the records to know where to find them.

With regards to access, the Companies Amendment Act 2024 includes a change in that people who do not hold beneficial interest in securities issued by a profit company or are not members of an Non-Profit Company (NPC) may inspect and copy (previously inspect or copy) the MOI, records in respect of directors, AFS, securities register or members register and the register of disclosure of beneficial interest holders of the company.

Of interest is that the right to inspect and copy the AFS does not apply to a private company, an NPC or personal liability company where the AFS are internally prepared with the PI Score below 100 or where the AFS are independently prepared in a company with a PI Score below 350.

Directors remuneration (Section 30)

The Companies Amendment Act 2024 provides much needed clarity that directors names must be disclosed when directors’ remuneration is disclosed. Directors were often concerned as to whether the financials could include their remuneration without names, i.e. Director 1, Director 2, etc.or if their names had to be included. The amendment also clarifies that the remuneration and benefits of directors and prescribed officers must be disclosed.

Remuneration policy and report (Section 30A and 30B)

Section 30A of the Companies Amendment Act 2024 requires that all public companies and state-owned companies must prepare a binding remuneration policy. The remuneration policy must be presented to and approved by the shareholders at the annual general meeting (AGM) by ordinary resolution. The policy will remain in force for three years from approval to be approved every three years thereafter. Amendments within this period can be made with approval of shareholders by ordinary resolution at a shareholders meeting, called for this purpose, or an AGM.

Section 30B sets out the duty to prepare and present a company’s remuneration report which must be approved at the AGM.

The remuneration report must include the following

- background statement,

- copy of remuneration policy, and

- implementation report.

 The implementation report must include the following details:

o   total remuneration received by each director and prescribed officer;

o   the total remuneration of the highest paid employees;

o   the total remuneration of the lowest paid employees;

o   the average and the median remuneration of all employees; and

o   the remuneration gap reflecting the ratio between the total remuneration of the top 5% highest paid employees and the total remuneration of the bottom 5% lowest paid employees of the company.

Where the remuneration policy is not approved at the AGM, it must be presented at the next AGM, explaining the manner in which shareholders’ concerns has been taken into account. The directors who are not involved in the day-to-day management of the company and serve on the remuneration committee must stand for re-election as members of the committee at the AGM at which the explanation is presented. 

If at the following AGM, the remuneration report of the previous financial year is also not approved by ordinary resolution the directors who are not involved in the day-to-day management of the company and serve on the remuneration committee may continue to serve as directors, provided they successfully stand for re-election at the AGM. They will not be eligible to serve on the remuneration committee for a period of two years thereafter.

The provisions of subsections 4(b), 5(a) and 5(b) dealing with directors who are not involved in the day-to-day management do not apply to members of the committee who have served for a period of less than 12 months in the year under review.

Annual return (Section 33)

The Companies Act requires that every company must file an annual return and include their annual financial statements (AFS), where required to prepare the AFS in terms of section 30(2) or section 30(7) per the

regulations. The Companies Amendment Act 2024 requires companies to submit a copy of latest annual financial statements approved by the board for a public company, state-owned company or any other profit or non-profit company whose public interest score exceeds the limits in section 30(2) or the regulations in terms of section 30(7). Section 30(2) requires AFS to be audited, audited voluntarily as per the MOI, shareholder or directors’ resolution, or independently reviewed. It appears that all companies requiring their AFS to be audited (mandatory or voluntary) or independently reviewed will need to submit their AFS to the CIPC.

Loans or financial assistance to directors (Section 45)

Section 45 has been changed to include an exclusion stating that the provisions of this section do not apply to a company providing financial assistance to, or for the benefit of its subsidiaries.

Shareholders meetings (Section 61)

The Companies Amendment Act 2024 includes the requirement for the social and ethics committee report and the remuneration report to be presented at the AGM and for the social and ethics committee members to be appointed at the AGM together with the appointment of the auditor and audit committee members.

Social and ethics committee (SEC) (Section 72)

The SEC of public and state-owned companies must consist of at least three members, of whom the majority must be directors who are not involved in the day-to-day management of the business for the past three financial years. For other companies, there must a minimum of three members of whom one must be a director who is not involved in the day-to-day management of the company for the past three financial years.

For public and state-owned companies the SEC report must be presented at the AGM. Committee members to be appointed at the AGM per section 61 above.

For other companies the board must appoint the SEC members annually and the SEC must present its report annually at a shareholders meeting or by written resolution.

Auditor appointment (Section 90)

At present the Companies Act requires that auditors  be appointed at an AGM. The Companies Amendment Act 2024 proposes that private companies, personal liability companies and non-profit companies not requiring an AGM appoint their auditor at a shareholders meeting.

The Companies Amendment Act 2024 also changes the 5-year cooling off period to 2 years – this is specific to where auditors provided certain services, such as bookkeeping, and the company then wants to appoint them as the auditor. The change would mean that the auditor must not have provided any prohibited services to the client for at least 2 years and no longer the current 5 years.

Liability of directors and prescribed officers (Section 77)

Section 77(7) of the Companies Act provides that proceedings to recover any loss for which a person may be held liable in terms of the section may not be commenced more than 3 years from the act or omission that gave rise to the liability. The Companies Second Amendment Act 2024 amends the section to empower the courts, on good cause, to extend the time period beyond three years.

Application to declare director delinquent or under probation (Section 162)

According to S162(2) and 162(3), an application to declare a person delinquent or placed under probation may be brought if the person concerned is a director of the company or was a director, within the 24 months immediately preceding the application.

The Companies Second Amendment Act 2024  extends the period to 5 years and empower the courts, on good cause, to extend that period in a specific case. This amendment appears to be retrospectively applicable, i.e. court will be empowered to extend the period even if the listed circumstance (to cause the director to be declared delinquent or under probation) was committed before the amendment.

Conclusion

Although the effective date must still be published, shareholders, directors and company representatives need to start preparing to ensure they meet the new requirements when the effective date is published. We are, however, also still awaiting the publication of the regulations setting out how the changes needs to be implemented.

Author:

Juanita Steenekamp, Senior Manager