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If passed, the Companies Amendment Bill will be the first substantive amendment to the Companies Act since it came into force in 2011.
The Bill includes a contentious requirement for large companies to disclose their executive remuneration policy to the shareholders for approval including a ratio comparing the compensation of the highest-earning employees with that of the lowest-earning employees.
The Bill controversially imposes reporting requirements on large companies to make certain company records, such as annual financial statements and shareholder information relating to true share ownership, available to third parties including government institutions, labour unions and the general public.
The Bill tightens the requirements relating to corporate disclosure of true share ownership by obliging companies to request from registered shareholders information about the persons who in fact control their shareholdings.
There is no clear timing for the enactment of the Bill
On 1 October 2021, the Department of Trade, Industry and Competition (‘DTIC’) published the Companies Amendment Bill, 2021 (‘the Bill’) for public comment. It is the second draft of the Companies Amendment Bill to be published; the first draft having been published on 21 September 2018. The Bill aims to amend the Companies Act, No. 71 of 2008 (‘the Act’) in several significant ways. A few of the most important changes are explained below.
Disclosure of Executive Remuneration
One of the main aims of the Bill is to make the process for determining executive remuneration for large companies more transparent. The Bill therefore seeks to insert a duty for all public and state-owned companies to submit a report on their remuneration policy for directors and other office-bearers to their shareholders for approval by ordinary resolution at each annual general meeting. The Bill seeks to align the Act with the recommendations of the King IV Report on Corporate Governance.
One of the items to be included in the report on executive remuneration is the so-called ‘pay-gap’: a ratio comparing the total remuneration of the top 5% highest paid employees to that of the bottom 5% lowest paid employees of the company. The clear aim of this requirement is to curb excessive executive remuneration at the expense of the lowest paid employees of the company. Concerns, however, have been raised about the possible adverse effects of such a provision considering South Africa’s issues with skilled individuals leaving the country for opportunities in foreign jurisdictions and the effect that it may have on South Africa’s competitiveness for entrepreneurial innovation in comparison to foreign jurisdictions.
Access to company information
The Bill furthermore introduces two provisions which increase third parties’ access to company information for large companies. Again, the aim is to make large corporations and their corporate information more accessible and transparent; and to ensure corporate accountability to the public at large. The provisions also emphasise the DTIC’s recognition of the public as a legitimate stakeholder in the decisions and financials of large corporations.
The first provision seeks to give third parties access to a company’s the annual financial statements and the register of beneficial ownership. However, the Bill intends only to give third parties this right in respect of large companies: all public and state-owned companies, but only those private and non-profit companies whose public interest score is greater than 100 if the company’s annual financial statements are internally prepared, or 350 if the annual financial statements are independently prepared.
The second provision will require companies whose public interest score exceeds a particular threshold to file a copy of their latest financial statements, securities register and register of disclosure of beneficial interests with their annual return to the Companies and Intellectual Property Commission (‘CIPC’). Those companies will furthermore be required to make the annual return and the accompanying information available electronically to third parties.
Provisions to improve the ease of doing business
The Bill includes various provisions whose purpose is to make doing business less administratively burdensome for some companies. These include:
- For the purpose of removing the uncertainty currently created by the section of the Act which regulates the amendment of the MOI – the Bill includes a provision that a Notice of Amendment (‘NOA’) will take effect 10 business days following receipt of the NOA by CIPC, if the Commission has failed to endorse or reject the NOA after expiration of those 10 business days;
- The Bill will amend the financial assistance requirements so that they no longer apply to financial assistance provided by a holding company to its subsidiary;
- Certain regulated share buy-backs will no longer require approval of the shareholders by means of an ordinary resolution; and
- The Bill seeks to restrict the scope of application of the takeover provisions as they apply to private companies, so that only those private companies that have ten or more shareholders with a direct or indirect shareholding in the company and that exceed a still to be determined financial, annual turnover or asset value threshold, fall within the Takeover Regulation Panel’s jurisdiction.
Beneficial ownership and the new ‘true owner’ concept
In line with the third main objective of the Bill – to prevent money laundering and terrorism finance – the Bill introduces a new concept called the ‘true owner’, which seeks to identify the person who exercises actual control over a shareholding in the company, regardless of who the registered holder is and regardless of any intermediaries between the registered holder and the person exercising actual control over the shares.
This is a significant change to the current Act, which merely gives companies a discretion whether to request information relating to beneficial ownership from a registered shareholder that the company suspects is holding the shares for the beneficial interest of another person or persons. The amendment therefore seeks to end the current policy of ‘don’t ask, don’t tell’.
The Bill, if passed, will be the first substantive amendment to the Companies Act since it came into force in 2011. The period for public commentary on this draft of the Bill has been closed since 31 October 2021. It remains to be seen how much of the Bill will find its way into the final version that is ultimately passed by Parliament. When the final Bill will be passed is also as yet unknown.
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Article by Caryn Leclercq and Nicholas Moss