South Africa Companies Amendment Bill, 2021: Further legal certainty : Clyde & Co

Hopefully, the financial threshold to be determined by the applicable Minister in consultation with the TRP will be determined in a realistic manner and with due regard to the mischief that the legislature is aiming to cure, which is to ensure, amongst other things, fairness and transparency to the holders of shares of large companies. We now explore the proposed changes to section 118 , and section 16 (the effective date of amendments to a Memorandum of Incorporation of the Companies Act. This spring, White & Case is hosting and sponsoring a private opening preview of Sotheby’s auction of Modern and Contemporary African Art in London. This client event celebrates the work of artists across the continent, with a strong focus on the independence and colonial eras. Modern and Contemporary African Art, Sotheby’s newest department, was formed in 2016 to address growing market demand. Sales in this category have broken more than 50 artist records and attracted collectors from 40 countries across six continents. It is important to remember that issuing additional shares can also have consequential effects such as a change of control requiring regulatory approvals or a change in shareholding triggering a mandatory offer to minority shareholders.

• One of the primary aims of adopting the Companies Act nearly a decade ago was to bring South Africa’s company legislation up to date with modern requirements.
• The Bill seeks to address this uncertainty by clarifying that amendments to a MOI will become effective 10 business days after the CIPC has received the NOA, unless the CIPC has endorsed or rejected the NOA prior to the expiry of the 10 business days.
• This contrasts with being required to delay closing until CIPC sends a notice confirming that the MOI has been accepted and placed on file.
• Section 38A proposes a mechanism for a court to legitimise invalidly created, allotted or issued shares.
• This also entails an amendment to the memorandum of incorporation to be filed with the CIPC and the same timing issues will arise.

Please contact Ernie van der Vyver or Hielien Venter if you have any questions or would like to participate in the process to consolidate such comments ahead of this deadline. The continent also has the potential to lead on developing best practices with its maritime shipping sector, as we explain in “Sustainability in Africa’s maritime industry.” In “Proposed amendments to South Africa’s Companies Act,” our team provides an update on regulatory changes advanced to create a more business-friendly climate. The degree to which several African countries have succeeded on this front is the subject of “World Bank report highlights successes in Africa.” Finally, we focus on the outlook for arbitration in “Resolving disputes in Africa’s mining sector.” https://online-accounting.net/ A pre-emptive process will still need to the followed where a company proposes to issue a separate class of shares from those already in issue, unless the memorandum of incorporation specifies otherwise. A company must ensure that there are enough shares available for issue and if not, it must increase its authorised shares. The Bill seeks to address this uncertainty by clarifying that amendments to a MOI will become effective 10 business days after the CIPC has received the NOA, unless the CIPC has endorsed or rejected the NOA prior to the expiry of the 10 business days. If the CIPC fails to endorse the NOA, or reject the NOA with reasons, within 10 business days, then the NOA will take effect upon the expiry of the 10 business days.

Effective date for amendments to companies’ constitutional documents

The operation of South African companies is regulated by the Companies Act of 2008 , which replaced the Companies Act of 1973. In turn, the 1973 Companies Act replaced South Africa’s first company legislation, the Companies Act of 1926. On a more optimistic note, it is encouraging that on 21 September 2018 the Companies Amendment Bill 2018 was published for public comment in the Government Gazette. The Bill encompasses a number of changes to the Companies Act following commentary received from industry and the legal profession, and contains the first set of significant changes to the Companies Act since its promulgation. Please let us know if there are topics or issues you would like us to cover in the future. This issue explores various ways in which African nations are becoming more hospitable to business and investment interests, depicting a fast-changing continent where—despite undeniable challenges—there is much cause for optimism. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information.

Clearly if the shares are issued before the CIPC provides confirmation that the share capital has been changed, there is significant risk to the transaction. The amendment to section 16 provides that amendments to MOIs will take effect ten business days of being filed if not rejected by the CIPC.

Validating irregular creations, allotments or issuance of shares

However, CIPC indicated in their non-binding opinion that it does not consider a NOA to be filed unless the NOA has been accepted by the CIPC and, as such, unless CIPC has issued a form COR 15.2 in relation to such an amendment. Section 38A resurrects section 97 of the Companies Act 61 of 1973 and is anticipated to be a welcome addition in instances where innocent irregularities with issued shares exist. This has a practical effect of avoiding “unscrambling” a transaction or triggering a breach of a title warranty, particularly if the share were issued prior to a transaction with a third party. It is worth noting that the proposed amendment to section 16 will not be applicable to company name changes because the Companies Act already provides certainty regarding the effective date in these circumstances.

Since the advent of the Act, the legal community has long been divided as to when the amendments to the share capital take place. Is it the date on which the amended MOI was validly submitted to CIPC, or the date on which CIPC provides confirmation that the MOI has been accepted? This lack of clarity can have a significant effect on time sensitive M&A deals as shares cannot be issued to parties until there is confirmation that those shares “exist” .

Sustainability in Africa’s maritime industry

The new section 118 will bring about greater certainty when evaluating if the Takeover Regulations apply to a transaction and will guard against their unnecessary application where a private company may become “regulated” by virtue of a benign transfer of shares. Section 38A proposes a mechanism for a court to legitimise invalidly created, allotted or issued shares. In terms of the amendment, application can be made by the company or an interested person and, if the court is satisfied that it is just and equitable to do so, it may make an order, together with conditions, validating such shares. Section 38 of the Companies Act currently provides that if a company purportedly issues shares that exceed what the company’s CIPC :: Authorised shares changes MOI authorizes, the purported issuance may be retroactively authorized within 60 business days after the shares were purportedly issued. A possible solution could be that the emergency funds are loaned to the company, subject to the loan becoming immediately repayable at a premium interest rate if the loan is not converted to shares through an issue within a specified period. This could be used as an incentive to the company and its shareholders to complete the issue of shares, despite any regulatory delays. One could also consider issuing hybrid debt instruments with voting rights , under section 43 of the Companies Act, as these are typically not subject to the same restrictions as the issue of shares.

• Transactions effected in the ordinary course on a recognised stock exchange on which shares of the company are traded.
• Although some of the amendments have not been well drafted, we hope that these issues will be rectified before promulgation and the final amendments may resolve some of the issues faced by advisors in M&A transactions.
• In particular, section 16 provides that a name change will become effective when the amended registration certificate reflecting the name change is issued by CIPC.
• If CIPC’s view is correct, and the parties elect to close a transaction before CIPC sends its notice confirming that the MOI has been accepted and placed on file, then for example, the issuance of newly created shares on closing would be void unless ratified within 60 business days after the shares were purportedly issued.
• As a result of a non-binding opinion issued by the Companies Intellectual and Property Commission , there is currently uncertainty in the market as to when amendments to the MOI of a company would become effective.