Background:

The main function of a social and ethics committee (“S & E Committee”) is to, amongst other things, monitor a company’s social and economic development. Any private company that has during any 2 (two) of the previous 5 (five) years scored above 500 (five hundred) points in terms of its public interest score, is required to establish an S & E Committee.

Recently, the Companies Amendment Bill 2023 (“Amendment Bill 2023”) has been published for purposes of amending the Companies Act No. 71 of 2008 (“Companies Act”). The Amendment Bill 2023 proposes to alter the current position regarding S & E Committees of both public and private companies.

This article shall briefly explore the amendments made to requirements applicable to S & E Committees of private companies by way of the Amendment Bill 2023.

Exemption to the S & E Committee requirement:

In line with the regulations published in terms of the current Companies Act (“Regulations”), the Amendment Bill 2023 proposes that a private company which is required to have an S & E Committee may apply to the Tribunal for an exemption. The Tribunal may grant such an exemption should the Tribunal be satisfied that the private company has a formal mechanism within its structures which substantially performs the functions of the S & E Committee, or it is not reasonably necessary, in the public interest, having regard to the nature and extent of the structure and activities of the private company.

The Amendment Bill 2023 proposes to add to the above by stating that in order to be exempt, the private company must first publish the intention to lodge an application for exemption with the Tribunal. Further details of this requirement to publish will most likely be prescribed by the Minister by way of further regulations.

When will an S & E Committee not be required:

Further in line with the Regulations, the Amendment Bill 2023 proposes that an S & E Committee will not be required in instances where a private company is a subsidiary of another company that has an S & E Committee in place, and where the S & E Committee will perform the functions on behalf of the subsidiary private company.

Period for Appointment:

In terms of both the Amendment Bill 2023 and the Regulations, a private company must appoint an S & E Committee within 12 (twelve) months after being required to do so.

Composition of the S & E Committee:

In accordance with the Regulations, the Amendment Bill 2023 provides that the members of the S & E Committee must consist of not less than 3 (three) directors or prescribed officers of the company concerned, at least 1 (one) of whom must be a director who is not involved in the day-to-day management of the business of the private company and who must not have been so involved within the previous 3 (three) financial years.

The Amendment Bill 2023 now proposes to add new provisions, including: (i) empowering the Minister to prescribe minimum qualifications, skills, and experience requirements for members of an S & E Committee which the Minister may consider necessary to ensure that any such committee comprises of persons with adequate relevant knowledge and experience to equip the S & E Committee to perform its functions; and (ii) requiring the board of the private company to appoint the members of the S & E Committee on an annual basis.

Vacancy in the S & E Committee:

The Amendment Bill 2023 further adds a new provision stating that the board of a company must appoint a person as a member of an S & E Committee within 40 (forty) days after a vacancy arises.

Reporting to the shareholders:

In terms of the Regulations, the S & E Committee must report, through one of its members, to the shareholders at the private company’s annual general meeting on the matters within its mandate.

The Amendment Bill 2023 proposes to provide the S & E Committee with an alternative way of reporting to shareholders, by stating that the report may be presented by way of a round-robin resolution.

Concluding remarks:

Although the majority of the provisions of the Amendment Bill 2023 regarding S & E Committees of private companies are a repeat of the current Regulations, some welcome amendments are proposed, which include empowering the Minister to make regulations regarding minimum qualifications of members of the S & E Committee, ensuring annual appointment of the members, fulfilment of vacancies in the S & E Committee and facilitating reporting to shareholders by way of a round-robin resolution.

VDMA’s team of experts is at your disposal for any company law assistance that you or your business may require.

Published 20 September 2023