The South African corporate landscape is set for transformation with the impending Companies Act Amendment Bill 2023 (“Amendment Bill 2023”), currently published for public comment, particularly in relation to the regulations governing share buy-backs. The Amendment Bill 2023 brings a welcome clarification to certain provisions of the Companies Act No. 71 of 2008 (“Companies Act”) regulating share buy-backs (also known as share repurchases) and proposes to alleviate the procedural burden in relation thereto. In this article we will investigate these changes to determine the effect they may have in practice.
The Current Conundrum:
Section 48(8) of the Companies Act presently mandates that a special resolution of the shareholders for a share buy-back by the company in question is required if:
- the buy-back is from a director or prescribed officer of the company or a person related to either of them; and
- the transaction involves the acquisition by the company of more than 5% (five percent) of a particular class of shares in that company, which in turn triggers a requirements to comply with the proceedings set out in sections 114 and 115 of the Companies Act.
Ambiguity arises from the use of the word “and” in the aforementioned provision, as it remains unclear whether both conditions (1 and 2 listed above) must be met before shareholder approval is necessary, or if these are distinct scenarios, each able to operate independently. This has created confusion in practice, leading to inconsistent interpretations and compliance challenges. Additionally, the procedures in terms of sections 114 and 115 of the Companies Act places onerous obligations on companies, including, amongst other things, obtaining an expert report, obtaining a special resolution of the holding company under certain circumstances, and affording shareholders with appraisal rights.
The Changes Proposed by the Amendment Bill 2023:
The Amendment Bill 2023 seeks to address this ambiguity by amending section 48(8) of the Companies Act. The Amendment Bill 2023 proposes that a special resolution of the shareholders will be required for a share buy-back by the company, if:
- the buy-back is from a director or prescribed officer of the company or a person related to either of them; or
- the buy-back entails the acquisition of shares in the company, other than shares acquired through a pro rata offer made by the company to all shareholders or all shareholders of a particular class, or transactions on a recognised stock exchange on which the shares of the company are traded.
Effect of these Changes:
The practical effect of these proposed amendments is significant, as now all share buy-backs will require approval by way of a special resolution of the shareholders, notwithstanding the percentage of shares which are to be repurchased, apart from the exceptions as mentioned above. This creates higher transparency for shareholders and ensures to protect shareholding. Furthermore, compliance with the procedural steps as set out in sections 114 and 115 of the Companies Act have been completely abolished, which streamlines the share buy-back process, reduces administrative burdens, and saves both time and resources for companies. Lastly, the amended provisions eliminate the confusion surrounding the interpretation of section 48(8) of the Companies Act as it provides a straightforward framework for determining when shareholder approval is necessary, ensuring consistent compliance across the corporate landscape.
The proposed changes to section 48(8) of the Companies Act through the Amendment Bill 2023 promise a more efficient and transparent process for share buy-backs in South Africa. By simplifying the approval requirements and exempting buy-backs from the onerous provisions of sections 114 and 115 of the Companies Act, the amendments strike a balance between corporate flexibility and shareholder oversight.
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Published 2 October 2023