On 25 July 2024, the amendments to the Companies Act 71 of 2008 (the “Act”) were assented to by the President. Since then, certain provisions of the Companies Amendment Act 16 of 2024 (the “Amendment Act”) have come into operation on 27 December 2024. The Amendment Act introduces amendments to section 48 of the Act, which deals with share buyback transactions and is one of the provisions which are now in operation. A brief discussion of the amendments to section 48 follows.
Section 48 of the Act deals with the requisition of shares by a company or its subsidiaries from its shareholders. Before the Amendment Act, section 48 set out numerous prerequisites to be met in instances where a company intended to repurchase its own shares. The requirements included, inter alia, the need for a special resolution where more than 5% of the issued shares are repurchased. In such instances, independent expert reports were required, as well as informing dissenting shareholders of their appraisal rights. The stringent requirements made simple reacquisition transactions more burdensome than they needed to be.
The amended section 48 seeks to remedy the issues which have arisen. The amendment retains the requirement that the reacquisition of shares be approved where the shares are acquired from a director or prescribed officer of the company or any person related to them. However, the Amendment Act does away with the 5% acquisition provision and replaces it with any share acquisition requiring shareholder approval except in two circumstances.
A special resolution will not be required for a share buyback through an offer made pro rata to all shareholders, including where directors, prescribed officers or persons related to a director or prescribed officer of the company hold shares which are the subject of the offer. A special resolution will also not be required in respect of transactions effected on a recognised stock exchange on which the shares are traded.
As a result of the amendments, the percentage being repurchased is irrelevant, and any share repurchases will require a special resolution, with the exceptions being in the two instances mentioned above. Compliance with the solvency and liquidity test remains a requirement, and companies should satisfy the test before making any distribution. Furthermore, a company will not have to obtain an independent expert report in respect of transactions where the company acquires more than 5% of the issued shares of a particular class of its shares.
Insofar as concerns regarding the application of sections 114 and 115 of the Act, being the obtainment of an independent report and the manner in which the repurchase is to be finalised, may arise in respect of share buybacks, the intention behind the amendment is that these sections remain applicable in respect of the circumstances provided thereunder unless the transaction falls within one of the exceptions.
It is important to note that not all of the amendments contained in the Amendment Act are operational as yet, with the remainder of the amendments yet to be proclaimed by the President by proclamation in the Gazette. However, directors and shareholders must take note and acquaint themselves with all the amendments to successfully navigate compliance with the Act. For assistance navigating the new amendments contained in the Amendment Act, reach out to our company law experts in our Corporate Advisory Team.
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