LUNGA MALOYI: Signing of Companies Amendment Bill to be welcomed

The Companies Amendment Bill, which aims to promote transparency and accountability in business operations, includes provisions for the disclosure of directors’ remuneration and consequences for failing to get a remuneration report approved by shareholders.

Many of the amendments are widely supported as they remove procedural hurdles that previously hindered business operations. For example, the abolition of section 48(8)(b), known as the “5% buyback rule”, has been replaced with a requirement for a special resolution for share repurchases from directors, prescribed officers and related people.

A board’s decision to acquire shares is also subject to a special resolution unless the shares are acquired through a pro rata offer to all shareholders or transactions on a recognised stock exchange. Consequently, all share repurchases now require a special resolution unless they meet these exceptions.

Another welcome amendment makes it easier for a company to provide financial assistance to its subsidiaries. Landlords will also benefit from an amendment concerning companies in business rescue. Any amounts owed by a company in business rescue to a landlord for public utility services, rates and taxes, electricity and water, sanitation and sewerage charges will now be considered post-commencement financing, giving these payments priority to keep the company operational.

While some of the amendments were well received, while others aimed at promoting greater transparency sparked debate. For example, the amendment to section 26(1) expands the right to access company records to include the register of beneficial interest disclosures. Section 26(2) now allows individuals without beneficial interest to inspect and copy a company’s securities register, memorandum of incorporation, director records, register of beneficial interest disclosures and annual financial statements. However, this right does not apply to private, nonprofit or personal liability companies with public interest scores below specified thresholds.

Section 30 has been amended to require that companies must have their annual financial statements audited to include the remuneration and benefits of each director and prescribed officer by name. This transparency allows stakeholders to see individual remuneration details if the company exceeds the public interest score thresholds.

All public and state-owned companies must now prepare and present a remuneration policy and report. The newly inserted section 30A outlines the requirements for the remuneration policy, which must be approved by shareholders at an AGM by an ordinary resolution and remain in force for three years.

Section 30B(4) introduces a “two-strike” rule for nonexecutive directors on the remuneration committee. If the remuneration report is not approved at the AGM, the committee must address shareholders’ concerns at the next AGM and nonexecutive directors must stand for re-election. If the report fails again the following year, nonexecutive directors on the committee will be ineligible for two years but may continue as directors if re-elected.

Section 30B(3)(c) details the contents required in the remuneration report, specifically addressing the wage gap. This includes total remuneration for each director and prescribed officer and the remuneration of the highest- and lowest-paid employees, average and median employee remuneration, and the ratio between the top 5% and bottom 5% of earners.

Additionally, the Companies Second Amendment Bill 2023 extends the time bar to declare a director delinquent from 24 to 60 months, following recommendations of the Zondo state capture commission. The bill also grants courts discretion to extend the period for recovering losses, damages or costs beyond the current three-year limit.

Existing regulations will need updating, as there are also several areas where specific limits must be prescribed by the minister, such as the financial thresholds that will necessitate approval from the takeover regulation panel for private companies with more than 10 shareholders.

However, the primary consideration moving forward is determining the reasonable transition period to facilitate smooth compliance with the amendments. This will be crucial to ensuring businesses have time to align their operations with the new requirements.

While the bill was signed into law after extensive negotiations between organised business, government and labour at the National Economic Development & Labour Council, the current regulatory framework is cumbersome and stifles business innovation and expansion. A collaborative effort is required between the private sector and government to streamline regulations and create a more business-friendly climate.

• Maloyi is director of economic policy at Business Unity SA.