From CompliNEWS | Financial Service Intelligence Watch
Companies Act amendments signed, full analysis
President Cyril Ramaphosa has signed into law amendments to the Companies Act of 2008 that promote the ease of doing business and impose greater corporate transparency on the earnings gap between the highest and lowest paid persons in a company, writes Wyndham Hartley for CompliNEWS.
The Presidency said in a statement that the Companies Amendment Bill and Companies Second Amendment Bill referred to the President for assent jointly constitute initiatives by government to make the conduct of business less burdensome, to tighten the pursuit of delinquent directors or prescribed officers for wrongdoing, including state capture and address disparities in earnings.
‘The Companies Amendment Act as signed by the President streamlines company law to be clear, user-friendly and less burdensome on the conduct of business. This reform is important for the efficient and effective conduct of the domestic economy as well as the attraction of foreign investment.’
‘The Act is also aimed at achieving equity between directors and senior management on the one hand, and shareholders and workers on the other hand,’ the Presidency said.
It said in addition, the law addresses public concerns regarding high levels of inequalities in society by introducing better disclosure of senior executive remuneration and the reasonableness of the remuneration.
‘The law requires the preparation of a remuneration report by all public and State-owned companies in respect of the previous financial year.’
‘This remuneration report must be accompanied by the company’s remuneration policy and an implementation report that must set out detail on the total remuneration received by each director and prescribed officer as well as the total remuneration for the employee with the highest and lowest total remuneration.’
‘Among other indicators, companies must report the average and median total remuneration of all employees and disclose the remuneration gap between the total remuneration of the top 5% highest paid employees, and the total remuneration of the bottom 5% lowest paid employees of the company.’
‘Public and State-owned companies are now required to prepare and present a remuneration policy for shareholder approval.’
Other provisions include the empowerment of a court to validate the creation, allotment or issue of shares, which would otherwise be invalid, upon application before the court by a company or any person who holds an interest in the company.
The law also requires paid shares to be transferred to a stakeholder and held in terms of stakeholder agreement, until fully paid.
These measures are directed at preventing unethical, reckless and criminal conduct in businesses that will impact negatively on shareholders, workers, clients and customers and the economy as a whole.
The Companies Second Amendment Act signed by Ramaphosa contains a response by Government to one of the recommendations of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector, including Organs of State (State Capture Commission).
This law amends the Companies Act to extend the period during which proceedings may be launched to recover any loss, damages or costs for which a person may be held liable under the law.
The State Capture Commission recommended that section 162 of the Companies Act be amended to ensure that an application for a declaration of delinquency may be brought even after two years on good cause shown.
While the recommendations applied to specific cases, the new law extends the time bar for declaring a director of a company a delinquent director, from 24 months to 60 months. It also gives the court the power to extend the period on good cause shown.
This provision ensures that directors and prescribed officers in companies can be held accountable for a significant period after they have committed alleged offences.
Compli-Serve
The President has signed the long-awaited Companies Amendment Bill 2023 into law, introducing significant changes to the Companies Act 71 of 2008 (Companies Act). Initially intended as technical amendments to address practical issues, the Bill evolved to include substantial changes after extensive negotiations between organised business, government, and labour at the National Economic Development and Labour Council (Nedlac). Key amendments focus on the disclosure of directors’ remuneration and the consequences of failing to get a remuneration report approved by shareholders.
Many amendments are widely supported, removing procedural hurdles that hindered business operations. For instance, the abolition of the ‘5% buy-back rule’ (section 48(8)(b)) has been replaced with a regime requiring special resolutions for share repurchases from directors, prescribed officers, and related persons. The decision of the board to acquire shares also requires a special resolution, unless the shares are acquired through a pro rata offer to all shareholders or via transactions on a recognised stock exchange.
Another broadly supported amendment exempts companies from the financial assistance requirements set out in section 45 when providing assistance to subsidiaries. Additionally, landlords will benefit from the amendment regarding business rescue, which now classifies amounts due under leases for public utility services, rates and taxes, electricity, and water as post-commencement financing, giving these amounts preference during business rescue proceedings.
The Bill also introduces amendments aimed at enhancing transparency. Section 26(1) now includes the register of the disclosure of beneficial interest in company records accessible to certain persons. Section 26(2) expands access rights to include a company’s securities register, memorandum of incorporation (MOI), director records, register of disclosure of beneficial interest, and annual financial statements (AFS). However, access to AFS is limited to specific types of companies with higher public interest scores.
Companies required to have their AFS audited must disclose the remuneration and benefits of each individual director and prescribed officer, who must be named. This allows stakeholders to see director and officer remuneration, provided the company meets certain public interest score thresholds.
Public and state-owned companies must now prepare and present a remuneration policy and report. Section 30A mandates that the remuneration policy, which requires shareholder approval every three years, be presented at the AGM. Section 30B(4) introduces a ‘two-strike’ rule for non-executive directors on the remuneration committee (Remco). If a remuneration report is not approved, the Remco must explain how shareholder concerns were addressed and the non-executive directors must stand for re-election. If the report is again not approved the following year, those non-executive directors cannot serve on the Remco for two years, though they may still serve as directors if re-elected.
Section 30B(3)(c) requires the remuneration report to address the wage gap, detailing the highest and lowest employee remunerations, the average and median remunerations, and the ratio between the top 5% highest-paid and bottom 5% lowest-paid employees. This comprehensive approach includes salary, benefits, and any incentives.
Additionally, the Companies Second Amendment Act extends the period to declare a director delinquent from 24 to 60 months, aligning with recommendations from the Zondo Commission of Enquiry into State Capture. It also grants courts discretion to extend the period for recovering losses, damages, or costs, currently within three years of the act or omission.
These amendments collectively aim to enhance corporate governance, transparency, and accountability, making the business environment more efficient and equitable. Compliance officers must now integrate these changes into their practices to ensure adherence to the new regulations.