Upcoming amendments to the Companies Act for financial assistance and buying of own shares

In the latter part of 2024, the President assented to the Companies Amendment Act of 2024, which contains several important amendments to the Companies Act, 2008. Although the commencement date of the amendments is yet to be proclaimed, it is well worth noting these changes that are in the pipeline. Two significant amendments to sections 45 and 48 of the Act are namely pending, which primarily deal with financial assistance and the acquisition by a company of its own shares. These amendments intend to enhance transparency, accountability, and corporate governance practices for South African companies.

Section 45 of the Companies Act concerns the granting of financial assistance by a company to its directors, officers, and related entities (which includes subsidiaries and holding companies). Before the amendments, this section laid out specific rules under which companies could provide loans or other financial assistance to such related entities, which requirements included shareholder approval, the company’s solvency and liquidity, and the fairness of the terms. The key update to this section is the introduction of a new sub-section (2A), which exempts financial assistance that is provided by a company to its subsidiaries from the requirements of section 45. This means that the stringent provisions concerning shareholder approval, solvency and liquidity tests, and fairness of terms, will no longer apply when financial assistance is given to a subsidiary. It must however be noted that all of these requirements still apply for financial assistance granted by a company to its holding company and other related entities or to its directors or officers and, if not complied with, will render the financial assistance void.

Section 48 of the Companies Act governs the rules surrounding a company acquiring its own shares. Currently, section 48(8)(b) contains provisions in respect of decisions by the board for a company to acquire a number of its own shares. These provisions require a special resolution from shareholders to be passed, and the requirements of sections 114 and 115 to be applied where a company acquires more than five percent (5%) of its issued shares. The amendments to section 48 remove these onerous requirements and only require a special resolution where shares are acquired by the company from any of its directors or prescribed officers, or any acquisition other than as a result of a pro rata offer made to all shareholders of the company or transactions effected on a recognised stock exchange on which shares of the company are traded.

The amendments to sections 45 and 48 are aimed at creating clarity and user friendliness, and at being less over burdensome on the conduct of business. The updated legislation will be particularly beneficial for large corporate groups, enabling them to manage their subsidiaries more effectively. At the same time, it reinforces protections against potential abuses of power by directors and officers, ensuring that shareholder interests remain at the forefront of important financial decisions. With the commencement date yet to be proclaimed, companies will need to prepare for these changes by reviewing their current governance practices and ensuring compliance once the amendments take effect.

This article was prepared by Wildu du Plessis and Tristan Hussey.