The Companies Amendment Act, 2024 has made important changes in regard to the requirements for share repurchases in terms of section 48 of the Companies Act, 2008 (Companies Act).

New position regarding share repurchases.

Sections 48(1) to 48(7) are unamended and compliance with section 46 is still required for all share repurchases, essentially requiring the board to reasonably conclude that the solvency and liquidity test will be satisfied after the repurchase.

Section 48(8)(a) has not changed substantively and still requires approval by way of a special resolution adopted by the shareholders if any shares are to be acquired from a director or prescribed officer of the company or any person related to a director or prescribed officer of the company.

Section 48(8)(b) has been amended to remove previous onerous requirements applicable to schemes of arrangement. It provides that all share repurchases must be approved by a special resolution of the shareholders, except in instances where the shares are to be acquired as a result of:

  • a pro rata offer made by the company to all shareholders of the company or a particular class of shareholders of the company, notwithstanding that the pro rata offer made to all shareholders may also include the persons referred to in section 48(8)(a), namely, a director or prescribed officer of the company or any person related to a director or prescribed officer of the company; or
  • a transaction effected on a recognised stock exchange on which the shares of the company are traded, being a licensed exchange as contemplated in the Financial Markets Act, 2012 (FMA).

Accordingly, a special resolution of the shareholders is required for all share repurchases, unless the transaction falls within these two exceptions. The new broad exemption for pro rata offers makes sense because they treat all shareholders of a class equally.

The exemption for transactions effected on a licensed exchange assumes that licensed exchanges will protect shareholders through their listings requirements. This exception is limited to exchanges licensed in South Africa as contemplated by the FMA.

Unfortunately, the “or” between section 48(8)(a) and the exceptions in 48(8)(b) means that there is room for debate whether the exceptions in sub-section (b) remove the need for approval by way of a special resolution of the shareholders where the exempt transaction includes the repurchase of shares from any director or other person listed in sub-section (a). Such an interpretation appears to be contrary to the apparent purpose of the amended section 48(8)(b).

Previous provisions

Prior to the amendment, section 48(8)(b) provided that a decision by the board of the company relating to share repurchases was subject to compliance with the onerous requirements of section 114 and section 115 (applicable to schemes of arrangement) if the acquisition, considered alone or together with other transactions in an integrated series of transactions, involved an acquisition of more than 5% of the issued shares of any particular class of shares of the company.

In addition to requiring compliance with section 48, the provisions applicable to schemes require that the company obtain an independent expert’s report, provide detailed information relating to the “scheme”, and procure approval by way of a special resolution of the shareholders.

Is your MOI aligned too new or old?

While the unalterable provisions of the Companies Act prevail over any inconsistent provisions of a memorandum of incorporation (MOI), an MOI can impose more onerous requirements. Many existing MOIs reflect the pre-amendment position with its more onerous requirements regulating share repurchases and these are likely to continue to apply, in addition to the requirements of the amended section 48. Companies should review their MOIs to identify desirable updates. It is important to consider whether it is desirable to align the company’s MOI with the amendments to section 48 to take advantage of the exceptions and less onerous requirements, or to retain or include more onerous requirements (for example, to protect minority shareholders).