By Jaco Fraser
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On 26 July 2024, the First and Second Companies Amendment Bills were signed into law, however, is not in effect at this stage. The long awaited Amendment Bills brought significant shift in regulatory requirements. As these changes take effect, we’ll be publishing a series of articles dissecting the amendments to the Companies Act 71 of 2008 (the “Act”).
One major amendment impacts the approval process for share buy-backs. A share buy-back, or share repurchase, occurs when a company buys its own shares back from its shareholders. Section 48 of the Act outlines the conditions under which a company or its subsidiary can repurchase its shares.
Previously, section 48(8)(b) of the Act required independent expert reports, appraisal rights, and special resolutions for buy-backs involving more than 5% (five percent) of any share class. This has now been removed. Under the new provisions, a special resolution is only needed in specific cases:
- When the buy-back is not part of a pro rata offer to all shareholders of a particular class or transactions conducted on a stock exchange licensed under the Financial Markets Act.
- When shares are being bought from directors, prescribed officers, or their related parties.
While the new amendments simplify the buy-back process, crucial standards like solvency and liquidity remain unchanged. In addition, caution should still be exercised from a tax perspective, where a buy-back transaction can trigger reporting requirements or anti-avoidance provisions.