By Jaco Fraser
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As mentioned in our July 2024 article, the First and Second Companies Amendment Bills were signed into law on 26 July 2024, marking a significant shift in regulatory requirements, though they are not yet in effect. As these changes take effect, we will continue to provide insights into the amendments to the Companies Act 71 of 2008 (the “Act”).
One of the key areas impacted by these amendments is Section 45, which governs financial assistance provided by companies to related or inter-related entities. Financial assistance in terms of Section 45 includes lending money, guaranteeing a loan or other obligation, and securing any debt or obligation on behalf of a director or prescribed officer of the company or of a related or inter-related company, or to a related or inter-related company.
Section 45 of the Act imposes stringent conditions, including board approval, special shareholder resolutions, solvency and liquidity tests, and fair and reasonable terms, all of which had to be satisfied concurrently.
A new subsection, namely Section 45(2A) was introduced to curtail the stringent requirements of Section 45. Section 45(2A) determines that the financial assistance provisions of Section 45 no longer apply when a company provides financial assistance to or for the benefit of its subsidiaries.
The latest changes exclude financial assistance to an entity’s subsidiary from these stringent requirements. Previously, such assistance required a special resolution, adherence to solvency and liquidity tests, and notification to shareholders and trade unions.
This amendment is expected to ease administrative burdens for group companies, simplifying intra-group financial transactions. However, certain scenarios, like those involving 40/30/30 shareholding structures or offshore subsidiaries, remain subject to approval requirements. Companies should be aware of these exceptions to fully grasp the scope of the new regulations.