This article is aimed at company secretarial practitioners for private companies. In terms of the new Companies Act 2008, a private company can now be defined as a regulated company, which could result in additional administration. Many practitioners don't know about this, and in the case of many smaller companies, there is probably no compliance.
The law regarding the Takeover Regulation Panel (TRP) is complex and this article deals only with the situation in which private companies fall within the scope of TRP regulations. Where a private company is defined as regulated and has an affected transaction, compliance is onerous and costly.
One needs ask - was it really necessary to apply this complex and costly compliance to smaller companies?
The takeover regulation panel
For more information on the Takeover Regulation Panel (TRP), refer to its website www.trpanel.co.za
The Companies Act 71 of 2008 (the Act), created the TRP (section 196) to replace the previous Securities Regulation Panel (SRP).
In terms of section 201 of the Act, the TRP is responsible for:
Section 119 of the Act deals with the take-over regulation panel. Key aspects are:
Sections 117 to 127 and the takeover regulations do not apply unless a transaction is an affected transaction or offer as defined in section 117.
Section 117(1)(c) is the cornerstone definition and provides that an affected transaction means:
Buyback of shares
The buyback of shares constituting more than 5% of a share capital class falls within the definition in section 48 (8) (b) of an affected transaction, with sections 114 and 115 kicking in. The Companies Act 2008 does not differentiate between large and small companies (Section 114).
Section 48 (8) (b) says that, subject to the requirements of Sections 114 and s 115, if considered alone or together in a series of affected buy back transactions, then this transaction has to be conducted in terms of sections 114 and 115. This means a private company could become classified as a regulated company.
A regulated company is defined in section 117 (1) (i) as a company in which Part B, Part C and the Takeover Regulations apply in accordance with section 118(1) and (2). This means that in terms of 118 (1) and 118 (2), various types of company (including private) are defined as a regulated company. Section 118 (1) states that the provisions of the Companies Act 2008 and the takeover regulations will apply if the company is:
Refer to the definition of ‘related' and ‘interrelated' in section 2 of the Act, as it has a major bearing on whether a private company becomes regulated or not. With regard to individuals, a related party would be a relationship within two degrees of relationship. For example, it could be a brother, but a cousin is more than two relationship degrees removed.
With shares being held by a company, close corporation or trust, one would need to look at who in effect controls the voting rights of these entities and then determine what the relationship is. If they do not fall within two degrees of relationship steps, then they are considered outsiders and a regulated transaction would make the company a regulated company.
In a private company, if securities of 10% or more were transferred within the last 24 months to an unrelated party, this does not necessarily make the company a regulated company. It only becomes such if there is an offer or proposal for an affected transaction in terms of sections 112, 113 and 114.
Reporting or approval requirements
Section 121 directly applies the takeover provisions of the Act to affected transactions and offers, as any person making an offer:
What happens if a private company does not make the necessary application to the TRP because of ignorance? This area poses a grave potential risk for secretarial practitioners and company secretaries who do not advise companies correctly.
The panel in terms of section 119 (6) may wholly or partially and conditionally or unconditionally exempt an affected transaction from the application of any provision of Part B and Part C or the Takeover Regulations if:
Smaller company can make application for exemption, which the TRP will consider at a levy of R3420 per hour. The exemption will likely be granted, but at an exorbitant cost.
I believe that these regulations constitute an ‘overkill' procedure that doesn't accord with the ‘small company intent' of the new Companies Act.
A possible solution is for all existing shareholders of the private company to sign a document to the effect that no shareholder is prejudiced. There should be no or minimal cost and an automatic exemption should be granted, with the TRP not needing to spend time on it. asa
Author: Mark Silberman CA(SA) is the Managing Director of Accfin Software.