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Regulatory changes on mergers and acquisitions in 2019

Fasken
Reading Time 7 minute read
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The year 2018 was an eventful year for the legal fraternity. The year saw various regulatory changes. We consider the regulatory changes in company law, competition law and mining law which will likely affect transactions in 2019. 

COMPANY LAW 

On 21 September 2018, the Department of Trade and Industry (“DTI”) published the Companies Amendment Draft Bill (the “Companies Bill”) for comment. This seeks to amend the Companies Act No. 71 of 2008 (the “Companies Act”). The reason for these amendments are listed by the DTI as keeping up with current trends and also to close some loopholes in the in the Companies Act as discovered during the implementation period. Below are some of the key proposed amendments. 

Effective date of amendment of a memorandum of incorporation (“MOI”) 

The effective date of an amendment to the MOI under section 16 (9) was the subject of much debate in the past about whether the amendment had to be accepted by the Companies and Intellectual Property Commission (“CIPC”) before it becomes effective. In terms of the Companies Bill, it is envisaged that the existing subsection 9(b) will be amended so that the effective date would be 10 business days after receipt of the Notice of Amendment if CIPC (after the expiry of the 10 business days) has not endorsed or has failed to deliver a rejection of the Notice of Amendment to the company with reasons.

The 10-business day period will have to be taken into account when drafting commercial agreements with suspensive conditions such as the filing of an amendment or a replacement of an MOI. 

Consideration for shares 

Section 40(5) deals with an exception to the general principle that shares can only be issued once they have been fully paid. 

Currently this exception required that these shares be transferred to a third party to be held “in trust” until paid. There is uncertainty over this term “in trust” – whether it means a trust as envisaged under the Trust Property Control Act, in trust akin to trust monies held say by an attorney or an amount in escrow.

The amendment substitutes the term “in trust” with the phrase to be held “by the third party as a stakeholder in terms of a stakeholder agreement but not as an agent for either the company or the subscribing party” and later transferred to the subscribing party in accordance with the trust agreement.

The section still refers to a ‘trust agreement” which presumably is referring to the stakeholder agreement mentioned in the proposed amendment.

Repurchase of shares

A new subsection (9) to section 48 is proposed. It requires that a decision of the board must be approved by the shareholders of the company if shares are to be bought back from a director, a prescribed officer or a person related to a director or prescribed officer. This requirement does not apply if a pro rata offer is made to all the shareholders of the company or a particular class of shareholders of the company or due to transactions effected in the ordinary course on a recognized stock exchange on which shares of the company are traded. 

This proposed section is akin to section 41(1) of the Companies Act. Similarly, the proposed amendment does not provide that a particular repurchase must be specifically approved or whether a general approval for a certain or indefinite period will be sufficient.

Application of Takeover Regulations to private companies

This proposed amendment to section 118(1)(c)(i) seeks to limit the circumstances under which a private company will be a regulated company and therefore be subject to the Takeover Regulations.  In terms of the proposed amendment, a private company will become a regulated company only if at the time of the relevant affected transaction, the private company is required in terms of the Companies Act, Regulations or its MOI to have its annual financial statements audited.

Companies can still make such Takeover Regulations applicable by including them in their MOI.

Validation of irregular creation, allotment or issuing of shares

This new section 38A would empower a court to validate the irregular creation, allotment or issue of shares by a company, provided that the court is satisfied that it is satisfying itself that it is just and equitable to do so.

The application can be brought by the company or by any interested person.

The current section 38(2) still provides that if an issuance exceeds the authorised share capital, this can be cured retrospectively by a board or shareholder resolution without approaching the court.

COMPETITION LAW

The Competition Amendment Bill (‘the Competition Bill’) is currently in its final stages of promulgation subject to signature by the President. The Competition Bill introduces some fundamental changes to South Africa’s competition law landscape, including changes to its merger regime. We set out below the three need-to-know contemplated changes in respect of notification to the Competition Commission.

Factors to be considered in merger analysis

When analyzing a merger, the Competition Commission will usually consider numerous factors, including those listed in section 12A of the Competition Act No. 89 of 1998. The Competition Bill introduces three additional grounds under section 12A for the Competition Commission and Competition Tribunal to consider: (1) the extent of ownership by a party to the merger in another firm or other firms in related markets; (2) the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors, and (3) any other mergers engaged in by a party to a merger for such period as may be stipulated by the Competition Commission.

Public interests factors in mergers 

The Competition Bill amends an existing public interest ground and further introduces a new public interest ground for the Competition Commission and Tribunal to consider. The amendment sees consideration being afforded to medium sized businesses, and a further analysis as to whether the merger has an effect on small and medium sized businesses to ‘participate’ within relevant markets. The newly introduced ground sees consideration being given to the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. Both inclusions reflect the intention of the legislature to protect and promote the participation of small and medium sized businesses, as well as historically disadvantaged persons.

National security interests notification

In addition to the competition authorities’ merger review process, a committee constituted by the President, comprising of cabinet members and other public officials, will now need to consider whether a merger involving a foreign acquiring firm has an adverse effect on national security interests which are listed in the Competition Bill. The President must identify and publish in the Gazette a list of national security interests of South Africa, including the markets, industries, goods or services, sectors or regions in which a merger involving a foreign acquiring firm must be notified to the committee. A favourable outcome before the committee would be a prerequisite to closing a transaction.

MINING LAW 

The year 2018 saw the South African Government taking decisive steps to bring about policy and regulatory certainty in the mining sector. These steps were the publication of the new Mining Charter and the withdrawal of the Mineral and Petroleum Resources Development Amendment Bill.

On 15 June 2018, the Minister of Mineral Resources gazetted the ‘Draft Broad-Based Socio-Economic Empowerment Charter for the Mining and Mineral Industry, 2018’, for public comment. After engaging with stakeholders in the industry, on 27 September 2018 the Minister gazetted the final version of the new Mining Charter for implementation. The Implementation Guidelines that must be read with the new Mining Charter were published in December 2018. 

In terms of the 2018 Mining Charter companies applying for new mining rights granted after the coming into effect of the Mining Charter 2018 must have a minimum of 30% BEE shareholding. This 30% must be distributed in a prescribed manner. Pending applications lodged and accepted prior to the commencement of the Mining Charter 2018 will be processed in terms of the requirements of the 2010 Mining Charter with a minimum of 26% BEE shareholding. However, such mining companies must, within a period of 5 years from the effective date of such mining right, increase their BEE shareholding to 30%. 

The Mining Charter 2018 recognises the once empowered, always empowered principle for the duration of the mining right, not for the life of the mine. An existing mining right holder who achieved a minimum of 26% BEE shareholding and whose BEE partner has since exited is recognised as compliant for the duration of the right. Such recognition is not transferrable and will lapse upon transfer of such mining right or part thereof and will not apply to an application for a new mining right or renewal of the mining right.
 

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