Regulated Companies – The what, when and how

Companies are regulated in terms of Section 118 of the Companies Act 71 of 2008 (“the Act”) and in conjunction with Regulation 91 of the Companies Regulations. Let’s unpack the relevant sections below:

What is a regulated company?

A regulated company according to S117(1)(i), 118(1) and (2) and Takeover Regulation 91, is either:

• A public company;
• A state-owned company; or
• A private company where more than 10% of its issued securities have been transferred within the previous 24 months (other than by transfer between related or interrelated persons), or a private company which is regarded as a regulated company in terms of its Memorandum of Incorporation (“MOI”).

What does it mean to be a regulated company?

A regulated company is subject to Part C of the Act as well as the Takeover Regulations. In other words, if a private company is involved in an “affected transaction,” the company needs to comply both with Part C of the Act and with the Takeover Regulations.

What is an affected transaction?

An affected transaction is defined in S117(1)(c) as follows:

• A transaction, or series of transactions, amounting to the disposal of all or the greater part of the assets or undertaking (business) of a regulated company (S 112 and 118(3));
• An amalgamation or merger involving at least one regulated company (S 113 and 118(3));
• A scheme of arrangement between a regulated company and its shareholders (S 114 and 118(3));
• The acquisition of, or announced intention to acquire, a beneficial interest in any voting securities of a regulated company (S122(1));
• The announced intention to acquire a beneficial interest in the remaining voting securities of a regulated company, not already held by a person or persons acting together;
• A mandatory offer (S123); or
• A compulsory acquisition (S124).

Who or what is the Takeover Regulation Panel (TRP)?

The TRP was established in terms of S196 of the Act and has jurisdiction throughout the Republic of South Africa to inter alia ensure integrity of markets and fairness to shareholders during affected transactions.

A company can apply to the TRP for exemption from the Takeover Regulations and the TRP is entitled to grant an exemption if the affected transaction does not reasonably prejudice any shareholder, the cost of compliance is disproportionate to the relative value of the affected transaction or doing so is otherwise reasonable and justifiable in the circumstances.

When do the Takeover Regulations not apply?

• An approved business rescue plan requires or contemplates the fundamental transaction;
• The transfer of more than 10% of the issued shares is due to a company buy-back; or
• The transfer is between related or interrelated persons (S 118(3) and 121 (b)(ii) and Takeover regulations 91 (2)(b) and 83).

Finally, what to look out for:

The initial share transfer from the incorporator to the first shareholder of a shelf company is exempted from the Takeover Regulations, however, the shelf company will be regarded as a regulated company for the following 24 months.

One of the affected transactions is a scheme of arrangement in respect of a regulated company (S117(1)(c)(iii) read with S114).  It should be noted in this regard that where a company undertakes a share buy-back under S48(8)(b) of the Act (i.e. more than 5% of the issued securities), that section provides that such buy-back is subject to S 114 and 115 of the Act.

Since a scheme of arrangement under S114 in respect of a regulated company is an ‘affected transaction’, the same is subject to regulation by the TRP, which is required to approve all documents and circulars that are submitted to the shareholders.

If you are planning on selling your business, remember to take the regulations into account as you might be disposing of more than 10% of the securities, in which case you will need to either obtain exemption or comply with the regulations.

For more information, contact Resolve Corporate Services.