Before the enactment of the Amendment Act, section 118 of the Act defined a ‘regulated company’ as a profit company which is a party to an ‘affected transaction’ or an offer involving the securities of such company and which includes –
(a) a public company;
(b) a state-owned company, except if such company has been exempted subject to the provisions of section 9 of the Act; or
(c) a private company, if—
(i) the issued securities of such company that have been transferred, other than using a transfer between related or inter-related parties, within a period of 2 years immediately preceding the date of the affected transaction or offer exceeds 10%; or
(ii) the company’s memorandum of incorporation expressly provides that the company and its securities are subject to the specified provisions of the Act and the Regulations.
An ‘affected transaction’ as contemplated in section 118 includes –
(a) the disposal of all or the greater part of the assets or undertakings of a regulated company.
(b) an amalgamation or merger involving at least one regulated company.
(c) a scheme or arrangement between a regulated company and its shareholders.
(d) the acquisition of, or the announced intention to acquire a beneficial interest in any voting securities of the company.
(e) the announced intention to acquire a beneficial interest in the remaining voting securities in a regulated company, not already held by persons acting jointly.
(f) a mandatory offer to shareholders of a regulated company as contemplated in section 123 of the Act; and
(g) compulsory acquisitions as contemplated in section 124 of the Act.
Regulated companies are governed by the provisions of the Act and the Regulations. Following upon the enactment of the Amendment Act, section 118(c)(i) of the Act has been amended to the effect that a company that has 10 or more shareholders with a direct or indirect shareholding in the company and whose annual assets and turnover exceed the prescribed minimum threshold, as determined by the Minister of Trade, Industry and Competition (the “Minister”), will now be considered to be a regulated company, subject to exemption by the TRP as contemplated in section 119(6) of the Act.
Therefore, the Act has completely done away with the previous requirement that a company would be a regulated company if it transferred more than 10% of its issued shares during the preceding two years of the affected transaction, thereby making companies more inclined to be scrutinised by the TRP. For purposes of the Act, shares are held directly by an individual in his/her personal capacity and indirectly by a trust or company.
In addition to the amendment to section 118(c)(i) as set out above, section 118(2) of the Act has also been amended to provide that the Minister, in consultation with the TRP, must determine the financial thresholds referred to in section 118(c)(i), having regard to the annual turnover or asset value of the company in the Republic, in general or in relation to a particular industry, to establish whether the provisions of the Act will apply to such company.
Prior to the abovementioned amendment, section 118(2) granted the Minister, after consulting the TRP, the authority to prescribe a minimum percentage of no less than 10% of the issued securities of a private company which, if transferred within a period of two years prior to an affected transaction, would mean that the company and its securities will be governed by the provisions of the Act and the Regulations.
The effect of the amendments to section 118 is that private companies will now be required to comply with the Regulations if such a company has 10 or more shareholders with a direct or indirect shareholding in the company and meets or exceeds the financial threshold of annual turnover or asset value as determined by the Minister. The thresholds are yet to be determined by the Minister and will likely only be published after the date on which section 118 comes into operation, as proclaimed by the President by notice in the Government Gazette. It is, therefore, important for private companies to familiarise themselves with the amendments and to bear the new requirements in mind when entering M&As to avoid any possible adverse consequences from the TRP due to non-compliance.
If you require advice before entering a merger or acquisition transaction do not hesitate to reach out timeously to our M&A team to help you ensure that you comply with the applicable requirements.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).
