Companies Act, 2008 - Disclosure of beneficial interests in securities
This article deals with provisions in the Companies Act, 2008 (the "new Act") relating to recording and disclosure of information relating to beneficial interests in securities. The South African government has announced that the new Act will replace the Companies Act, 1973 (the "existing Act") later this year.
Section 56 of the new Act provides for disclosure of beneficial interests in securities. The term "securities" is defined so as to include shares, debentures and derivatives whether listed (i.e. exchange traded) or unlisted (i.e. off-exchange).
The term "beneficial interest" is defined in section 1 of the new Act. In terms of that definition, a person is regarded as having a beneficial interest in any securities if that person has the right to receive any distribution in respect of the securities or to exercise or cause to be exercised any rights attaching to the securities or to dispose or direct the disposition of the securities or any distribution in respect of the securities.
Section 56(2) of the new Act provides for a wider definition of "beneficial interest" in certain cases involving securities issued by a public company. In terms of that section the following persons will also be deemed to have a beneficial interest in securities of a public company:
• Any person married in community of property to the person with a beneficial interest in the securities;
• The parent of a minor child who has a beneficial interest in the securities;
• Any person who is party to an agreement (entered in with any person who has a beneficial interest in the securities) providing for cooperation regarding the acquisition, disposal or any other matter relating to the a beneficial interest in the securities;
• The holding company of a company that has a beneficial interest in the securities; and
• Any other person that controls a legal entity that has a beneficial interest in the securities.
In terms of section 56(3) and (4), if the registered holder of any securities of a public company is not also the holder of the beneficial interest in the securities, the registered holder must, on a monthly basis, within five business days after the end of each month, disclose to the issuer of the securities the identity of the person that holds the beneficial interest. It seems that the monthly disclosure requirement applies only where the registered holder of the securities in not the holder of the beneficial interest. Therefore, where, for example, the registered holder of the securities is a wholly owned subsidiary of another company (a holding company) in circumstances where the subsidiary holds the securities for its own benefit, the subsidiary is not required to disclose the identity of its holding company on a monthly basis notwithstanding that, in terms of the abovementioned deeming provisions, the holding company is deemed to have a beneficial interest in the securities. Similarly, the registered holder who is married in community of property need not disclose the identity of that person's common law spouse on a monthly basis. Regulation 36(4) of the draft regulations made pursuant to the new Act provides that the disclosure need not be made on a monthly basis but only at the end of the month during which there is something new to disclose and that, in the case of uncertificated securities of public companies, the rules of the central securities depository (the "CSD") may require more frequent disclosure. It is doubtful that this regulation would be valid insofar as it purports to reduce the frequency of disclosure specified in the Act.
A company that knows or has reasonable cause to believe that any of its securities are held by one person for the beneficial interest of another, may require either of those persons to: (a) confirm or deny that fact; (b) provide particulars of the extent of the beneficial interest held during the three years preceding the date of the notice; and (c) disclose the identity of each person with a beneficial interest in the securities held by that person (see section 56(5)). This right of a company to call for disclosure applies not only to public companies but to all companies under the new Act.
In terms of section 56(7), a company that falls within the meaning of ‘‘regulated company'' as defined in section 117(1)(i) must establish and maintain a register of the disclosures made in terms section 56 regarding beneficial interests in securities. A ‘‘regulated company'' is defined so as to include any company to which the takeover regulations apply. According to s118(1) the takeover regulations apply to public companies, non-exempt state owned companies and certain private companies. The takeover regulations apply to a private company if more than 10% of the shareholding of the company has been transferred to a third party in the preceding 24 months.
Public companies and other regulated companies that are required to produce annual financial statements must publish in their financial statements a list of the persons who hold beneficial interests equal to or in excess of 5% of the total number of securities of that class issued by the company, together with the extent of those beneficial interests (see section 50(7)(b)).
Disclosures of beneficial interests in securities of regulated companies must be included in the securities register of the company concerned (see Regulation 36(3)). The requirements relating to unregulated companies are different.
If any company (including any un-regulated company) has issued securities other than shares (e.g. bonds or derivatives), the securities register relating to those securities must include the names and addresses of the holders of beneficial interests in the securities (see section 50(2)(iv) and 50(3)(b)). In the case of uncertificated bonds and derivatives issued by an unregulated company, the rules of the CSD may dispense with the need to include in the securities registers information regarding beneficial interests in the securities (see section 50(3)(b)(ii) as read with Regulation 36(3)). Since information relating to beneficial ownership in securities of unregulated companies does not form part of the automatic, monthly disclosure requirements imposed on registered holders, the only way in which this information can be obtained is in terms of a specific request by the company in terms of section 56(5). There is no indication in the new Act or the draft regulations as to whether or how the companies concerned should complete their securities registers with information regarding beneficial interests. It is arguable that all companies that are required to include information concerning beneficial interests in their securities registers in circumstances where regular monthly disclosure is not required should from time to time exercise their rights to call on registered holders of securities to make disclosure under section 56(5), perhaps at least on annual basis.
It is not clear why unregulated companies are not required to keep record of beneficial interests in their shares whilst being required to keep record of beneficial interests in securities other than shares. This might be an oversight since the draft regulations seem to assume, but do not require, that all companies (including unregulated companies) will keep a register of disclosures of beneficial interests in certificated shares in connection with the provisions permitting holders of beneficial interests to exercise votes on certificated shares (see regulations 43(2)(b) and 43(3)).
A person that has a beneficial interest in the securities issued by a company may inspect the securities register (which may or may not include information relating to beneficial interests in securities), the financial statements and the record of directors of the company (see section 26(1)). Thus, it would appear that someone that has a beneficial interest in, say, a company's bonds, may inspect not only the information in the securities register relating to beneficial interests in bonds but also relating to shares. Registered holders of securities that are not also beneficial holders of the securities held by them have no special rights of inspecting the securities register. They, strictly speaking, only have the rights of inspection under section 26(3) which provides that a company must keep a register of its members and directors and that the register must be available for inspection by any member of the public.
Companies Act, 2008 - Exclusivity - Partnerships
Both the existing and the new Acts are intended as exclusive frameworks for establishing legal entities. In other words, the Acts provide for the establishment of legal entities (i.e. companies) and prohibit the establishment of legal entities and business vehicles not provided for in the Acts. The extent of the prohibition in the new Act is different from that contained in the existing Act insofar as there is no prohibition in the new Act against the establishment of partnerships with more than twenty members.
For further information concerning any item in this publication please contact Jurgens Bezuidenhout on JB@JurgensB.co.za or telephone +27 82 922 3671
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