The Institute of Directors of Southern Africa (IoDSA) has welcomed Government's move to make some important changes to the new Companies Act. Many of the proposed amendments are aimed at correcting grammatical and interpretational errors and are of academic interest. Here's a closer look at some of the most significant amendments. Business Rescue The dreaded 'cherry picking' clause has been amended to afford creditors more protection. The new Act gave the business rescue practitioner powers, during business rescue proceedings, to cancel or suspend agreements (partially, entirely or conditionally) to which the company was a party. This provision caused widespread concern that the business rescue practitioner could exercise these powers within his discretion to 'cherry-pick' the agreements and parts of agreements that were most favorable to the company to remain bound to, and would thereby prejudice creditors. The proposed amendments makes the business rescue practitioner's power to cancel agreements in whole, part or conditionally subject to an urgent court application where it will have to be proved that the cancellation is on terms that are just and reasonable. Also, the proposed amendments make it clear that the business rescue practitioner will only be able to suspend (entirely, partially or conditionally) the company's obligations under agreements, for the duration of the business rescue proceedings only, and that suspended provisions relating to security granted by the company continue to apply insofar as protection is afforded to security-holders in the event of disposal of the property over which the security-holder holds security. This amendment affords more protection to creditors by curbing the business rescue practitioners' powers to cancel agreement and by clarifying creditor's rights in the event of suspension of agreements. Special Resolutions The minimum percentage of voting rights required by the new Act for the adoption of an ordinary resolution will be more than 50% (thus 50% +1). The minimum percentage of voting rights required for the adoption of a special resolution will be at least 75%. The new Act requires that a margin of at least 10% be maintained between the requirements for approval of ordinary and special resolutions on all matters. The new Act permits a company's MOI to adjust the percentage of ordinary resolutions to a higher percentage. Before the proposed amendments, the new Act only allowed a company's MOI to adjust the percentage of special resolutions to a lower percentage, subject to always maintaining a 10% difference between the percentages allowed for special and ordinary resolutions. The proposed amendment contained in the Bill will cause the new Act to allow a company's MOI to adjust the percentage of special resolutions to a different (meaning higher or lower) percentage. This still means that the MOI would never be able to determine a percentage for special resolutions lower than 60% +1. However, the MOI will be allowed to determine a percentage for special resolutions up to a 100%. Also, the MOI will never be able to determine a percentage for ordinary resolutions higher than 90% + 1. This amendment means that companies will be granted more flexibility in adjusting the percentage required for special resolutions. Foreign Companies The new Act required foreign companies to register as external companies if they 'conducted business or non-profit activities' in South Africa. The test for determining whether a foreign company conducts business or non-profit activities was wide in ambit and included various activities, for instance the holding of a shareholders' or board meeting in South Africa, or even having a bank account or office in South Africa. The amendments now propose a much narrower test to determine which foreign companies should register as external companies. In fact, the Bill's proposed amendment expressly states that participating in the activities listed above, for example the holding of a meeting in South Africa, should not be regarded as conducting business activities or non-profit activities in South Africa for the purposes of registering as an external company. The narrower test proposed by the Bill requires foreign companies to be party to one or more employment contracts within South Africa, or to have engaged in certain activities in South Africa for a minimum period of 6 months. This amendment means that fewer foreign companies will be required to register as an external company. Shareholders Agreements The new Act determines that shareholders agreements are void to the extent that they are inconsistent with the Act or the company's Memorandum of Incorporation. The new Act gives existing companies a "transitional period" of two years after the new Act comes into force to bring their MOI (the existing articles of association and memorandum of association will automatically be deemed to be the MOI) in line with the new Act's requirements. During the transitional period the provisions of the MOI will prevail in most conflicts arising between the MOI and the new Act. The new Act provided no transitional period of relief in respect of shareholders agreements. The Bill proposes amendments that will provide a two year transitional period to bring shareholders agreements in line with the provisions of the new Act. During this transitional period, shareholders agreements will continue to have the same force and effect, and after the transitional period it will only have force and effect to the extent that it is not inconsistent with the new Act. Therefore a two year transitional period will now also be granted to shareholders agreements, as is granted to MOIs. Minority dissent and fundamental transactions Section 115(3) of the Act provides relief for dissenting shareholders in the event that a resolution to approve a fundamental transaction (being a disposal to dispose of all or the greater part of the assets or undertaking, amalgamation or merger, or scheme of arrangement) has been adopted. Section 115(3)(a) of the new Act affords minority shareholders the right to require a company to seek court approval for implementation of a fundamental transaction (if the resolution to approve the fundamental transaction was opposed by at least 15% shareholders). Also, section 115(3)(b) affords any shareholder who voted against the resolution (regardless of shareholding) the right to apply to court for a review of a fundamental transaction. This provision affords minority shareholders the right to prohibit the implementation of a fundamental transaction Despite its noble intentions, section 115(3) caused concerns because it set out no timelines within which dissenting shareholders should exercise these rights. This could potentially result in devastating consequences as the new Act allowed for shareholders to invoke this remedy long after a fundamental transaction has been implemented. The Bill's proposed amendments now set timelines for invoking both of these remedies. Minority shareholders are afforded five business days after the vote within which to require the company to seek court approval for implementation of a fundamental transaction. A shareholder who voted against the resolution is afforded 10 business days after the vote within which to apply to court for a review of a fundamental transaction. This amendment relieves much concerns and uncertainty regarding fundamental transactions.