Now nearly a year into effect, the Companies Amendment Act of 2024 has made significant changes to how companies in South Africa can buy back their shares. In many cases, the amended rules make the process simpler – but companies should review their internal governance documents (MOIs) to ensure they aren’t still following outdated, stricter procedures.
The Act was signed into law on 30 July 2024, with key provisions – including those dealing with share repurchases under section 48 of the Companies Act – taking effect from 27 December 2024, as published in Government Gazette No. 51837. The Companies Second Amendment Act of 2024 also came into effect on the same day.
In a recent blog, associate Lukrisha Ramadu and commercial lawyer Richard de la Harpe of Norton Rose Fulbright outlined what’s changed – and what hasn’t.
Simpler share buybacks (in most cases)
Previously, companies buying back more than 5% of any class of shares had to follow the complex process used for schemes of arrangement. This meant compiling an independent expert report, issuing detailed disclosures, and securing special resolutions under sections 114 and 115 – a time-consuming and expensive exercise.
The 2024 amendments have lifted those onerous requirements in most cases. But shareholder approval by special resolution is still needed for most buybacks.
Sections 48(1) to 48(7) remain unchanged, which means all share repurchases must still pass the solvency and liquidity test – ensuring the company can pay its debts after the buyback.
Section 48(8)(a) also remains the same: if the company is buying shares from a director, prescribed officer, or someone related to them, a special resolution is still required.
Key changes in section 48(8)(b)
The big change lies in section 48(8)(b). This no longer triggers the complex “scheme” rules. Instead, it now requires a special shareholder resolution for all share repurchases – unless the buyback falls into one of two exceptions:
- A pro-rata offer to all shareholders (or all shareholders in a class) – even if directors or related parties are included.
- A transaction on a licensed exchange, such as the JSE, where protections are already in place through the exchange’s rules.
These two exceptions aim to simplify fair, routine buybacks. As Ramadu and de la Harpe explain: “The exemption for transactions effected on a licensed exchange assumes that licensed exchanges will protect shareholders through their listings requirements.”
A lingering grey area
However, there is still some legal uncertainty. The use of “or” between section 48(8)(a) and the new exceptions in 48(8)(b) has created confusion.
It is unclear whether the exceptions remove the need for a special resolution even if a buyback includes shares from a director or related party.
This wasn’t the intention, say Ramadu and De la Harpe:
“Such an interpretation appears to be contrary to the apparent purpose of the amended section 48(8)(b).”
In practice, it is safer to assume that if a director or related person is involved, a special resolution is still required – regardless of the exception.
What if your MOI says something different?
Even though the law overrides any inconsistent clause in a company’s memorandum of incorporation (MOI), the MOI can still impose more stringent requirements – and many companies haven’t updated theirs.
Before the amendment, most MOIs included the stricter, pre-2024 requirements, including compliance with scheme provisions for buybacks over 5%. If these clauses remain in place, the company may be unintentionally over-complying.
Ramadu and De la Harpe caution: “Many existing MOIs reflect the pre-amendment position with its more onerous requirements regulating share repurchases, and these are likely to continue to apply.”
They advise companies to review their MOIs and decide:
- Do you want to align with the new, simplified rules, to reduce red tape?
- Or would you prefer to keep stricter rules – for example, to protect minority shareholders?
The bottom line
The 2024 changes to section 48 of the Companies Act have made share buybacks easier – but only if your company’s MOI allows you to benefit from them. It’s a good time for boards and legal advisers to revisit their MOIs, check for unnecessary hurdles, and update where needed.
When in doubt, obtain shareholder approval. And always ensure your governance documents reflect the rules you actually want to follow.
Disclaimer: The information in this article is a general guide and should not be used as a substitute for professional legal advice.
