The Companies Act 71 of 2008 (the Act) has brought into existence the Takeover Regulation Panel which has the function of regulating affected transactions or offers in terms of the Act and the Takeover Regulations, without having regard to the commercial advantages or disadvantages of the transaction, but in order to ensure integrity and fairness in the market place and to the shareholders of Regulated Companies. Particularly insofar as enabling the shareholders of regulated companies to make informed decisions and to obtain the necessary advice in respect of proposed offers.   

When would a private company be required to comply with the takeover regulations 

Quite often the parties to a proposed transaction amounting to the disposal of all or a greater part of the assets of a private company, a share buyback of a private company, or a proposed merger or acquisition in respect of a private company, are at pains to attempt to determine whether the proposed transaction would be required to be reported to the Takeover Panel in accordance with the Takeover Regulations or not. It is, however, only in limited cases where a private company would be considered to be a Regulated Company by the Act.

The Act states that a private company will be a Regulated Company only if:

  • The percentage of the transferred issued share capital of such private company, other than transfers between related or inter-related persons, exceeds 10% (or such other percentage as the Minister may require) of the total issued share capital of such a private company within 24 months immediately before the date of the particular transaction or the transfer in terms of the particular transaction exceeds 10% (or such other percentage as the Minister may require) of the total issued share capital of such a private company; or
  • The Memorandum of Incorporation (MOI) expressly provides that the particular private company and its share capital is subject to the Takeover Regulation Panel and the Takeover Regulations.

 

Furthermore, it is only in the event of a so-called “Affected Transaction” that the Takeover Regulation Panel should be notified. An Affected Transaction is defined by the Act as:

  • A transaction or series of transactions amounting to the disposal of all or the greater part of the assets or undertaking of a Regulated Company, as contemplated in Section 112 of the Act, subject to Section 118(3);
  • An amalgamation or merger, as contemplated in Section 113 of the Act, if it involves at least one Regulated Company, subject to Section 118(3);
  • A scheme of arrangement between a Regulated Company and its shareholders, as contemplated in Section 114 of the Act, subject to Section 118(3);
  • The acquisition of, or announced intention to acquire, a beneficial interest in any voting securities of a Regulated Company to the extent and in the circumstances contemplated in Section 122(1) of the Act;
  • 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 in concert;
  • A mandatory offer contemplated in Section 123 of the Act; or
  • A compulsory acquisition contemplated in Section 124 of the Act.

     

Conclusion

Even though the provisions relating to the Takeover Regulation Panel in terms of the Act will only apply to private companies in limited circumstances, private companies need to exercise caution when a transaction is envisaged that would constitute an Affected Transaction as per the Act. This is particularly so if the company had attended to transactions in the previous 24 months in terms of which its issued share capital was transferred for one person and/or entity to another.

Phillip Kruger

Legal Advisor, Johannesburg