IS MY TRANSACTION SUBJECT TO THE TAKEOVER REGULATIONS?
Securities in companies are transferred daily, including transfers of shares in so-called “shelf companies”. When parties enter into a transaction, it is important to be cognisant of the regulatory requirements set out in the Companies Act 71 of 2008 (“the “Act”).
The Act came into effect on 1 May 2011 bringing about several changes in the laws regulating companies and, in some instances, the transactions involving companies or its securities. It is common cause that some changes were aimed at protecting minority shareholders in instances where companies are subject to specified transactions. Such changes included the introduction of the so-called “takeover regulations” and the establishment of the “Takeover Regulations Panel” or TRP.
What is the TRP you may ask? The TRP is an organ of state established and existing in terms of the Act. The TRP’s main purpose is the regulation of so-called “affected transactions” or offers involving what is referred to as “regulated companies” or its securities. In addition, it also has the authority to deal with certain complaints pertaining to “affected transactions” or offers.
The TRP seeks to protect the interests of shareholders during affected transactions and offers by, among other considerations:
- Ensuring the integrity of markets and fairness to shareholders during affected transactions;
- Ensuring that all shareholders receive the same information during an affected transaction, that no relevant information is withheld and that the necessary information is provided to shareholders in a timely fashion (mainly to allow them an opportunity to make an informed decision in the instance of an affected transaction);
- Preventing actions by companies intended to impede, defeat or frustrate an affected transaction; and
- Ensuring that persons undertaking affected transactions are ready, able and willing to implement the transaction..
It is important to note that the TRP is not required to consider the commercial advantages or disadvantages of any transaction or proposed transaction.
Whether a company is subject to takeover regulations and ultimately the TRP, the parties are required to determine whether the company (forming the subject matter of the transaction) is deemed to be a “regulated company” and, if so, whether the transaction to be entered into qualifies as an “affected transaction”.
A company is a “regulated company” when it is a profit company and either:
- a public company or a state-owned company (subject to certain exceptions); or
- a private company but only if i) 10% or more of its issued securities have been transferred within a period of 24 months immediately before the date of a particular affected transaction or offer; or ii) where such a private company is required in terms of its memorandum of incorporation to submit to the TRP voluntarily.
What would constitute an “affected transaction” is also clearly defined in the Act and includes:
- disposals of all or the greater part of the assets or undertaking of a regulated company;
- amalgamations or mergers involving at least one regulated company;
- schemes of arrangement between a regulated company and its shareholders;
- acquisitions of, or the announced intention to acquire 5%, 10% or any multiple of 5% of the issued shares of a regulated company;
- the announced intention to acquire the remaining shares in a regulated company.
- mandatory offers to shareholders of a regulated company; and
- compulsory acquisitions of remaining shares of a regulated company.
However, parties to an affected transaction may also apply to the TRP to have a transaction exempted from the takeover regulations. The TRP may grant exemptions where:
- there is no reasonable potential of the affected transaction prejudicing the interests of any existing security holder of a regulated company;
- the cost of compliance is disproportionate to the relative value of the affected transaction; or
- doing so is otherwise reasonable and justifiable in the circumstances.
Such an exemption application must include:
- background on and an explanation of the contemplated transaction;
- an indication of why the TRP has jurisdiction;
- the grounds on which the parties believe they should be granted an exemption; and
- consent of all existing security holders of a regulated company and in terms of which each of them waive the rights afforded to them under the takeover regulations.
In instances of non-compliance with the relevant provisions of the Act or the takeover regulations, aggrieved parties may proceed to lodge a complaint with the TRP. The TRP may investigate such complaint and, if deemed necessary, issue a compliance notice to the infringing company or parties. Failure to comply with such compliance notice may result in a fine being imposed, which fine could amount to the lesser of 10% of the infringing company’s turnover during the period of non-compliance or R1 million.
To ensure the parties comply with the necessary regulatory requirements and to avoid being subject to hefty penalties associated with non-compliance, it is advisable to seek the assistance of a suitable qualified and experienced advisor when contemplating entering a transaction.