Navigating the new corporate landscape | The impact of the Companies Amendment Acts

Navigating the New Corporate Landscape: The Impact of the Companies Amendment Acts

South Africa’s corporate regulatory environment has undergone a significant transformation with the enactment of the Companies Amendment Act 16 of 2024 and the Companies Second Amendment Act 17 of 2024 (together, the “Amendment Acts”). Signed into law on 26 July 2024, these changes affect multiple facets of business operations, from governance structures and employment practices, to shareholder engagement. As of 27 December 2024, certain provisions of the First Amendment Act and all provisions of the Second Amendment Act are now in effect, demanding increased transparency, greater accountability for directors, and more rigorous compliance with remuneration disclosures.

New remuneration disclosure requirements

A central focus of the Amendment Acts are enhanced transparency around pay structures in public and state-owned companies. While not yet fully in force (pending further regulations), these measures require:

• A remuneration policy (Section 30A): This policy must be approved by shareholders at least once every three years during an Annual General Meeting (AGM).

• An annual remuneration report (Section 30B): This report is to be presented for shareholder approval at each AGM, detailing:

  • Total remuneration of each director and prescribed officer

  • Total remuneration of the highest-paid and lowest-paid employees

  • Median and average remuneration across the entire workforce

  • The pay gap between the highest and lowest earners

Additionally, the “two-strike rule” stipulates that if shareholders reject the remuneration report in two consecutive AGMs, the non-executive directors serving on the remuneration committee must step down and cannot serve on that committee for two years.

While these requirements may initially pose compliance challenges, they also provide an opportunity for companies to refine their remuneration policies, underscore equitable pay practices, and elevate stakeholder confidence.

Extension of time bars for holding directors accountable

Previously, companies had three years to initiate legal action against directors and prescribed officers for breaches of fiduciary duties. Under the Amendment Acts, courts may now extend this period retroactively if there is “good cause.”

Similarly, the time limit to pursue delinquency proceedings under Section 162 of the Companies Act has been extended from two to five years, with further extensions possible at the court’s discretion. While these changes broaden the scope for holding directors accountable, they do not override existing prescription rules governing contractual and employment-related claims.

Implications for employees in Business Rescue proceedings

The Amendment Acts further reinforce the priority of employees’ unpaid remuneration in business rescue processes. Such claims are treated as post-commencement finance, placing employees second in line for payments, surpassed only by the remuneration and expenses of business rescue practitioners and costs directly linked to the rescue process. Although landlords now rank higher for unpaid utilities, employees maintain a strong preferential position.

Changes to social and ethics committees

Public and state-owned companies must now elect social and ethics committees through shareholder approval rather than board appointment, with at least half of committee members required to be non-executive directors. While the immediate effects on employees are not yet fully clear, the emphasis on shareholder involvement could lead to more stringent oversight of ethical standards, sustainability practices, and compliance with labour laws.

Conclusion

Collectively, the Amendment Acts usher in pivotal reforms that reshape how South African businesses manage remuneration, ensure director accountability, and uphold employee interests. As these legislative changes take root, companies are encouraged to review their corporate policies and governance frameworks, ensuring robust compliance and a culture of transparency. By proactively aligning with these evolving standards, businesses can foster greater trust among shareholders, employees, and the broader public, laying a strong foundation for long-term success.

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