What Private Companies Need to Know About Takeover Regulations

As South Africa has entered a technical recession, we can expect an increase in merger and acquisition activity. Often the Takeover Regulations contained in the Companies Act No. 71 of 2008 are overlooked. Failing to adequately consider these implications could have dire consequences for shareholders.
 
The Act seeks to provide minority shareholders with more certainty when specific transactions are undertaken, but it is important to be aware that, as a small or medium private company, the administrative duties associated with the regulation of transactions can be arduous and costly.
 
The Takeover Regulation Panel (TRP) regulates affected transactions or offers of Regulated Companies, as set out in section 196, in part B and C of chapter 5.
 
A common misconception is that Regulated Companies are only large, listed companies. This is definitely not the case. Private companies can become Regulated Companies if more than ten percent of the shares are transferred in a 24-month period.
 
In particular, the use of shelf companies needs to be carefully evaluated in any transaction. Shelf companies inadvertently become Regulated Companies as soon as shares are transferred from the initial founder to the new shareholders. Please take professional advice on this point.
 
If the Takeover Regulations are going to apply to a transaction, then disclosures, approvals and reporting requirements will need to be undertaken with the TRP. Failure to do so can result in a complaint being filed with the TRP and may result in an administration fine, penalties being imposed or the transaction becoming voidable.
 
The TRP provides information on takeover regulations on its website and, in particular, explains Regulated Companies that will be affected by transactions set in part B and C of chapter 5 of the Act as the following:

Regulated companies are defined as:
  
  • a profit company which is a public company;
  • a state-owned company; and
  • a private company, but only if the memorandum of incorporation of the company makes provision for the Panel’s authority to apply; or if more than ten percent of the issued securities of the company have been transferred within a period of 24 months, immediately before the date of a particular affected transaction or offer;
To determine whether the transaction is affected, the company needs to consider the below, as outlined by the TRP:
  
  • disposals of all or the greater part of assets or undertaking of a company by a regulated company;
  • amalgamations or mergers of a regulated company;
  • schemes of arrangement between a regulated company and its shareholders;
  • mandatory offers to shareholders of a regulated company;
  • compulsory acquisitions of remaining shares of a regulated company;
  • acquisitions of, or announced intention to acquire five percent, ten percent or any multiple of five percent of the issued shares of a regulated company; and
  • the announced intention to acquire the remaining shares in a regulated company.
By partnering with a leading compliance organisation, you will be able to navigate the laws and requirements relating to mergers, acquisitions and takeover regulations.
 
Contact Olivier or your local Moore Stephens office for more information.