The draft Companies Amendment Bill 2021 (“the Bill”) was published for public comment during October 2021. It aims to amend the existing Companies Act 2008.
This Bill introduces a brand new concept of a “true owner” of securities in a company which is, in summary, the ultimate beneficial owner of such shares that is a natural person. The Bill places new obligations on a true owner, the actual registered securities holder, and the company itself to disclose who these true owners are.
The rationale for this amendment is to assist in local and international efforts to counter money laundering and terrorism – a space in which South Africa ranks poorly across the globe. South Africa has acknowledged that it lacks adequate provisions to be able to establish the true owner of companies, and so has proposed these amendments.
1. The definition of ‘true owner’:
1.1. We appreciate the difficulty in defining a ‘true owner’ both widely and clearly enough to ensure that no one can hide behind its wording.
1.2. The proposed ‘true owner’ definition refers to a natural person who has a form of ultimate CONTROL over and/or who ultimately BENEFITS from securities in a company. Such natural person need not have both control and benefit.
1.3. Because the ultimate shareholder may not be natural person, we believe a new section needs to be added to the Bill which DEEMS certain people to be a true owner, for the purposes of clarity and to cast the net wide enough. Such a section should deem as true owners, for example:
1.3.1. trustees of trusts (wherever registered) that have the relevant ‘control’ over such shares;
1.3.2. beneficiaries of trusts (whether vested or discretionary, and wherever the trust is registered) who receive the relevant benefit from such shares;
1.3.3. shareholders in widely held companies (wherever registered) who have the relevant ‘control’, or receive the relevant benefit.
2. The definition of ‘beneficial interest’ and forced disclosures about holders of beneficial interests:
2.1. A ‘beneficial interest’ is defined in the Companies Act as when a person has the right, and I summarise, to receive any distributions from securities, vote or direct how votes on securities are cast, and/or dispose or direct how securities are disposed of.
2.2. The Companies Act already includes disclosure obligations on holders of ‘beneficial interest’ in securities in PUBLIC companies, but the Bill proposes to make this apply to securities in all companies.
2.3. The Bill proposes that every company that is required to have its annual financial statements audited in terms of section 30(2), publish in its annual financial statements “a list of persons who, in aggregate, alone or together with another person hold beneficial interests amounting 5% or more of the total number of securities of that class, issued by the company or any such percentage as may be prescribed by the Minister”.
2.3.1. The Companies Act also already records similar obligations on companies that are required to be audited under the Companies Act , but only if they are ‘regulated companies’ as defined in section 117. We agree that the deletion of this requirement is good;
2.3.2. however, the use of the proposed words ‘together with another person’ are too broad and nonsensical. There is no qualification that there needs to be any relationship between the one person and this other person. It will harm the implementation of this section.
3. A ‘true owner’ should not be deemed to have a ‘beneficial interest’:
3.1. The Bill, in its amendment to section 56, deems a ‘true owner’ to have a ‘beneficial interest’ in a company for the purposes of certain sub-sections in section 56. We propose this should not be done because there should be a separation between the concept of true owner and beneficial holder (because identifying true owners is linked to money laundering and terrorism concerns and disclosures, and identifying beneficial interest holders gives such persons rights under the Companies Act (i.e. to financial statements), and informs other shareholders and the public about who controls the company) .
3.2. Instead, we have recommended that the Bill is amended to deal with true owners separately from holders of beneficial interest, and much of the disclosure obligations that are contained in the existing section 56, as amended by this Bill, could be carried into this new section.