By Alvino van Schalkwyk

The commencement of the Companies Act 71 of 2008 introduced a new obligation with regard to the acquisition and disposal of securities in certain companies.

Section 122 of the Act requires any person to notify a regulated company within three business days after that person –

‘(a)    acquires a beneficial interest in sufficient securities of a class issued by that company such that, as a result of the acquisition, the person holds a beneficial interest in securities amounting to 5%, 10%, 15%, or any further whole multiple of 5%, of the issued securities of that class; or

(b)     disposes of a beneficial interest in sufficient securities of a class issued by a company such that, as a result of the disposition, the person no longer holds a beneficial interest in securities amounting to a particular multiple of 5% of the issued securities of that class.’

Section 122 of the Act therefore places an obligation on the holder of beneficial interests in securities to give notice to the regulated company in the following two circumstances –

• if it acquires a beneficial interest in securities, and such acquisition results in the person holding a beneficial interest amounting to a multiple of 5% of the issued securities of that particular class; and
• if it disposes of its beneficial interest in securities, and such disposition results in the person no longer holding a beneficial interest in securities amounting to a particular multiple of 5% of the issued securities of that particular class.

The obligation to give notice to the regulated company arises irrespective of whether –

• that person acquires or disposes of the beneficial interest in securities directly or indirectly; or individually or in concert with any other person or persons; or
• the stipulated percentage of the issued securities is held by that person alone, or in aggregate by that person together with any related or interrelated party or person who has acted in concert with any other person.

In terms of reg 82, the above compliance obligation applies equally to a nominee entity, asset manager or similar person who has authority, by any means, to exercise rights of disposal or rights of voting with respect to particular securities.

Regulated company

The obligation in terms of s 122 only arises vis a vis a ‘regulated company’ as defined in s 117(1). A regulated company is a company to which part B and part C of ch 5 of the Act and the takeover regulations apply, as determined in accordance with s 118(1) and (2). Section 118 provides that part B and part C of ch 5 and the takeover regulations apply with respect to an affected transaction or offer involving a profit company or its securities, if the company is a –

• public company;
• state-owned company; or
• private company, but only if:

– the percentage of the issued securities that have been transferred, other than by transfer between or among related or interrelated persons, within the period of 24 months immediately before the date of a particular affected transaction or offer exceeds the percentage prescribed by the Minister of Trade and Industry (currently 10%); or

– the memorandum of incorporation of that company expressly provides that the company and its securities are subject to part B and C of ch 5 and the takeover regulations, irrespective of whether the company falls within the criteria set out in the above paragraph.

All holders of beneficial interests in securities of public and state-owned companies must notify the company if they acquire or dispose of their beneficial interests if the requirements as set out in s 122 are met. In respect of a private company, however, the obligation arises if the issued securities that have been transferred within the previous two years exceeds 10% of the issued securities of the company, or its memorandum of incorporation expressly provides that part B and C of ch 5 of the Act and the takeover regulations apply to the company and its securities.

Affected transactions

An affected transaction in terms of s 117(1) means, inter alia, 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 s 122(1), that is, where, as a result of an acquisition or disposal (as the case may be), the person holds or no longer holds (as the case may be), a beneficial interest in securities amounting to multiples of 5% of the issued securities of that particular class.

Beneficial interest in securities

Section 122 requires notification in the event that a ‘beneficial interest in sufficient securities of a class’ is acquired or disposed of. Section 117 defines securities (for purposes of part B and C of ch 5 of the Act and the takeover regulations) as securities as defined in s 1 of the Act, but does not include any instrument issued by a regulated company unless that instrument –

• has associated with it the right to vote generally at a general shareholders’ meeting; or
• is convertible into an instrument that satisfies the above requirement.

Securities (as defined in s 1 of the Act) are any shares, debentures or other instruments, irrespective of their form or title, issued or authorised to be issued by a profit company. A beneficial interest in securities, as defined in s 1, means the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to –

• receive or participate in any distribution in respect of the company’s securities;
• exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company’s securities; or
• dispose or direct the disposition of the company’s securities, or any part of a distribution in respect of the securities, but excludes any interest held by a person in a unit trust or collective investment scheme in terms of the Collective Investment Schemes Control Act 45 of 2002.

Therefore, the notice obligation not only arises with the acquisition or disposal of the actual securities, but also the acquisition and disposal of any right or entitlement referred to above, provided that it has associated with it the right to vote or is convertible into an instrument that has the right to vote associated with it, and it is not an interest held in a unit trust or collective investment scheme.

Number of issued securities of the class

In terms of s 122(4), when determining the number of issued securities of a class, a person may rely on the most recently published statement by the company, unless that person knows or has reason to believe that the statement is inaccurate. Furthermore, to determine the number of securities held by a person or persons –

• to the extent that the person has the entire, or a partial or shared, beneficial interest in any securities, those interests must be aggregated, irrespective of the nature of the person’s interest and any securities that may be acquired by the person if he exercised any options, conversion privileges or similar rights are to be included; and
• when determining the securities held by any other person (not the person acquiring or disposing of securities), any securities that may be acquired by that other person if he exercised any options, conversion privileges or similar rights are to be excluded.

Obligation of the regulated company

Section 122(3) obliges the regulated company that has received a s 122 notice to file it with the Takeover Regulation Panel (TRP) and report the information to the holders of the relevant class of securities unless the notice concerned a disposition of less than 1% of the class of securities.

Guideline 4/2011 issued by the TRP provides that all transactions undertaken in terms of s 122(1) of the Act are exempted in terms of s 119(6) of the Act from compliance with the obligation in s 121(b)(i) of the Act, which requires that an affected transaction may not be given effect to unless the TRP has issued a compliance certificate in respect of that transaction.

Irrespective of the fact that a compliance certificate is not required to give effect to the acquisition and disposal in terms of s 122 of the Act, all acquisitions and disposals in terms of s 122(1) must comply with the notification requirements.

• See also 2011 (Sept) DR 30.

Alvino van Schalkwyk B Accounting LLB (Stell) is a candidate attorney at Webber Wentzel in Cape Town.

This article was first published in De Rebus in 2012 (Jan/Feb) DR 28.