The Companies Amendment Act, 2023 introduced important changes to section 48(8) of the Act, which regulates the circumstances under which a company may repurchase its own shares. While the previous regime automatically linked repurchases exceeding 5% of a particular class of shares (repurchase threshold) to the procedural requirements of a scheme of arrangement, this linkage has now been removed, fundamentally altering the compliance framework for share buybacks. While this is a helpful change, under the amended section 48(8), almost all share repurchases (save for two exceptions) now require shareholder approval, regardless of the percentage of shares being repurchased.

This article unpacks the practical and legal implications of the amendments to section 48(8) of the Act and outlines key considerations for companies in adapting their practices to ensure continued compliance with the Act.

Old section 48

Under the previous regime, share buybacks came with significant procedural hurdles. While buybacks below the repurchase threshold only required board approval, unless the memorandum of incorporation (MOI) of a company or the Johannesburg Stock Exchange (JSE) Listing Requirements provided otherwise, any repurchase from a director, prescribed officer, or a related party of a director or prescribed officer required shareholder approval by special resolution. In addition, if the repurchase exceeded the repurchase threshold, it automatically triggered the scheme-of-arrangement procedures in sections 114 and 115 of the Act, a process more suited to major restructurings and fundamental transactions than routine share repurchases.

In order to comply with the provisions of sections 114 and 115 of the Act, the repurchase needed to have been (i) approved by a special resolution of shareholders and (ii) accompanied by an independent expert’s report setting out, among other things, the material effects of the repurchase on the rights and interests of the class of shareholders affected. In addition, where the company qualified as a regulated company, being, inter alia, a public company or a private company that has had more than 10% of its issued securities transferred within the preceding 24 months (other than to related persons), the repurchase would constitute an “affected transaction” (as defined in section 117(1)(c) of the Act) and would thus be subject to Part B and C of the Act and the accompanying regulations (takeover regulations). If the repurchase constituted an “affected transaction” the company would either have to comply with the takeover regulations or obtain an exemption from the Takeover Regulation Panel.

Amended section 48

Under the amended section 48(8) of the Act, other than in two narrow circumstances (at least insofar as private companies are concerned), a company may repurchase its own shares only if the decision has been approved by a special resolution of shareholders. Unlike the previous regime, this requirement now applies to almost all share repurchases, irrespective of the size of the transaction or the percentage of shares being acquired. The only exceptions are where the repurchase is effected (i) pursuant to a pro rata offer made to all shareholders of a particular class, or (ii) through a recognised stock exchange on which the company’s shares are traded.

The amendments also preserve an important safeguard: any repurchase of securities from a company’s directors, prescribed officers or their related persons remains subject to special shareholder approval.

Significantly, the amended section 48(8) no longer subjects share repurchases that exceed the repurchase threshold to the procedural requirements applicable to schemes of arrangement under sections 114 and 115 of the Act. This change simplifies the regulatory framework by eliminating the need for an independent expert report and other procedural formalities previously triggered by larger repurchases. However, where a share repurchase in substance constitutes a scheme of arrangement (being a repurchase which, once approved by special resolution in accordance with sections 114 and 115 of the Act, binds all shareholders to the transaction, including those who voted against the repurchase), such repurchases will continue to be governed by sections 114 and 115 of the Act.

Intra-group repurchases for listed companies

The new section 48 framework creates a notable tension with the JSE Listing Requirements, which were amended in 2022 to facilitate intra-group share repurchases. Paragraph 5.67B of the JSE Listings Requirements provides that no shareholder approval is required when a company repurchases securities from wholly-owned subsidiaries (known as treasury shares), Schedule 14 share incentive schemes, or non-dilutive share incentive schemes controlled by the issuers, where such repurchased shares are to be cancelled, save as may be required in terms of the Act. The challenge is that the Act, as primary legislation, takes precedence over any conflicting regulatory provisions.

The exception in section 48(8) of the Act applicable to repurchases implemented on a recognised stock exchange would not apply to intra-group repurchases contemplated in paragraph 5.67B of the JSE Listing Requirements, as these are not implemented through the JSE’s public trading platform. 

As a result, transactions that could previously proceed without shareholder approval under the JSE Listings Requirements, such as the repurchase of treasury shares (provided the repurchase threshold was not exceeded), will now require shareholder approval in terms of the Act.

What can companies do?

Review of MOI

Many companies’ MOIs still hard-code and incorporate the provisions of the old section 48(8), including the automatic application of section 114 for buybacks exceeding the repurchase threshold. If not updated, companies risk inadvertently triggering the scheme of arrangement procedures under sections 114 and 115 of the Act. A careful review, and where necessary, amendment of the MOI, is therefore essential to ensure alignment with the updated section 48(8) and to avoid unnecessary procedural complications.  

Upfront approvals

While special resolutions authorising share repurchases are generally easier to obtain in a private company context than in public or listed companies, private companies may nevertheless wish to include, in the notice of their annual general meeting, an upfront authority for the board to repurchase shares under predefined conditions.

In addition, both private and public (including listed) companies may consider obtaining an upfront, standing authority to repurchase shares held by wholly owned subsidiaries, subject (where required) to appropriate and applicable restrictions. Although shareholder approval for a broad repurchase mandate may sometimes be difficult to secure, an authority limited to the repurchase of treasury shares is typically non-contentious, given its minimal impact on other shareholders and the routine nature of such transactions.

Conclusion

While the amendments to section 48(8) are generally positive, companies must recognise that almost all share buybacks now require shareholder approval. Transactions that could previously be carried out quickly and with minimal formalities, such as small-scale buybacks, now require a special resolution. This shift underscores the importance of careful planning to ensure that buybacks are executed efficiently and in compliance with the Act.