21.3 SECTION 48
S 48 of the companies act deals with the buyback of shares.
1. S48 (1) states that this section does not apply to the situation where a shareholder makes a demand, tendering of shares and payment by a company to a shareholder in terms of appraisal rights as set out in s164. Buybacks also do not apply where there is redemption by the company of any redeemable securities in accordance with the terms and conditions of those securities.
2. The board of directors may determine that a company may acquire a number of its own shares. The board of a subsidiary company may determine that it will acquire shares of its holding company, but this cannot be more than 10% in aggregate of the number of issued shares of any class of shares of a company and no voting rights may be attached to those shares once they are acquired.
Shares may not be re-purchased by a company or the subsidiary of a holding company where after the transaction no shares in issue are left.
3. Any shares acquired by a company are subject to the requirements of Section 46 which deals with the insolvency and liquidity of the company.
Old Provision: Previously, there was a particular attention to transactions exceeding a 5% threshold, which necessitated specific resolutions or additional scrutiny.
New Provision: The updated language in Section 48(8) broadens the requirements for shareholder engagement, requiring special resolutions without specifying a 5% threshold explicitly. The focus is more on ensuring shareholder approval and meeting the solvency and liquidity tests before significant transactions like share buybacks
These changes reflect a shift toward more comprehensive shareholder involvement and emphasis on financial checks irrespective of the specific percentage of shares involved.
REPLACED BY 48(8) This is the old S48(8)
(8) A decision by the board of a company contemplated in subsection (2)(a) -
(a) must be approved by a special resolution of the shareholders of the company if any shares are to be
acquired by the company from a director or prescribed officer of the company, or a person related to a director or prescribed officer of the company; and
(b) is subject to the requirements of sections 114 and 115 if, considered alone, or together with other transactions in an integrated series of transactions, it involves the acquisition by the company of more than 5% of the issued shares of any particular class of the company’s shares.
[Subs. (8) inserted by s. 32 of Act 3/2011]
NEW SECTION 48(8) This is the new S48(8)
(8) A decision by the board of a company, contemplated in subsection (2)(a), must be approved by a special resolution of the shareholders of the company—
(a) if any shares are to be acquired by the company from—
(i) a director of the company;
(ii) a prescribed officer of the company; or
(i) a person related to a director of the company or a prescribed officer; or
(b) if it entails the acquisition of shares in the company, other than shares acquired as a result of—
(i) a pro rata offer made by the company to all shareholders of the company or a particular class of shareholders of the company, notwithstanding that the pro rata offer made to all shareholders may also include shareholders who are one or more of the persons referred to in paragraph (a); or
(ii) transactions effected on a recognised stock exchange on which the shares of the company are traded, being a licenced exchange as contemplated in the Financial Markets Act, 2012 (Act No. 19 of 2012).
[Proposed amendment: Subs. (8) to be substituted by s. 11 of Act 16/2024 w.e.f. a date to be determined]
THIS DEALS WITH THE OLD SECTION 48(8) THE WHOLE SITUATION OF S48(8) A BUYBACK NOW DOES NOT FALL WITH THE AMBIT OF S114 AND S115 AUTOMATICALLY
The old s48(8) transaction then has the potential for making a private company regulated if certain conditions are met. Please refer to s118 (1) (c). If a buyback of more than 5% is in process and within the last 2 years an outsider (see definition of related and inter-related persons) has acquired at least 10% of the shares in the company, the company will then fall within the definition of a regulated company and a compliance certificate or exemption must be issued by the Take-over Regulation panel.
We will deal with some of the requirements of s114 below; the important thing to note is the decision that has to be made in regard to the buyback is totally in the hands of the directors unless the buy-back is more than 5% and provided that the buy-back is not from a Director or a Prescribed Officer. Where the buyback is more than 5% it falls within the ambit of s114.
Once s114 kicks in the buyback transaction becomes a Fundamental Transaction in that it is now a scheme of arrangement. If the company is a private company and falls within the definition of being a Regulated Company then the Fundamental Transaction becomes an Affected Transaction.
Once s114 kicks in the buyback transaction becomes a Fundamental Transaction in that it is now a scheme of arrangement. If the company is a private company and falls within the definition of being a Regulated Company then the Fundamental Transaction becomes an Affected Transaction.
6. S48 is an unalterable provision and cannot be removed by a clause in the MOI, however the terms in the MOI can be strengthened to specify that for every buyback that takes place a special resolution is required. See s 15(2)(a)(iii) which says that the MOI may include –
“any provision imposing on the company a higher standard, a greater restriction, longer period of time or any similarly more onerous requirement, than would otherwise apply to the company in terms of an unalterable provision of this Act;”