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Corporate Control – Fundamental Transactions

Transactions that influence the right of ownership of a company’s assets or bring about a change in the shareholding of a company, are regulated by the Companies Act No 71 of 2008 (“the Act”). These types of transactions, for which additional regulating is provided for in the Act, are referred to as “fundamental transactions” or “affected transactions”.

Section 117(1)(c) of the Act defines an affected transaction as:

  1. A transaction or series of transactions that amount to the disposal of the whole or greater part of the assets or enterprise of a regulated company;
  2. An amalgamation or merger if at least one regulated company is involved;
  3. A scheme of arrangement between a regulated company and its shareholders.

The rules regarding fundamental transactions apply to all companies, whether public or private. However, where a fundamental transaction also falls within the scope of the definition of an affected transaction, the Takeover Regulation Panel exercises jurisdiction over it. A fundamental transaction will only fall within the definition of an affected transaction if the company is also a regulated company. A company is a regulated company if it meets one of the following criteria:

  • a public company;
  • a state-owned company;
  • a private company; only if:
    – the percentage of the issued securities of such company that were transferred within a period of 24 months immediately prior to the date of a specific affected transaction, makes out or exceeds the prescribed percentage of 10%; or
    – the Memorandum of Incorporation (“MOI”) of the company expressly states that the company and its securities comply with Parts D and C of Chapter 5 of the Act and the Takeover Regulations.

An affected transaction takes place when the following are present:

  • the acquisition of a beneficial interest in any vote carrying securities of a regulated company that amount to 5, 10 or 15%;
  • the intention to obtain a beneficial interest in the remaining vote carrying securities of a regulated company that are not yet held by a person or persons;
  • mandatory offer; or
  • mandatory acquisition.

Affected transactions can thus be divided into two broad categories:

  1. All fundamental transactions are affected transactions if a regulated company is involved;
  2. The acquisition of prescribed percentages of vote carrying securities brings about the involvement of the Takeover Regulation Panel and also the application of specified special rules that are contained in Chapter 5 of the Act and the provisions of the Takeover Regulation Panel.\

For any enquiries, contact Arnè Bester on arne@asl.co.za.