This blog was co-authored by: Uzair Bulbulia, candidate attorney

On 1 October 2021, the Ministry of Trade, Industry and Competition published the Companies Amendment Bill, 2021 for public comment. The Bill proposes amendments to the requirements for a company to establish a Social and Ethics Committee (SEC) in terms of section 72 of the Companies Act 2008 and aligns the Companies Regulations with the Act.

In terms of section 72 of the Act, the board of a company is empowered to appoint any number of committees of directors and may delegate to any committee the authority of the board. The Regulations provide that state- owned companies, listed companies, and any other company that has, in two of the previous five years, scored above 500 points as their public interest score must appoint an SEC. The Bill provides that companies that are required to appoint an SEC may apply to the Tribunal for exemption from establishing an SEC by publishing their intention to lodge an application for exemption with the Companies Tribunal. Following the publication of their intention, the company will then have to apply for an exemption from this requirement to the Companies Tribunal. Even though there is an additional publication requirement, the Bill does not alter the factors that the Companies Tribunal will consider when considering the exemption application.  Subsidiaries of companies that have SECs will not be required to establish an SEC themselves, as the SEC of the holding company may perform the functions of the SEC for the group.

The composition requirements of the SEC is aligned with the Regulations and provides that an SEC must consist of at least three directors. The Bill provides that an SEC may include prescribed officers (being individuals involved in the day to day management of the business), provided that for a public company and state-owned company, the majority of directors on the SEC must be non-executive and for other companies at least one director must be non-executive.

A notable shift is that the Bill prescribes that an SEC must prepare and present a report to the shareholders at the annual general meeting or other meetings of shareholders where a company does not hold an annual general meeting. The report must outline how the SEC performed its functions. The report must be approved by way of an ordinary shareholders resolution. Where the report has not been approved by shareholders, the SEC must engage with the shareholders who voted against the report, and must, within four months following the shareholders meeting, publish an engagement statement outlining the process and outcome of the engagement. This engagement statement will then be presented at the next annual general meeting or other meeting of shareholders.  This is a shift from the current Regulations, which require that a member of the SEC reports to the shareholders at a company’s annual general meeting on the matters within its mandate.

The Bill aims to align the Regulations that regulate the SEC with the Act. It also introduces additional processes on a company that wishes to apply for exemption from establishing an SEC and on an SEC when reporting to shareholders.