This blog was co-authored by: Hishaam Khan, candidate attorney
As we continue to unpack the proposed amendments of the Companies Amendment Bill, 2021 in this series we consider directors’ remuneration and beneficial ownership.
Remuneration of directors continues to be in focus.
The Bill proposes to introduce various disclosure and reporting requirements in respect of executive remuneration.
The Bill requires specific categories of companies to disclose information relating to its remuneration practices in the annual financial statements and annual reports. Where remuneration and benefits are received by directors or prescribed officers, the Bill proposes that they be specifically named in the annual financial statements next to their disclosed remuneration. This disclosure requirement is however limited to companies that are required by the Companies Act, 2008 to have their annual financial statements audited.
Public companies and state-owned companies will also be obliged to present a directors’ and prescribed officers’ remuneration report for approval by the board of the company. The Bill further prescribes the format and content of the report, its presentation to shareholders at an annual general meeting, and the consequences of the failure of the report to obtain the required shareholder approval.
The aim of these amendments is to provide for stronger shareholder governance on excessive director pay and for companies, shareholders and stakeholders to be aware of and address pay discrepancies. This is in line with the transparency requirements of the King IV Report on Corporate Governance.
One of the purposes of the Act is to encourage transparency and high standards of corporate governance, given the significant role of companies within social and economic life. However, the Act currently lacks adequate provisions to allow for the identification of true owners of companies.
The Bill aims to correct this by introducing the definition of “true owner” and various measures that companies will have to adopt in order to report on their true ownership.
In line with the Financial Intelligence Centre Act of 2001, the Bill defines a “true owner” as a natural person who has the power to direct the registered holder of a share with regard to the share or who ultimately benefits from the shareholding. The proposed amendments will:
- place an obligation on companies to require from the registered shareholder details of the identity of persons who hold beneficial interests;
- strengthen provisions requiring that companies establish and maintain a register of owners of beneficial interests in its shares;
- require companies to publish in its audited annual financial statements, details of all persons who alone or in the aggregate hold beneficial interests amounting to 5% or more of the total number of shares of that class; and
- strengthen the provisions for registered shareholders to disclose to companies who hold beneficial interests in its shares.
While the identification of the true owner may be complex, it is part of a broader objective of identifying the ultimate owners of companies.
In terms of the proposed and poorly-worded definition of “true owner”, only a natural person can be a true owner. This definition would be counterproductive to the broader objective as it disregards the reality of juristic persons being true owners. Comments to broaden the scope of this definition should be made to the Department of Trade, Industry and Competition.
In our following instalments we will continue to unpack the proposed amendments of the Bill.