EVER HEARD OF THE TAKEOVER REGULATION PANEL?
12 March 2018
This is occasioned by the fact, that a transfer of shares between contracting parties may require the approval of one or more regulatory bodies such as the:
- Takeover Regulation Panel; or
- The Competition Tribunal.
This article seeks to provide a summative overview of instances in which the sale of shares in a particular company falls within the ambit of transactions requiring the approval of the Takeover Regulation Panel as well as providing some insights into the functions and reasons for the establishment of the Takeover Regulation Panel.
WHAT IS THE TAKEOVER REGULATION PANEL?
The Takeover Regulation Panel is a regulatory body established in terms of section 196 of the Companies Act, 2008.
It functions as an organ of state within the public administration and its main purpose is the regulation of so-called “affected transactions” or offers involving what is referred to as “regulated companies”. In addition, it also has the authority to deal with certain complaints pertaining to “affected transactions” or offers.
The Takeover Regulation Panel seeks to protect the interests of shareholders during affected transactions and offers by:
- Ensuring the integrity of markets and fairness to shareholders during affected transactions;
- Ensuring that the necessary information is provided to shareholders in a timely fashion so as to allow them an opportunity to make an informed decision as related to affected transactions;
- Preventing actions by companies intended to impede, defeat or frustrate affected transactions;
- Ensuring that persons undertaking affected transactions are ready, able and willing to implement the transaction;
- Ensuring that all shareholders are treated equally and equitably during an affected transaction;
- Ensuring that all shareholders receive the same information during an affected transaction, and that no relevant information is withheld; and
- Ensuring that shareholders are provided sufficient information and permitted sufficient time to enable them to take informed decisions in relation to affected transactions.
WHEN MUST A TRANSACTION BE REPORTED TO THE TAKEOVER REGULATION PANEL?
As a point of departure, the following key concepts must be understood:
- affected transaction
- regulated company
A company is a “regulated company” when it is either a profit company which is a public company, a state-owned company or a private company which has had more than 10% of its issued securities transferred within a period of 24 months, immediately before the date of a particular affected transaction or offer. A private company could of course (in its MOI) elect to submit transactions to the Takeover Regulation Panel voluntarily.
The following transactions constitute “affected transactions”:
- disposals of all or the greater part of the assets or undertaking of a regulated company;
- amalgamations or mergers of a regulated company;
- schemes of arrangement between a regulated company and its shareholders;
- mandatory offers to shareholders of a regulated company;
- compulsory acquisitions of remaining shares of a regulated company;
- acquisitions of, or the announced intention to acquire 5%, 10% or any multiple of 5% of the issued shares of a regulated company; and
- the announced intention to acquire the remaining shares in a regulated company.
Any “affected transaction” undertaken in a “regulated company” must be reported to the Takeover Regulation Panel in the manner and by the persons specified in the Takeover Regulations, 2011 read with the Companies Act, the particularity of which will not be dealt with here.
MAY THE TAKEOVER REGULATION PANEL GRANT EXEMPTIONS?
Parties to an affected transaction may also approach the Takeover Regulation Panel with a view to having a transaction exempted from the provisions of the Takeover Regulation Panel, which application for exemption may be granted by the Takeover Regulation Panel in instances where:
- there is no reasonable potential of the affected transaction prejudicing the interests of any existing securities holder of a regulated company;
- the cost of compliance is disproportionate to the relative value of the affected transaction; or
- doing so is otherwise reasonable and justifiable in the circumstances.
CONSEQUENCES OF FAILURE TO COMPLY WITH THE TAKEOVER REGULATIONS
In instances of non-compliance with the relevant provisions of the Companies Act or the Takeover Regulations, aggrieved parties may proceed to lodge a complaint at the Takeover Regulation Panel who may investigate such complaint and, if deemed necessary, issue a compliance notice to the infringing company. Failure to comply with such compliance notice may result in a fine being imposed on the infringing company. Such fine could amount to the lesser of 10% of the infringing company’s turnover during the period of non-compliance or R1 million.
Given the complexity of the Companies Act and associated requirements in the Takeover Regulations, it is advisable to consult with a suitably qualified industry expert so as to ensure compliance with the applicable regulatory impositions so as to avoid falling foul of the hefty penalties associated with non-compliance.