S45 Financial Assistance to Subsidiaries

COMPANIES ACT AMENDMENTS NO. 16 OF 2024

Loans and Other Financial Assistance to Subsidiaries by Holding Companies
Amendment of Section 45 of the Companies Act

The requirements pertaining to financial assistance no longer apply to a company that provides financial assistance to or for the benefit of its subsidiaries. This offers some relief to holding companies and their directors, given the regular intervals at which holding companies provide loans, surety, and other financial assistance to their subsidiary companies.

It is important to note that the provisions of Section 45 related to financial assistance between related companies (e.g., sister/horizontal or upward related or interrelated companies), directors, or prescribed officers remain in force.
Additionally, it is important to note that by definition in the Companies Act, a company cannot be regarded as a subsidiary if it is not incorporated in South Africa (i.e., a foreign entity), as the definition of a “company” per the Companies Act does not include foreign companies. On a strict interpretation of the Companies Act, Section 45 financial assistance requirements from local companies to their foreign subsidiaries would continue to apply.
Companies may provide direct or indirect financial assistance to a director or prescribed officer of the company or of a related or interrelated company or corporation, subject to (among other requirements) there being a shareholder special resolution authorizing such assistance, adopted in the past two years, plus a board resolution authorizing the transaction, applying the Solvency and Liquidity Test, and confirming that the terms of the transaction are fair and reasonable to the company.
Financial assistance for the purpose of this section includes lending money, guaranteeing a loan or other obligation, and securing any debt or obligation in favor of any related party, now with the exclusion of a company’s subsidiaries.
In addition to satisfying the above requirements, companies that provide financial assistance must further meet all the requirements of their Memorandums of Incorporation and notify all shareholders and any trade union representing its employees of financial assistance transactions within specific timeframes.

Before a holding company takes advantage of this amendment to the Companies Act, it is recommended that it reviews its Memorandum of Incorporation to ensure alignment with the Companies Act in this regard, as there could be instances where the Memorandum specifies additional requirements regarding the provision of financial assistance.

In terms of Section 3 of the Companies Act and for the purposes of Section 45, a subsidiary refers to South African-incorporated companies that are directly or indirectly controlled by a company, in this case, the holding company, whether through shares held directly or through multiple other subsidiaries, to the extent that the holding company can elect a majority of directors who can exercise the majority of votes at a meeting of the board.

The Companies Act Amendments 2024:

Pertinent changes were made to our South Africa Companies Act recently after the Companies Amendment Act 2024, No. 16 and the Companies Act Second Amendment, 2024 No. 17 were ascended into law on 25 July 2024.

The amended provisions are not yet operational and will come into effect after President Cyril Ramaphosa makes proclamation in the Gazette as to the effective date.

Statucor continues to unpack the amendments and the effect that they may have on our valued clients, and we look forward to publishing further communications on our observations in future. Click here for a full summary of all changes made to the Companies Act through the 2024 Amendments or view our News page for our latest articles on the Companies Act, Governance and Compliance matters that may be pertinent to you.