The New Companies Act: beneficial interest in securities and implications for asset managers
By Berna Oluka

The Companies Act, 71 of 2008 (“the new Companies Act”), requires the registered holder of securities of a public company to disclose to the issuer of those securities the identity of the holder of the beneficial interest in those securities as well as the number and class of securities held for each such person.

The new Companies Act defines “beneficial interest” as the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to –

  • receive or participate in any distribution in respect of the company’s securities;
  • exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company’s securities; or
  • dispose or direct the disposition of the company’s securities, or any part of a distribution in respect of the securities but does not include any interest held by a person in a unit trust or collective investment scheme in terms of the Collective Investment Schemes control Act, 2002.

This provision is similar to the provision in the Companies Act, 61 of 1973 (“the existing Act”). However, a fundamental difference between the two statutes lies in the fact that the new Companies Act only requires disclosure in respect of the securities of a public company whereas the existing Act makes no such distinction and requires disclosure in respect of the securities of any company. Another difference lies in when the registered holder of those securities is required to make the above disclosure. The existing Act requires such disclosure to be made within 7 days after the end of every three month period after 30 June 1999. However, the new Companies Act requires such disclosure to made more regularly, namely within 5 business days after the end of every month. It is important to note that “security” bears the same definition as that contained in the Securities Services Act, 2004.

The definition of beneficial interest in the new Companies Act is wider than that in the existing Act in that the new Companies Act makes reference to “a right to participate in any distribution” as opposed to the existing Act which refers to “a right to receive any dividend”. The concept of a “distribution” is wider than a “dividend”.

This wider definition of what constitutes a “beneficial interest” means that a number of persons, including asset managers, could qualify as beneficial holders of the securities of a public company with far reaching consequences.

The disclosure obligation rests on the registered holder of the securities where such registered holder is not the beneficial holder of those securities. Most asset managers do not hold securities on behalf of clients. The securities will usually be held by a custodian in the name of a nominee. In such cases, the nominee would most likely be the registered holder of those securities depending on what is agreed with the client in the custody agreement. The nominee would therefore bear the responsibility of disclosing the identity of the beneficial holder of the securities.

The new Companies Act, like the existing Act, stipulates when a person is regarded as having a beneficial interest in a security of a public company. A person is regarded as having a beneficial interest in a security of a public company if the security is held nomine officii by another person on that first person’s behalf, or if that first person, amongst others -

  • acts in terms of an agreement with another person who has a beneficial interest in that security, and the agreement is in respect of the co-operation between them for the acquisition, disposal or any other matter relating to a beneficial interest in that security;
  • is entitled to exercise or control the exercise of the majority of the voting rights at general meetings of a juristic person that has a beneficial interest in that security; or
  • gives directions or instructions to a juristic person that has a beneficial interest in that security, and its directors or the trustees are accustomed to act in accordance with that person’s directions or instructions.

“Exercise”, when used in relation to voting rights, includes voting by proxy, nominee, trustee or other persons in a similar capacity.

This means that where, for example, a custodian holds securities on behalf of a client through a nominee and as part of the custodial arrangements, the nominee is entitled to exercise the voting rights in those securities on behalf of the client, the nominee may very well be the beneficial holder of such securities, depending on the manner in which the agreement is phrased.

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Berna Oluka

Associate (Investment Management Practice)

Bowman Gilfillan Attorneys