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A Sale of your Business may require Takeover Regulation Panel Approval

If you conduct your business using a private company as a vehicle then, no matter its size (turnover, asset value, number of shareholders or any other measureable) your company may require Takeover Regulation Panel (“TRP”) approval in terms of the Companies Act 2008 (“the Act”) for the sale of all or the greater part of its assets or undertaking. Non-compliance with the Act will render the transaction unenforceable.

Conditions imposed on the sale of a business by the Companies Act:

Chapter 5 of the Act imposes certain conditions that have to be met if a company proposes to dispose of all or the greater part of its assets or undertaking (i.e. its business). These conditions include a notice to its shareholders that includes specific information about the transaction; the company’s accountant fairly valuing the assets or undertaking being sold; and a special resolution by shareholders being passed to approve the transaction. This all seems fair so far.

Compliance with the Takeover Regulation Panel’s requirements may be required:

But, if there has been a sale of more than 10% of the shares in the company within the last 24 months, the company is defined as a “regulated company” under section 118 of the Act, and even more onerous conditions apply to the asset / business sale transaction proposed by the company. These conditions include:

  • the issue by the TRP (on application by the company) of a compliance certificate that confirms its satisfaction that, amongst other things, the proposed transaction is fair to shareholders; sufficient information was provided to shareholders about the transaction to enable them to make an informed decision about it; and sufficient time was given to shareholders to seek advice relating to this transaction; and
  • in terms of Regulation 90 of the Act, a valuation of the transaction by an independent expert, which can be costly.

Possible exemption by the Takeover Regulation Panel from compliance with conditions:

Compliance with these onerous conditions applicable to a regulated company takes time to fulfil and can be expensive. The TRP has thankfully been given the power to exempt a company from compliance with these onerous conditions if there is:

  • no reasonable potential of the contemplated transaction prejudicing any shareholder;
  • the cost of compliance is disproportionate relative to the value of the transaction; or
  • it is reasonable and justifiable in the circumstances.

This provision for exemption makes sense, but it still adds an additional cost to the company in the form of attorney’s fees to prepare the exemption application and the TRP’s fee to process it.

Add compliance or exemption as a suspensive condition of your sale:

Don’t forget to add, as a suspensive condition to the agreement for sale of your company’s assets or undertaking, a condition requiring receipt of exemption from the TRP (where it is required) or, if it refuses exemption, then compliance with the Act’s more onerous conditions.


Abigail Reynolds

Abigail has a BA and LLB from UCT and was admitted in early 2006 after having completed articles at Cliffe Dekker.  She spent two years at Bernard Vucik Potash & Getz’ corporate commercial department before moving to Investec Bank where she spent four years.  In early 2011, she moved back to practice in commercial work, joining Caveat Legal in 2012.

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