Searching for Minerals in South Africa: Applications for Prospecting Rights

The South African mineral and petroleum sector is regulated primarily in terms of the South African Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA).

In terms of the MPRDA the state is the custodian of all mineral resources in South Africa and are held for the benefit of all South Africans; no person may prospect for any mineral unless that person has been granted a relevant right by the state, acting through the Minister of Mineral Resources (section 3(1) as read with 5A)”.

The MPRDA provides for two different rights which allow the holder to search for minerals. Prospecting rights allows the holder to conduct “prospecting operations”, while reconnaissance permissions allows the holder may conduct “reconnaissance operations”.

The work which is permitted under a prospecting licence is more substantial than that permitted under a reconnaissance permission. Reconnaissance permissions only allow the holder to search for minerals by geological, geophysical and photo geological surveys and by using remote sensing techniques. Prospecting rights allow the holder to disturb the surface or subsurface of the earth. The MPRDA defines prospecting as:

"intentionally searching for any mineral by means of any method:

(a) which disturbs the surface or subsurface of the earth, including 
    any portion of the earth that is under sea or under other water; or

(b) in or on any residue stockpile or residue deposit, in order to 
    establish the economic existence of any mineral and to determine 
    the extent and economic value thereof; or 

(c) in the sea or other water on land."

The conduct of any reconnaissance or prospecting without the first obtaining the required reconnaissance permissions or prospecting right constitutes an offence. On conviction a person who is found to have been in contravention of the act may be liable for payment of a fine or to imprisonment for a period not exceeding six months, or to an fine and imprisonment (section 98(a)(viii) as read with 99(2)).

It is therefore imperative that any person who intends to search for minerals in South Africa ensures that they obtain the required right.

I will briefly set out the application procedure to apply for a prospecting right. It should be noted that some of the provisions in the MPRDA currently regulating applications for prospecting rights will be amended in terms of the Mineral and Petroleum Resources Development Amendment Act, No 49 of 2008, parts of which are already in operation and parts of which will only come into operation in the future. Further substantial amendments have a also been proposed in terms of the Mineral and Petroleum Resources Amendment Bill B
15B-2013.

Care should be taken to ensure that the correct procedure which is applicable at the time of submitting the application is followed.

Procedure followed in the Application for a Prospecting Right

A person who wishes to apply for a prospecting right in terms of the MPRDA must make payment of the non-refundable application fee and lodge an application in the prescribed manner at the offices of the regional manager in whose region the land is situated (section 16(1)).

The application for a prospecting right must be accompanied by the following documents:

  • a plan of the land to which the application relates prepared in accordance with accepted standards, which must include, inter alia, the north point, scale and the co-ordinates, location, name, number, extent and boundaries of the land (regulation 2(2) plan);
  • a full prospecting work programme, prepared in accordance with regulation 7;
  • documentary proof of the applicantÂ’s technical ability and financial resources to comply with the prospecting work programme;
  • title deeds in respect of the land;
  • copies of the applicants identity document if the applicant is an individual or constitutional documents if the applicant is a company.

The regional manager is obliged to accept the application for consideration if the formal requirements for its lodging have been complied with and if no other person holds or has submitted an application for a prospecting right or mining right over the land for the same mineral. This requirement ensures that persons cannot obtain prospecting rights in the same area where rights have already been granted to another person for the same minerals. Nothing, however, precludes a person from submitting an application for a prospecting right in respect of a different mineral that is not included in a holder’s existing right (section 16(2)).

Within fourteen days after the acceptance of the application the regional manager must make it known that an application has been received and must call on interested parties to submit comments within thirty days of the notice. If objections are received they must be forwarded for consideration to the Regional Mining Development and Environmental Committee in order for them to consider the objections and advise the minister appropriately (section 10).

The regional manager must also within fourteen days after the acceptance of the application notify the applicant in writing that they are required to submit an environmental management plan and that they are required to notify the land owner, lawful occupier or any other affected party in writing of the application and consult with the aforesaid persons (section 16(4)).

The applicant must deliver the result of its consultations to the regional manager within thirty days (section 16(4)(b)).

Once the regional manager has received the environmental management plan and the consultation outcomes the regional manager must forward the application to the minister for the minister’s consideration (section 16(5)).

The minister is obliged to grant the prospecting right within thirty days of receiving the application from the regional manager if:

  • the applicant has the financial and technical capability to conduct the proposed prospecting optimally in accordance with the prospecting work programme;
  • the estimated expenditure is compatible with the proposed prospecting operation and duration of the prospecting work programme;
  • the prospecting will not result in undue pollution, ecological degradation or damage to the environment;
  • the applicant has the ability to comply with the provisions of the Mine Health and Safety Act, No 29 of 1996 (MHSA);
  • the applicant is not in contravention with any relevant provisions of the MPRDA; and
  • the applicant will substantially and meaningfully expand opportunities for historically disadvantaged persons to enter into and actively participate in the mineral industry (section 17(1)).

A prospecting right can be granted for an initial period not exceeding five years, and may be renewed once for a further three year period provided that a renewal application is submitted and the requirements of the act are complied with (section 17(5) and 18(4)).

A prospecting right becomes effective on the date on which the prospecting right is executed. Once the prospecting right has become effective the holder is granted various rights, including the right to enter land with their employees for the purposes of conducting their prospecting work (section 17(5)
as read with the definition of “effective date” and section 5).

Consequences of Not Following Correct Procedures

Section 96 the MPRDA provides an internal appeal procedure which may be used by any person whose rights or legitimate expectations have been materially and adversely affected by the granting of a prospecting licence. This right of appeal can be exercised at any time after a prospecting right has been granted, provided that it is exercised within thirty days of the person becoming aware of the grant of the licence (section 96(1)).

The internal appeal procedure, or subsequent court review which may be taken in terms of the Promotion of Administrative Justice Act, No 3 of 2000 (PAJA), may result in the prospecting licence being set aside if the correct procedure was not adhered to by the applicant when applying for the prospecting licence. This includes if there was a failure to conduct adequate consultations with affected persons.

In order to ensure that the grant of a prospecting right cannot be set aside on appeal or judicial review it is imperative that an applicant follows the correct procedures are complied with during the application process.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Overview of the South African Protection of Information Bill

The methods used to collect and store information and data have evolved over time.

In the past personal information was collected primarily through direct means by companies that people did business with. The collected information would be stored to enable the company to provide a service to the customer and to bill the customer after service delivery. The high cost of storing information typically meant that a company would only store information that was strictly necessary for these purposes and that the information would be stored for a limited time once it was no longer needed.

In the last two decades new technologies, including the internet and mobile devices, have dramatically changed the way in which people interact with each other and with companies, leading to an increase of the number of ways which companies can collect personal information about data subjects; a cell phone application which has access to your precise GPS coordinates, phone book and text messages; an internet website tracking its visitors; an in-store loyalty card which tracks shopping habits; an internet search engine which logs and stores each of your search queries; a social network application for your tablet computer which redirects your personal and business email to its own servers.

In many cases people are either unaware that data collection is happening or are unaware of the scope of the data collection. The falling cost to store information electronically now means that this personal information which is collected can be stored for longer periods of time, perhaps indefinitely.

Once this personal information has been collected, which could include individual’s names, gender, phone numbers, home address, email addresses, or shopping and internet browsing habits, the question has often been whether this information still belongs to the private individual or whether the information now belongs the company collecting the information? What can a company use the collected information for after collection?

In South Africa a person’s right to privacy has been entrenched in section 14 of the South African Constitution 1996, which provides that “[e]veryone has the right to privacy”, before going further to cater for specific circumstances. The South African Protection of Personal Information Bill, or POPI, which may become law soon takes further steps to entrench the right to privacy and to protect personal information which is collected and stored.

The Protection of Personal Information Bill draws on years of research and contains many broad principles which were developed and incorporated into the European Union’s Data Protection Rules. It seeks to introduce measures to ensure that personal information is protected, but aims to balance this objective against the right to access to information and the principle of free flow of information.

The bill accomplishes its objectives by codifying the rights that persons have in their own personal information and specifying eight conditions, or principles, that must be complied with by persons when collecting, storing and processing the personal information.

The Protection of Personal Information Bill may have far reaching consequences on some businesses operating in South Africa. Businesses should evaluate the information which is currently being collected to determine whether the bill will apply to the activities of the business. If the bill does apply a business will have to evaluate and determine what technical and organisational measures need to be taken to ensure that the legislation can be complied with once it is enacted.

Application of the Protection of Personal Information Bill

In terms of section 3, the Protection of Personal Information Bill applies to any activity concerning personal information which is either conducted in South Africa, or which is conducted outside South Africa by a responsible party which is domiciled (a resident) in South Africa.

The bill binds both public and private bodies, extending to any South African state department or administration, state functionary, state institution, private companies, private partnerships, sole proprietors and any other individual.

The activities relating to personal information which are regulated in terms of the bill include:

  • collection;
  • receipt;
  • recording;
  • storage;
  • retrieval;
  • dissemination; and
  • use.

The definition given to “personal information” ensures that the legislation will have a wide application.

Personal information is defined as any information relating to an identifiable, living natural person or existing juristic person, including a person’s:

  • name;
  • gender;
  • sexual orientation;
  • religion;
  • education;
  • identifying number;
  • e-mail address;
  • telephone number
  • personal opinions; and
  • correspondence.

There are, however, some exclusions, such as the exclusion of data relating to a purely personal or household activity, data which has been de-identified and data collected by a public body involving national security and the investigation or proof of criminal offences.

Rights Granted in Terms of the Protection of Personal Information Bill

The section 5 of the Protection of Personal Information Bill briefly sets out the rights granted in terms of the bill which are elaborated and expanded on in further chapters. The rights granted in terms of the bill include:

  • the right to be notified that personal information is being collected;
  • the right to be notified if there has been any security compromises and if personal information has been unlawfully accessed;
  • the right to establish if a person or entity holds any personal information and if so request access to the personal information;
  • the right to know the identity of third parties who have had access to the personal information;
  • the right to request the correction, destruction or deletion of personal information;
  • the right to object to the processing of personal information;
  • the right to submit a complaint to the Information Regulator, which is to be established in terms of the bill; and
  • the right to institute civil law suits to claim damages suffered as a result of a contravention of the bill.

Conditions for the Lawful Processing of Personal Information

Chapter 3 of the Protection of Personal Information Bill sets out eight conditions, or principles, which must be complied with when processing personal information.

Failure to comply with these conditions when collecting and processing information protected by the bill would constitute an interference with the rights of the individual in terms of section 73 and may result in civil liability in terms of section 93 for damages suffered by the individual.

Contravention of other chapters of the bill can also result in administrative penalties or a criminal conviction punishable by fines or imprisonment of up to ten years for some offences.

These conditions for the lawful processing of personal information are:

Condition 1: Accountability

The first condition provides that the responsible party, namely the public or private body which determines the purposes and means for processing personal information, must ensure that personal information is processed lawfully and that the conditions are complied with at the time when the purposes and means of data processing is determined and during the processing itself.

Condition 2: Processing Limitation

The second condition sets limits on the methods which may be used when collecting personal information and on the scope of processing the information. Focus is placed on the protection of privacy and prevention of excessive collection and processing.

This condition provides that personal information may generally only be collected directly from the individual and not from other third party sources.

It also provides that personal information may only be collected and processed if:

  • the individual has consented;
  • it is necessary to perform in terms of a contract concluded directly with the individual;
  • it protects a legitimate interest of the individual or the person collecting or processing the information; or
  • it is necessary for the proper performance of a public law duty by a public body.

Data subjects are also granted the right to object to the collection and processing of personal information, including the specific right to object to direct marketing from companies which they are not already an existing customer of.

Condition 3: Purpose Specification

The third condition sets limits on the reasons for the collection of personal information and limits the duration that the records may be retained.

This condition specifies that personal information may only be collected for specific and explicitly defined purposes and that data subjects must be informed of the purpose for collecting the information.

Once the personal information has been collected it may not be retained any longer than what is necessary for achieving the defined purpose. After the personal information is no longer required it must be either destroyed or “de-identified” in a manner which would make identification of the individual impossible either on its own or if combined with other information.

Condition 4: Further Processing Limitation

The fourth condition limits the use of personal information once collected, providing that all processing must only be in accordance with, or compatible with, the purpose for which the information was originally collected.

Condition 5: Information Quality

The fifth condition ensures that reasonable steps must be taken by the responsible person to ensure that all personal information which is collected or processed is complete, accurate, not misleading and updated where necessary.

Condition 6: Openness

The sixth condition ensures openness of records relating to the processing of personal information by requiring responsible persons who collect and process personal information to retain records of the processing operations in terms of the Promotion of Access to Information Act.

This condition also requires that data subjects are notified of their rights in terms of the bill. Steps must be taken before the actual collection of personal information to ensure that an individual is aware of:

  • what information is being collected;
  • the name and address of the responsible party collecting or processing the information;
  • the purpose of collecting the information;
  • the consequences of not providing access to the personal information; and
  • if the information is to be transferred to another country, the level of protection afforded to the information in that country.

Condition 7: Security Safeguards

The seventh condition introduces safeguards to protect the integrity and confidentiality of personal information once it has been collected.

In terms of this condition any person collecting or processing personal information must take appropriate and reasonable technical and organisational measures to ensure that personal information is not lost, damaged or unlawfully accessed or processed. This requires the responsible party to take measures to identify internal and external risks, establish and maintain safeguards and continually update procedures and safeguards in response to new risks or deficiencies.

Data subjects must also be informed of any security breaches as soon as reasonably possible.

Condition 8: Data Subject Participation

The final condition applicable to the lawful processing of personal information provides data subjects with the right to participate in the collection and processing of their personal information.

This condition provides data subjects with the right to:

  • request whether or not a person is in possession of personal information belonging to the data subject;
  • request a record of the personal information held;
  • request information regarding all third parties who have had access to the personal information;
  • request the correction or deletion of inaccurate personal information; and
  • request the deletion or destruction of personal information.

This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How Existing Human Rights Law Applies to Modern Digital Surveillance

A group of worldwide privacy organizations and advocates have adopted and released a document entitled “The International Principles on the Application of Human Rights to Communications surveillance“.

The document sets out how existing international human rights laws applies in the digital environment and details thirteen principles that must be adhered to by any government in order to comply with current international law.

Importantly, the document addresses the distinction between collection of the content of a communication and the collection of the “communications metadata”, and concludes that the distinction between the two are no longer appropriate; metadata and other non-content data deserves equal protection because it may reveal even more about an individual than the content of the communication itself.

The thirteen principles, based on current international law, outlined in the document are summarized below.

Legality

Any limitation to the right of privacy must be prescribed by a publicly available legislative act, and subject to periodic review.

Legitimate Aim

Laws should only permit surveillance by specified state authorities.

Any surveillance must be conducted to achieve a legitimate aim that corresponds to a predominantly important legal interest that is necessary in a democratic society.

Necessity

Surveillance should not be widespread, but must be restricted only to what is necessary to achieve the legitimate aim.

Surveillance should only be conducted when it is the only method to achieve the legitimate aim, or is the method that is least likely to infringe on the persons human rights.

Adequacy

The surveillance must be able to fulfil the legitimate aim.
Proportionality

Before any state engages in surveillance for the purposes of a criminal investigation it must establish before an independent court that:

  • there is a high degree of probability that a serious crime has been or will be committed;
  • evidence of that crime will be obtained by the surveillance;
  • other less invasive techniques have been exhausted;
  • the information gathered will be limited to that which is relevant to the alleged crime; and
  • the information gathered will only be accessed by the specified authority and used only for the purposes for which permission was granted.

If the surveillance will not put the person at risk of criminal prosecution the state must establish before an independent court that:

  • less invasive investigative techniques have been considered;
  • the information accessed will be confined to what is reasonably relevant and any excess information will be destroyed or returned; and
  • the information gathered will only be accessed by the specified authority and used only for the purposes for which permission was granted.

Competent Judicial Authority

All determinations relating to surveillance should be made by a competent, impartial and independent court which is separate from the authority conducting the surveillance.

Due Process

In the determination of human rights everyone is entitled to a fair and public hearing. The mere risk of flight or destruction of evidence shall never be considered as sufficient to justify retroactive authorization.
User Notification

Users must be notified of a decision authorizing surveillance to enable them to appeal the decision. Delay in notification is justifiable if:

notification would would seriously jeopardize the purpose of the surveillance; or
authorization to delay is granted by the judicial authority; and
the individual is notified within a reasonably practical time period.

Transparency

States must be transparent about the use and scope of surveillance techniques used. States should publish transparency reports detailing the type and nature of surveillance, including the number of surveillance requests approved or rejected, in order for individuals to fully comprehend the scope, nature and application of the laws permitting surveillance.

Public Oversight

Independent oversight mechanisms, which has access to all potentially relevant state information including secret and classified information, must be established. This is to ensure that the state is acting within its lawful authority.

Integrity of Communications and Systems

States should not compel service providers or hardware or software providers to build in surveillance capabilities into their systems; compromising security for the state always compromises general security which would make these systems more vulnerable to attack by unauthorized third parties.

Service providers should not be compelled to collect information purely for state surveillance purposes.

Individuals have the right to express themselves anonymously, and states should not require service providers to identify their users as a precondition
for providing services.

Safeguards for International Cooperation

When concluding multinational mutual legal assistance treaties, states must ensure that when the laws of more than one state applies to the communication then the law which provides the greatest protection to the individual is applied. This prevents states from circumventing their own domestic legal restrictions.

Safeguards Against Illegitimate Access

Legislation criminalizing illegal surveillance by public and private persons, and providing for significant criminal and civil penalties if contravened, must be enacted.

Legal protection must be provided to whistle blowers.

Information obtained in contravention of the principles must be inadmissible as evidence in any proceedings.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Private Companies, Share Transactions and Regulated Affected Transactions

Are you unknowingly a director or shareholder of a regulated private company? If so, what effect does this have on transactions involving the company’s shares?

The Companies Act, No 71 of 2008 (the new Companies Act) expanded the circumstances in which a private company may be regarded as a regulated company, having the effect that certain provisions of the new Companies Act and the takeover regulations, which would otherwise not be applicable to a private company, are unknowingly applicable to numerous private companies in South Africa. The application of these provisions may have adverse and unforeseen consequences in transactions involving the company’s shares.

In short, a shareholder increasing their shareholding in a regulated company is required to notify the company with each multiple of five percent of the shareholding that it acquires, is required to make a mandatory offer to purchase all remaining shares once its shareholding crosses the prescribed threshold, and may acquire the right to force minorities to sell their shares.

Having a share transaction reversed because the regulatory procedure was not followed, being unknowingly obliged to make a mandatory offer to all shareholders to acquire their shares, or unknowingly becoming a minority shareholder who can be squeezed out of a company, are situations which shareholders may best be advised to avoid. These risks can be amplified in long term share acquisition transactions, such as joint ventures which make use of shareholder earn-in provisions.

Regulated Private Companies in terms of the Companies Act

A private company becomes a regulated company in terms of the new Companies Act if the company expressly elects to be regarded as a regulated company in the company’s memorandum of incorporation, alternatively, if more than ten percent of the company’s issued securities have been transferred within the previous twenty four months other than by transfer between related or inter related persons.

Therefore, in the event that share transactions have taken place within the previous twenty four months a private company may potentially be classified as a regulated company. Once regarded as a regulated company the takeover regulations becomes applicable and the takeover regulation panel (TRP) becomes responsible for regulating all affected transactions, including any offer to enter into an affected transaction.

Share Transactions as Affected Transactions

The definition of affected transactions insofar as it relates to share transactions include compulsory disclosures on the acquisition of shares amounting to five percent, ten percent, fifteen percent or any further multiple of five percent of the company’s issued shares, mandatory offers requiring any shareholder who acquires enough shares to take its shareholding above thirty five percent of the shares in the company to make an offer to the remaining shareholders to purchase their shares, and compulsory acquisition and squeeze out of minority shareholders.

Affected transactions are further governed by the takeover regulations and regulated by the TRP, meaning that the parties cannot give effect to the share transaction unless the procedures set out in the takeover regulations have been complied with and the TRP has either issued a compliance certificate or granted an exemption for the transaction.

The compulsory disclosure provisions apply to any person who sells or purchases shares in a regulated company and as a result of that acquisition the person holds a beneficial interest amounting to five percent, ten percent, fifteen percent or any further multiple of five percent. The seller or purchaser must notify the company within three business days after the disposal or acquisition of the shares. Once the company has received the disclosure notice the company must file the notice with the TRP.

In addition to the compulsory disclosures a fundamental provision within the new Companies Act is the provision requiring a mandatory offer to all shareholders to acquire their shares in a company if a person acquires shares in a regulated company and as a result of that acquisition the persons shareholding increases from an amount of less than thirty five percent to an amount of thirty five percent or more.

Once this threshold is reached the shareholder is required to give notice to the remaining shareholders offering to acquire any remaining shares and must comply with the takeover regulations.

The mandatory offer provisions are designed to protect minority shareholders, however, the squeeze out provisions may work to the detriment of minority shareholders.

In terms of the squeeze out provisions minorities holding less than ten percent of the issued share capital of a company may be forced to sell their shareholding, or “squeezed out”, should an offer for the acquisition of the entire class of shares of a regulated company be made and that that offer has been accepted by holders of at least ninety percent of that class of securities.

These provisions allow an offeror to acquire the shares of a minority holding less than ten percent of the issued share capital on the same terms and conditions as the shareholders who had accepted the original offer.

A Word of Caution in Share Transactions Involving Private Companies

It becomes imperative that before shares in a private company are sold or purchased that it is determined that the private company has not elected to be a regulated company in its memorandum of incorporation and that no more than ten percent of the shares in the company have been transferred in the previous twenty four months. If so the company may be classified as a regulated company, requiring compulsory disclosures to be made with each five percent of the shares acquired, and once the threshold of thirty five percent shareholding is reached requiring a mandatory offer to acquire the remaining shares.

Caution must be taken to ensure that share transactions are structured in such a way to account for the company being classified as a regulated company.

In long term share acquisition transactions, such as joint ventures which make use of shareholder earn-in provisions, care must be taken in the drafting of the applicable contracts and the transaction should be structured to ensure that the intentions of the parties are not eroded should the company become a regulated company after the conclusion of the contracts and that both the rights of the acquiring shareholder is protected with each share tranche acquired, as well as the rights of minorities which may hold less than ten percent of the shares after the implementation of the transaction.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

The Companies Act 2008 and Pre-Existing Shareholders Agreements

On 1 May 2013 will your company’s shareholders agreement be worth the paper that it is written on, as after this date most of what is contained in current shareholders agreements could automatically be rendered void.

This is an important corporate law consideration which must be addressed by all South African companies and their shareholders which rely on shareholders agreements concluded prior to the commencement of the Companies Act, No 71 of 2008 (the new Companies Act).

Historical Use of Shareholders Agreements

In terms of the previous Companies Act, No 61 of 1973 (old Companies Act) a company’s constitutional documents consisted of its memorandum of association and articles of association. In addition to these statutory documents, shareholders often concluded an additional shareholders agreement to regulate the internal affairs of the company.

A shareholders agreement typically provided that in the event of any conflict between the company’s articles of association and the shareholders agreement, the shareholders agreement would be the document that takes precedence. Shareholders therefore regularly used shareholders agreements to regulate important aspects of the company without the need to amend its articles of association and, by doing so, make the provisions public.

Shareholders Agreements Under the New Companies Act

The new Companies Act has, however, dramatically changed the possible scope and effectiveness of not only the new shareholders agreements concluded in terms of the new Companies Act, but also shareholders agreements which were concluded prior to the new Companies Act’s commencement date on 1 May 2011.

In terms of the new Companies Act, all shareholders agreements must be consistent not only with the provisions of the act itself, but also with companies constitutional documents, namely the memorandum of incorporation. Should there be any inconsistency between the shareholders agreement and a provision of the new Companies Act or memorandum of incorporation, the provision contained within the shareholders agreement shall be void.

A provision in a shareholders agreement which provides that the shareholders agreement will take precedence over the act or memorandum of incorporation shall itself be void and shall not provide any assistance to the shareholders.

Transitional Period

Companies which were incorporated under the old Companies Act and which had pre-existing shareholders agreements are, however, provided with a two year transitional period which ends of 30 April 2013.

During the transitional period, pre-existing companies may update their constitutional documents to comply with the provisions of the new Companies Act, and during such time should a shareholders agreement conflict with the provisions of the new Companies Act, or the company’s articles of association, the provisions of the shareholders agreement shall take precedence.

On 1 May 2013, any provision in a pre-existing shareholders agreement which directly conflicts with the new Companies Act or the company’s memorandum of incorporation will be void.

A company which takes no steps to align its current articles of association and shareholders agreement with the provision of the new Companies Act may find itself in a situation where most, if not all, provisions contained within the shareholders agreement are void as they conflict with the company’s articles of association which is automatically deemed to be its new memorandum of incorporation for the purposes of the new Companies Act.

Important provisions which are ordinarily contained within the shareholders agreement which may be void include provisions restricting or allowing the alteration or conversion of share capital, provisions regulating company meetings, provisions granting minority shareholders or specified shareholders rights to appoint directors to the company’s board, minority protection provisions including provisions which limit the board of directors powers, and provisions regulating borrowing powers and the determination and payment of dividends to shareholders.

Where to from Here?

What can be done to ensure that essential provisions contained within a shareholders’ agreement are not rendered void?

It will be necessary to determine where conflicts currently exist between the new Companies Act, articles of association and shareholders agreement.

Once conflicts have been identified, it will be necessary to determine which matters are now classified as alterable or non-alterable provisions in terms of the Companies Act.

Should any of these matters be classified as alterable or non-alterable provisions within the new Companies Act, it will not be possible for the shareholders to regulate these matters in a shareholders agreement, as non-alterable provisions cannot be altered at all, and alterable provisions can only be altered in the company’s memorandum of incorporation and not in a shareholders agreement.

Once this analysis has been done it will then be necessary to update the company’s memorandum of incorporation to deal with all alterable provisions which can only be altered in the memorandum of incorporation, and then draft an amended shareholders agreement relating to the remaining company matters.


This work by Clinton Pavlovic is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.