An amendment to a MOI, as set out in s16(9)(b) of the Companies Act, takes effect (i) 10 business days after receipt of the Notice of Amendment by CIPC, unless endorsed or rejected with reasons by CIPC prior to the expiry of such period; or (ii) such later date, if any, as set out in the Notice.

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Analysis of relevant provisions
Once a board has determined the Share Terms, the question often arises as to when such shares can be issued. Given that the most common habitat in which blank shares are encountered is the preference share funding environment, more often than not, time is of the absolute essence, and every day counts. Particularly, the question is whether:–

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• these shares can only be validly issued after the Board Amendment Notice has been “registered” by CIPC; or

• the company is able to proceed forthwith with the issuance of the shares after the board resolution has been passed, and only thereafter file the Board Amendment Notice with CIPC.

The question has become even more important and relevant pursuant to the Companies Act amendments which took effect in December last year. Those amendments effectively clarify that CIPC performs a similar reviewing and registration role which it had under the previous Companies Act – it now has 10 business days within which to accept or reject the resolution. A rejection can sometimes occur on extremely technical, administrative grounds, or due to an inadvertent mismatch between the company’s and CIPC’s respective records of what the share capital of the company is (there could be historical issues in this regard). This makes it vitally important to know when exactly the parties can go ahead and close the section 36(1)(d) issuance.

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The Companies Act is regrettably ambiguous when it comes to addressing this question. A strong argument exists that the company is able to issue the shares once the Share Terms have been determined by the board, with an ex post facto CIPC filing. This argument is based on the grounds discussed below.

S16(9)(b)(i) of the Companies Act refers to an amendment of a company’s MOI taking effect “after receipt of the Notice”. Considering s16 of the Companies Act as a whole, we note the Notice of Amendment is referred to in s16(7) and 16(9) only. S16(7)(b) of the Companies Act refers to the filing of a Notice of Amendment if a new MOI will substitute the existing MOI in terms of s16(5)(a), or the existing MOI is altered in terms of s16(5)(b). When we consider s16(5), we see that this section refers to amendments that were effected under s16(1)(c), which requires a special resolution of the shareholders, and not s16(1)(b), which deals with a board amendment. Consequently, s16 does not deal with the filing of the Board Amendment Notice where the MOI was amended by way of board resolution. Thus, a textual argument (albeit a tenuous one) may be made that (i) s16(9) only deals with the filing of a Notice of Amendment for amendments in terms of s16(1)(c) (special resolutions of shareholders), and that (ii) s36(4) is a different procedure that applies for amendments by the board as contemplated in s36(3).

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Consideration of the language in s36(4) of the Companies Act, specifically that the Board Amendment Notice must set out “the changes effected by the board”, implies that once the board resolution to determine the Share Terms is passed, the changes to the MOI are in law, “effected”. Therefore, the filing of the Board Amendment Notice is merely a formality for record purposes – much like the return a company files with CIPC, recording changes to its directorship. From a contextual and purposive perspective, this interpretation is also logical as the board’s powers are limited to an amendment which relates only to share capital, with one of the obvious purposes of enabling the company to raise equity finance. Companies would normally require equity finance to be raised as quickly as possible, and without being delayed by CIPC’s processes. Therefore, given the context and purpose of s36(3) of the Companies Act, it is sensible and businesslike to interpret s36(4) as allowing the board to issue shares immediately upon determining the Share Terms.

The point above also garners support from s36(1)(d)(iii) of the Companies Act, which prohibits the issuance of the shares until the board has determined the Share Terms. This section does not require that the determination by the board be filed with CIPC and, thus, the only requirement prior to issuance of these shares is that the Share Terms be determined by the board.

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However, it must be noted that regulation 15(3) of the Companies Regulations, 2011 requires the Notice to be filed together with any required supporting documentation and the filing fee within 10 business days after an amendment to the MOI has been effected in any manner contemplated in s16(1) of the Companies Act. As this regulation covers s16(1)(b) as well, the Notice with the board resolution which determines the Share Terms should be filed with CIPC within the prescribed time period.

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Conclusion
S36(1)(d) of the Companies Act has given companies the flexibility to create “blank shares”.  However, the Companies Act remains ambiguous with regard to the timing of the determination of the Share Terms, the issuance of the shares, and the filing of the MOI amendment with CIPC. While a strong case exists for the issuance of the shares the moment that the board determines the Share Terms, to mitigate any potential legal and compliance risks, we recommend that companies proceed with caution and only issue such shares after they have “registered” the board resolution with CIPC. Alternatively, if the parties really cannot wait, then the special resolution of the shareholders approving the initial MOI amendment should, in anticipation, include a specific reference to s38(2) which allows the retroactive authorisation of shares that were issued before their creation in law.  

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Hayes is Practice Head and Arends is an Associate in Corporate & Commercial | Cliffe Dekker Hofmeyr