The return of capital to shareholders by means of a repurchase of securities

Abstract

Sections 46 and 48 of the Companies Act, 2008, regulates the process for implementing a share repurchase within a company. This study analyses the historical development of the implementation of share repurchase legislation in South African company law, by analysing the capital maintenance rule that existed before 1999, and then following the recent developments through the changes to the Companies Act, 1973 in 1999, under promulgation of the Companies Act, 2008. The study then analyses the provisions of sections 46 and 48 of the Companies Act, 2008, analysing those provisions from a practical implementation perspective to ascertain the procedural requirements applicable to directors and shareholders, and how the process of implementing a share repurchase may be implemented. There is then an analysis of the share repurchase provisions in the USA, UK and Australia to compare them at a very high level to the provisions in South Africa mainly to ascertain whether or not the South African requirements are comparable to international best practice. Finally, a very brief analysis is made of some other factors that may be relevant to a decision to return capital to shareholders by means of a share buy-back, to ascertain to what extent factors may impose higher requirements, influence the decision as to what mechanism to utilise to implement a return of capital to shareholders.