Editor’s note: This is general educational information about the legal steps between an offer and a first trade, not investment advice, and it does not describe any particular listing. It is based on the official documents listed at the end.
The price is agreed, the book is closed, and the shares still do not exist in anyone’s account. Between those two points the South African Companies Act imposes conditions that can void the allotment, force every rand back to applicants, and make directors personally liable for interest if the money is late. None of it is visible from the outside, and all of it is in statute.
Allotment cannot happen until the money is in
Section 108 blocks allotment on two independent grounds. A company that has offered securities to the public must not allot them, or accept a subscription, unless the subscription was made on an application form attached to or accompanied by a prospectus, or it is shown that the applicant was in fact in possession of a copy of the prospectus or aware of its contents at the time of application.
The second condition is financial. The company must not allot unless the minimum amount stated in the prospectus, being the amount the directors consider must be raised to provide for the prescribed matters, has been paid to and received by the company. A cheque is not treated as paid until it has been unconditionally credited to the company’s bank account, and any amount received is reduced by any money, bill, promissory note or cheque the company has delivered back to the payer other than in discharge of a debt bona fide due by it. The minimum is reckoned exclusively of anything payable other than in cash.
Until the minimum is made up, application money is not the company’s to use. It must be paid into a separate account with a banking institution registered under the Banks Act and must not be used or made available for the company’s purposes or for the satisfaction of its debts. If the minimum has not been reached within 40 business days after the issue of the prospectus, all amounts received from applicants must be repaid promptly without interest. If repayment has not happened within 55 business days after issue, every director and prescribed officer becomes jointly and severally liable to repay the money with interest at 6% per year from the expiry of the 55th business day, unless the default was not due to that person’s misconduct or negligence.
Section 109 supplies the remedy where an allotment is made anyway. An allotment or acceptance in contravention of section 108(2), where the offer was not subsequently subscribed to the minimum extent, is voidable at the instance of the applicant even if the company is being wound up, and every director is exposed to liability under section 77(3)(e)(vii) if the allotment is declared void. Proceedings must be started within the earlier of 20 business days after the applicant discovers the contravention and three years after the allotment.
The waiting period and the listing condition
Section 110 imposes a deliberate pause. No allotment, no acceptance of an offer and no proceedings on applications may be taken under a prospectus until the beginning of the third day after the prospectus is first issued, or such later time as the prospectus specifies. Where the prospectus is first issued as a newspaper advertisement, that is the day the clock starts; if it is not issued as an advertisement before the third day after first issue in another manner, the other manner governs. A contravention does not invalidate the allotment, so on its face the section operates as a timing requirement rather than as a condition of validity.
Section 111 makes the listing itself a condition of the allotment. A prospectus stating that application has been or will be made for the securities to be listed on an exchange may not be issued unless an application has in fact been made in accordance with that exchange’s requirements on or before the date of issue, and unless the prospectus names the exchange. Any allotment under such a prospectus is then subject to the condition that the application is granted, or that an appeal against a refusal is upheld.
Some of the arithmetic underpinning that was fixed much earlier. Under the Companies Regulations, 2011, gazetted on 26 April 2011, every prospectus must state the purpose of the offer and, where the amount sought exceeds the minimum subscription, the reasons for the difference; must state a time and date for the opening and closing of the offer; and must set out the class of securities, the number offered, the issue price, particulars of any security given and the other conditions of the offer.
Where the company issued securities in the 3 years before the prospectus, it must disclose the dates and prices and explain any differentiation from the issue price now being asked. Directors must state whether the issued capital, including the minimum amount to be raised, is adequate for the business for at least 12 months after the date of the prospectus, and must report any material change in assets or liabilities between the last annual financial statements and the date of the prospectus. Regulation 76 requires a statement of whether a listing application has been made and, if so, the name of the exchange.
Getting the shares into accounts
Delivery is a separate system. Strate, South Africa’s principal central securities depository, enables settlement and matching for all of the country’s equity exchanges, the JSE, A2X, CTSE and I-Ex, and handles on-market and off-market trading across equities, bonds, money markets and exchange traded funds. Ownership records are built through its beneficiary download process, which collates ownership information from market participants, brokers and FSCA-approved nominees into a single-source record of beneficial ownership.
Settlement itself is designed to complete on the value date. Delivery versus payment occurs on settlement date, transfer of ownership is final, irrevocable and unconditional, money settlement runs in central bank funds through the real-time gross settlement system, and the rules require clients to receive same-day value. Settlement runs are triggered at intervals through the day, and the securities leg is always dependent on successful settlement of the cash leg.
Analysis: the quiet hours are a conditions checklist
What looks like a pause is a sequence of tests, and the order matters more than the duration. Money must be received before allotment, allotment cannot precede the third day after issue, and the whole allotment stays conditional on the exchange granting permission. Each of those can be failed independently, and only one of them, the section 110 interval, has no effect on validity when breached.
The design puts the risk on the company and its directors rather than on applicants. Application money sits in a segregated account outside the company’s reach, the repayment obligation is automatic at 40 business days, and the sanction at 55 business days is personal liability with interest running. A reader who understands that will read the minimum subscription figure in a prospectus differently: it is not a target, it is the level below which the offer legally unwinds.
What this framework establishes is that an offer either completes on its stated terms or is returned. What it does not establish is anything about the price. Nothing in sections 108 to 111 concerns valuation, demand or the size of the book, and the statute is indifferent to whether the issue was covered many times over or barely at all, provided the minimum was received in cash.
The practical reading list before a first trade is therefore short and specific. The minimum subscription figure and the reasons given for any gap between it and the amount sought. The statement under regulation 76 naming the exchange. The directors’ statement on capital adequacy for at least 12 months. And the opening and closing times of the offer, which set the 40 and 55 business day clocks running.
