Companies Bill, Consumer Protection Bill, Competition Amendment Bill: Minister’s briefing
27 Nov 2008
Presenter: Mr Mandisi Mpahlwa, Minister of Trade and Industry
Mr Mandisi Mpalhwa, Minister of Trade and Industry, commented that the three pieces of legislation were aimed at strengthening the regulatory environment in South Africa. He particularly noted the Companies Bill as an important overhaul of the previous company legislation.
A key feature of the Competition Amendment Bill was that it introduced criminal sanctions, proactive investigation into market inquiries, the maturing of competition agencies that had emerged in the previous legislation. It was notable that these agencies had matured to the extent that they were more proactive and aggressive in recent times.
The Consumer Protection Bill adopted a rights based approach that mirrored the UN adopted consumer rights. It further provided for product liability. A particular concern for business had been their liability for unsafe products. The Minister reported that they had taken this position to ensure that businesses paid attention to the goods they distributed. He noted the importance of consumer activism, as active consumers stimulated innovation, better quality, service and competitive prices. This complemented competition policy with its aims of promoting efficiency and competitiveness of our markets.
The Companies Bill overhauled the current Companies Act of 1973. The need for review had arisen as the old legislation had not kept up with globalisation and democracy in South Africa, company scandals and developments in the field of financial reporting standards. There was a need to relieve the regulatory burden on small business, increase market transparency and simplify the process of company registration and maintenance.
He expanded on the detail that surrounded the four major provisions: corporate finance and corporate governance; access to information; business rescue and the creation of institutions and agencies. Most notable of the provisions was the third, business rescue. The Minister stated that it was a very short route to liquidation in South Africa. This provision would ensure that the route was not so short. It also sought to balance the different interests in the affairs of a company. It addressed the extent to which debt counselling services were required – how debt counselling was provided for affordably which also fed into the issues of credit legislation.
Q: A journalist asked how the capacity of the competition authorities would be beefed up as many people were leaving public sector regulators for the private sector.
A: The Minister responded that the public sector was broadly facing an ombud challenge on a constant basis. They trained very competent people who were then sought after. It was a struggle to compete with private sector incentives but the public sector was trying to find ways to incentivise people to stay, though they could not match the remuneration. The Minister did not personally get a sense of an exodus. They have to retain capacity and would continue to strengthen capacity on an ongoing basis.
Q: A journalist asked if the Minister was of the opinion that the courts had the capacity to enforce the criminal sanctions contained in the Consumer Protection Bill as the issues were complex.
A: The Minister responded that they were developing protocols regarding the criminal sanctions. Provisions for administrative action differed from those for criminal sanctions. The envisaged route was that they would ensure the most optimal relationship between the two. In the drafting process they had dealt with the areas that were unconstitutional and had found optimal approaches.
A: Ms Zodwa Ntuli, Deputy Director General: Consumer and Corporate Regulation Division, Department of Trade and Industry, responded that the capacity of the courts to deal with the criminal sanctions of the Competition Amendment Bill was an area for development. The field of competition law had developed extensively in recent years. The area was now well specialised with practicing lawyers. There was established case law and with the co-operation of the criminal courts, it has the potential to develop beyond expectations.
A: The Minister added that they had had an interaction with the Competition Commission looking at enhancing personnel capacity. With the changes in the legislation and the economic challenges, this became an important thing they had to do.
Q: A journalist queried the extent to which the Consumer Protection Bill would impact the informal sector.
A: The Minister responded that the participants in the informal sector were delaying with many different categories of goods. There were people who bought goods for resale and also those whose activities fell under the municipal ambit. An example of this would be an informal trader selling food would fall under municipal food preparation regulations. There were other such informal trading activities that lent themselves to municipal inspection and they would rely on the municipalities to attend to those activities
Q: A journalist asked if there would be a ramp-up of industrial policy, in response to the global economic crisis and how industrial policy would be aligned with macro-economic policies.
A: The Minister responded that the evolving economic situation was increasingly making itself felt globally and as such, South Africa was feeling it too. The stance that the economic cluster had developed was to identify the areas of weakness and develop an intervention programme to address the challenges of the crisis the country is caught up with. They were of the belief that this was the correct approach. The cluster would continue to spend the resources available on the identified areas and would work in a way that anticipated eventual economic recovery. The work specifically done on the industrial and trade policy focused on reducing tariffs and input costs. The macroeconomic scenario would determine the resources that are available and they had to focus those resources to address the key areas for when the economy recovered.
Q: A journalist queried the possibility of the Consumer Protection Bill being applied retrospectively, once promulgated.
A: The Minister responded that it was his understanding that one did not implement legislation retrospectively. The Consumer Protection Bill would be applicable at the date it came into force.
Q: A journalist asked how long it would be before all three Bills came into force.
Q: The media asked what the legislative programme would be from here. What came next in the process of the Bills.
A: The Minister responded that they were at the stage where they were awaiting the President’s signature as none of the three Bills had been assented to. This was the next crucial step. The Department was gearing up for areas of further work. These areas concerned the formulation of the accompanying regulations to the Bill, the involvement of the prosecuting authority in the criminal sanctions and the creation of the institutions the Bills envisaged.
Q: A journalist, referring to Ms Ntuli specifically, commented that the Department of Trade and Industry had recently lost crucial member of the drafting team of the Consumer Protection Bill. He queried the plans to replace key people in the division in order to retain capacity.
A: Ms Ntuli responded that they had found a replacement for Mr Fungai Sibanda, Chief Director: Policy and Legislation. The incumbent would start on 1 December 2008. On the whole, the DTI planned to recruit and retain the best. This was an area that was clearly described in the Annual Report and the accompanying presentation to Parliament. The Department was also confident that that they would be able to get back what they had lost to the private sector and the regulatory authorities. A positive aspect of this was that when people left for the private sector, they became competition advocates in those areas and when they returned they were enriched and better able to carry out the functions of the Department.
Q: A journalist referred to the criticism from foreign companies that certain provisions in the Companies Bill would drive out foreign investment in South Africa. Would the Bill have this effect and if so what would the effect be.
A: The Minister responded that it was necessary to zoom in on those areas of concern. It was his view that they had eventually drafted legislation after researching company law around the world and how company law had to adapt to the realities of the world. This was not only an issue of globalisation but also dealt with the issues of accountability, transparency and strengthening regulations. The drafters had modelled the best international practices. He would have to question those who argued that archaic legislation had a better chance of enhancing foreign investment over the modern version. Foreign companies wanted confidence that about the regulatory environment and standards in South Africa. He would further question the view that the Companies Bill would fall short compared to the previous legislation.
A: Ms Ntuli added one of the key concerns addressed in the Companies Bill was that of minority shareholder activism. This was applicable as the shareholders in need of this kind of protection were often foreign investors. They had adjusted the ratio needed to call a meeting- the meeting threshold- from 25% of shareholders to 10% of shareholders under the section covering the Memorandum of Incorporation in the Companies Bill. This change was made in response to the concern that the original 25% in the Bill would be used as a minimum (even though companies had the option to choose a lower meeting threshold). They had thus settled on the 10% meeting threshold to protect minority shareholders by providing scope for a small ratio of shareholders to call a meeting should an issue arise.
One other area where foreign investors had raised concern and for which South Africa had been evaluated was the regulatory burden and time taken to register a company in South Africa. In response, the Companies Bill simplified this process.
Q: A journalist reiterated a previous question, adding that more detail was required on when the Bills would come into force. He asked if the Bills would come into effect in the first half of 2009, the second half of 2009 or in 2010 and when the process described would happen.
A: Ms Ntuli replied that the Consumer Protection Bill and the Companies Bill would come into effect a year after being signed by the President. Some of the aspects of these Bills would come into effect in a staggered manner. Some of the provisions may kick in earlier and others may only take effect 18 months later. By mid-2010 all the Bills would be in operation.
MINISTER MPAHLWA’S SPEAKING NOTES FOR THE BILLS MEDIA BRIEFING
27 NOVEMBER 2008
THE COMPETITION AMENDMENT BILL
The purpose of the Competition Amendment Bill is to strengthen the existing provisions of the Competition Act in fighting collusion (complex monopolies) and cartels which undermine competitiveness of downstream industries and rob consumers.
This Bill introduces a criminal sanction regime against individuals found guilty of causing a firm to engage in price fixing, output restriction, market allocation and collusive tendering. An individual may face up to ten-year imprisonment or pay a fine of R500 000 or both. This severe penalty serves as a signal that cartel activities will not be tolerated, and those involved in this harmful practice will be severely punished.
The Bill improves on market inquiry provisions which allow the Competition Commission to proactively investigate markets and increase market transparency by enquiring on impediments to competition which results in consumer harm. The Bill also improves the interface between competition law and policy and sector regulation by demarcating distinct responsibilities and providing framework for sound cooperation. This will remove unnecessary regulatory burden and uncertainty whilst ensuring better functioning of our markets.
The measures adopted herein show government commitment in promoting effective competition policy as part of its overall economic and regulatory framework which should work along with other policies such as industrial policy and trade policy.
Furthermore, this Bill seeks to promote better private sector market governance through promoting greater compliance with the law and adoption of sound business ethics. For effective implementation of policy and law, it is critically important to continuously monitor compliance and provide adequate resources for enforcement.
CONSUMER PROTECTION BILL
The Consumer Protection Bill seeks to create and promote an economic environment that supports and strengthens a culture of consumer rights and responsibilities, whilst through the measures adopted herein; it seeks to promote fair, efficient and transparent market place for consumers and business. The primary purpose of the Bill is to prevent consumer harm and enhance economic welfare of consumers in
These include the right to product safety and quality, right to fair and just contract terms, right to cancel consumer agreements and long-term contracts, right to buy bundled goods separately, right to receive documents that are written in plain and understandable language, enhancing consumer choice by requiring disclosure and information with regards to prices, as well as the right to refund and warranties. The Bill provides for a system of product liability, where any producer, distributor or supplier will be liable for any damage in the form of death, injury, loss or damage to property and economic loss to the consumer or third party. The Bill promotes consumer activism by providing for accreditation of consumer groups for lodging complaints on behalf of consumers and provide for possible financial support for activities such as consumer advice, education, publications, research and alternative dispute resolution through mediation or conciliation.
The Bill provides for the establishment of the National Consumer Commission to investigate consumer complaints whilst the National Consumer Tribunal will adjudicate over violations of Consumer Protection Act. The courts will adjudicate on all contractual matters and confirm consent orders concluded with suppliers.
Consumers drive competitiveness and economic growth. Well-informed consumers stimulate innovation, better quality product and service, and competitive prices. As we embark on a campaign to educate consumers about the rights afforded by this Bill, it is important that we equally raise awareness on the responsibilities that consumers have for effective implementation of this Bill. This aspect complements the principles of the competition policy, which is also concerned with promoting efficiency, and competitiveness of our markets.
THE COMPANIES BILL
The Companies Bill is aimed at overhauling the current Companies Act, 1973. The Bill is a result of consultations with various stakeholders and that lasted a period of five years. The Bill is a complete departure to the philosophy that informed the Companies Act, 1973 and is a complete overhaul of the old regime in this area of the law.
The need for a review of the existing company law regime was necessitated, by amongst others, outdated company legislation, globalisation and advent of democracy, scourge of company scandals, developments in the field of financial reporting standards, need to ease regulatory burden especially for small businesses, increasing market transparency and simplification of company registration and maintenance.
Major provisions of the Bill are as follows:
Corporate finance and corporate governance;
Transparency and accountability;
Institutions and agencies;
The Bill emphasises simplification of registration of companies and alleviates overregulation on companies.
Corporate Governance and Financial Governance
Companies, large and small, will be required to prepare annual financial statements. This should be so to encourage sound financial management, to ensure sustainability of companies of all sizes, and to comply with other regulatory requirements. However, regulatory burden will be reduced by exempting certain categories of companies from having annual financial audited or reviewed and there would be differential reporting standards, namely, small companies will comply with less onerous standards. The Financial Reporting Standards Council (Council) responsible for the formulation of financial standards will consult nationally and internationally on financial reporting standards and advise the Minister for issuance.
The Bill encourages shareholder activism, for instance, shareholders will appoint Audit Committee as a subcommittee of the Board. The Bill also provides that demand for a meeting must be supported by 10% of the voting rights. This will therefore enhance minority protection as they will be able to demand convening of meetings with ease when they are aggrieved.
To ensure sound corporate governance, common law duties of directors are incorporated in this Bill and courts are given powers to further develop jurisprudence based on the common law and the tenets of this Bill. Companies will not be allowed to indemnify directors should they be found to be in breach of their duties.
Access to information
Access to information as enshrined in our Constitution Act and the Bill of Rights is also the cornerstone of this Bill. In interpreting and applying the Bill, the Bill must seek to promote the spirit and purpose of the Bill of Rights of our Constitution. In this regard, trade unions will have the right to access of financial statements of a company, but only for the purposes of exercising their right for business rescue process. However, such access to information will be given by the Commission under stricter conditions in order to respect business secrecy and confidential information. Members of the public will have access to company records. In cases of disputes, the Tribunal will facilitate access to these records without going to the pains of going to courts.
Business Rescue Process
The Bill introduces the concept of “business rescue” process, which is a departure from the judicial management currently existing. There is no doubt that rescuing the company that is in financial distress is in the best interest of a company, the workers, creditors and the economy as a whole. The purpose therefore is to be able to rescue a company before it gets to liquidation stage. This Bill will also result in a crop of new professionals in the area of business rescue. It is hoped that business rescue process will be a success as various stakeholders are involved during the consultation process.
Creation of institutions and coming into force of the Act
Laws are judged to be good when the implementation strategy is in place and effective. In this regard, regulations will be drafted and relevant stakeholders will be consulted, proper institutions such as the Commission of Companies and Intellectual Property, Companies Tribunal and the Financial Reporting Standards Council will be formed before the Bill comes into legal force.
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