Department response to Co-operatives Amendment Bills submissions

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Trade and Industry

28 August 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Co-operatives Bill subcommittee report back
The subcommittee chairperson said there was a need to incorporate the seven co-operative principles into the Bill rather than leave them in the Preamble of the Bill, where it would have no force. On the withdrawal of shares from a co-operative, the phrasing of the Bill should be such as to protect the life of the co-operative over the rights of the member withdrawing. How the Co-operatives Agency would relate to all spheres of government and to the Small Enterprise Finance Agency and the Small Enterprise Development Agency needed to be clarified. The opposition to the establishment of a Tribunal needed to be discussed and the Committee should draw from international experience. The Committee should consider additional submissions while the issues were still under discussion.

Department of Trade and Industry (dti) response to submissions on Cooperatives Amendment Bills
The dti continued its response started a week earlier. It discussed comments by the National Union of Metalworkers of SA and South African Clothing and Textile Workers Union, Praetorium Trust, Houers Ko-operatief and Malelane Sitrus Ko-operatief, the SA Local Government Association, the SA National Apex Co-operative (SANACO) and NAFCOSA. The
Parliamentary legal advisor commented on the dti’s responses.
The Parliamentary legal advisor and State Law Advisor both agreed that the two Bills should be tagged under Section 75 of the Constitution and thus the Bills should be merged as one Bill.

The Committee discussed the National Consumer Commission (NCC) and decided to give the NCC until close of business Monday 3 September to provide the Committee with the documents the Committee had requested and meet with them on 5 September. The Committee also adopted its Kenya study visit report.

Meeting report

Co-operatives Bill subcommittee report back
The subcommittee chairperson, Mr X Mabasa (ANC), said there was a need to incorporate the seven co-operative principles into the Bill rather than leave it in the Preamble of the Bill, where it would have no force. The social and management reports had to be included in the reporting framework. The subcommittee had discussed that the “independent reviewer” needed to be fully defined in the Bill and the need to align the Bill with the International Co-operative Alliance (ICA) and the International Labour Organisation’s (ILO) Recommendation 193. On the withdrawal of shares from a co-operative, the phrasing of the Bill should be such as to protect the life of the co-operative over the rights of the member withdrawing. How the Co-operatives Agency would relate to all spheres of government and to the Small Enterprise Finance Agency (SEFA) and the Small Enterprise Development Agency (SEDA) needed to be clarified. The opposition to the establishment of a Tribunal needed to be discussed and the Committee should draw from international experience. The Committee should consider additional submissions while the issues were still under discussion. The subcommittee planned to visit KwaZulu-Natal and Mpumalanga.

Department of Trade & Industry (dti) response to comments on Cooperatives Amendment Bills
Mr Jeffrey Ndumo, Chief Director of Co-operatives in the dti, continued with a presentation he had started a week earlier. The National Union of Metalworkers of SA (NUMSA) and the South African Clothing and Textile Workers Union (SACTWU) had called for a limit to the number of juristic persons in a co-operative, as juristic persons could wield greater power over poor people. The dti’s response was that the ICA had amended the definition of cooperatives include juristic persons and most countries had adopted ILO Recommendation 193 which referred to “ persons”, with which South Africa had aligned itself. This allowed for freedom of association and developed international competitiveness.
Cooperatives that consist of both natural and juristic persons have proven to be often more economically viable than once only consisting of natural persons. In Category A and B co-operatives, one member would equate to one vote. In Category C co-operatives, one member could represent a maximum of 15% of the votes. As membership was voluntary, open, and democratic, the constitution of a co-operative should indicate whether juristic persons were eligible for membership and if so, the maximum number of juristic persons allowed.

He said Praetorium Trust had raised the issue of the clause on proxies being in conflict with the Principal Act. The dti supported the deletion of Section 14(2)(d) of the Principal Act and to retain the clause that proxies could only represent a maximum of 5% of the membership so that democratic member control was not undermined.

Houers Ko-operatief and Malelane Sitrus Ko-operatief had argued that the two-year period to repay members who withdrew from the co-operative was too short and would affect the financial position of the co-operative and that the repayment period should be stipulated in the constitution or be over a period of five years. The dti position was that the co-operative constitution should determine the period.

The SA Local Government Association (SALGA) had expressed concerns over the Co-operative Agency being a duplication of services and over the role of municipalities. Mr Ndumo responded that it would not be a duplication of services, but rather an alignment of services and that the Agency might establish satellite branches. Co-location would be used as a strategy as the Agency would not be a Chapter Three Agency but rather a government entity under the control of government.

SALGA, the SA National Apex Co-operative (SANACO) and NAFCOSA were opposed to the establishment of the Tribunal and concerned over whether it would serve rural areas. They felt that the Tribunal funds be used for training. Mr Ndumo responded that the Tribunal would be mobile and it would be important to ensure the good governance of co-operatives.

The dti agreed about the deletion of the word “applicable” in item 6(3) of Part Two of Schedule One to the Act, to avoid the establishment of “bogus” co-operatives. It would now read “all worker co-operatives must comply with labour legislation”.

NUMSA and SACTWU had called for the Bill to be strengthened by the inclusion of the seven co-operative principles in the Bill. The dti said that the Bill recommended that the Preamble be amended to include the seven principles.

Parliamentary advisors comments on dti’s responses
Adv Charmaine van der Merwe, parliamentary legal advisor, recommended that the seven co-operative principles in the Preamble, as they were so important to co-operatives, be incorporated into the Bill rather than leave it in the Preamble, where it would have no force.

She said that the three terms “financial statements”, the “social report” and the “management report’ of the “Annual Accounting Report” be defined separately. This had been done. She said that the definitions should state who the authors of the three reports should be. She added that the final wording needed to be interrogated.

She said the Minister needed to provide a reporting framework which she would prefer to be part of the regulations.

The audit definition needed to be refined and should include the management and social report as the
Auditing Professions Act did not include these two reports in its definition. This had already been done.

She said the definition for “independent reviewer” should be included in the Bill and not in the regulations.

She said the “Independent Reviewed Report” could also be termed the “Independent Reviewer’s Report”.

On Clause 3 amending Section 3(3) and 3(4), which dealt with co-operatives comprising less than five members, she said that Section 3(3) could remain but that 3(4) was in conflict with 3(3). Section 3(4) could be amended to indicate that this was applicable when co-operatives had more than five members.

She said corporate governance requirements had to be provided for in the regulations section, Section 95, a new clause to the Bill.

She said Section 10(2)(b) as amended did not only apply to co-operatives registered after the amendment of the Act. If the intention was to be the same as for the word co-operative in 10(2)(a), then it must be amended to read the same.

She said revenue and projected revenue should be defined in the Bill. The Bill should also indicate when projected revenue would be applicable.

She recommended that the “activity plan”, similar to a business plan, be defined in the Bill.

She recommended that the purposes of the reserve fund(s) be identified in the co-operative’s constitution to avoid disputes about the use of the funds at a later stage. She also recommended that the creation of more than one fund be permissible.

She said dti’s position, in favour of having more than one reserve, should be clearly stated in the definitions or in Section 46.

She recommended that the Bill clearly state that Category A primary co-operatives would not be required to submit audit or independent reviewed reports.

She suggested that the wording of Section 48(2) be carefully considered so that there was no confusion on what the AGM could do regarding the audit and independent reviewed reports.

She said the term “accounting practice”, in Clause 37 amending Section 49(1)(b), was not recognised by all professional bodies and that a term be found that was acceptable to all.

She said that given that the Companies and Intellectual Properties Commission (CIPC) was required to impose a fine if a co-operative failed to appoint an auditor or independent reviewer, registration or notification of the appointment to the CIPC would be required and should be included in the Principal Act.

She recommended that the Independent Regulatory Board for Auditors (IRBA), the SA Institute of Chartered Accountants (SAICA) and the SA Institute of Professional Accountants (SAIPA) be consulted in developing what was required in the “social report” and management report”.

National Consumer Commission (NCC)
The Chairperson said the Committee would only be looking at financial and substantive issues and needed to take a decision on the NCC.

Mr Radebe asked that the Commission be given an opportunity to present to the Committee, as the Committee’s decision would have far reaching consequences. He requested the dti to respond to the Committee on the matter of the information the dti had requested from the Tribunal.

Mr G Hill-Lewis (DA) said the Committee had met with the Commission three or four times already and that the Commission had had enough time and that a decision should be taken forthwith.

Mr W James (DA) said it should be easy for the Commission to comply with the Committee’s requests as it was only administrative documents being requested. The delay in furnishing the documents was unacceptable.

A proposal that the Commission furnish the documents by the end of business on Monday 3 September was accepted. The two DA members wanted their objections noted.

Tagging of Co-operatives Amendment Bill
Adv van der Merwe said that by a process of elimination the Co-operatives Bill had to be tagged under Section 75 of the Constitution, for ordinary bills not affecting the provinces. She emphasized that the tagging of a Bill only looked at the process Parliament had to follow and was not a consultative process. In this respect the Committee, through consultation, had to look at the content and processes and see if there were any gaps in the consultation process. She said the Bills could be redrafted into one Bill; there was no need to proceed with two Bills as the content was the same.

Adv Allan Small, State Legal Advisor, agreed and said it would be better that it be one Bill, were it to be tested for interpretation later. The Office of the State Law Advisor had already started work on a merged document.

Mr Ndumo said that the legal experts had advised two Bills after he had initially presented one Bill.

Mr Mabasa asked what informed the decision to have two Bills.

Adv van der Merwe said that initially it had been drawn up as two Bills, with one tagged as a Section 76 Bill, but a recent case had made clear the interpretation of what affected the provinces with regard to Schedule Four of Section 76. The Co-operatives Bill could only be considered falling under trade, which was defined as buying and selling of goods and services. The Bill dealt with co-operatives, not trade and therefore could not fall under Section 76 and therefore two bills were not required.

The Committee adopted a resolution to process the Bills as one Bill.

Kenya study visit report
Mr B Radebe (ANC) said the report was accurate and recommended that Dr Mutua Waiema, regional director for the International Co-operative Alliance be invited to South Africa. The report was adopted.

The meeting was adjourned.

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