Co-operatives Amendment Bill: deliberations

Meeting report

Co-operatives Amendment Bill: deliberations
Mr X Mabasa (ANC) tabled the subcommittee’s report.

Adv Johan Strydom, dti senior law advisor, said that the Committee would be using the Consolidated Co-operatives Amendment Bill Working Draft F1 [B17-2012]. He said he would only raise substantive matters and assured the Committee that the rest of the matters marked in red related to grammar or consequential amendments.

The words “or cultural” had been added to the definition of what a co-operative was in the Amendment of Section 1 of Act 14 of 2005 (Clause 1(h)).

The definition of a juristic person had been expanded to include trusts established inside or outside of South Africa (Clause 1(l)).

Adv Kathy Idensohn, University of Cape Town (UCT) law faculty, said that this amendment was in line with the Companies Act (No. 71 of 2008) legislation and because it was likely that in future co-operatives would expand beyond South Africa to a regional and international level.

Adv Strydom said that the definition of a surplus had been substituted with a much more substantial one (Clause 1(u)).

Mr N Gcwabaza (ANC) said the use of the word ‘overcharge’ was unsettling as it implied something illegal. Could there not be another way of phrasing it?

Adv Idensohn said the original definition had been confusing. The term ‘overcharging’ was an accepted term which had developed a technical meaning in co-operatives circles and had been deliberately used to indicate to the tax authorities that the transaction was not taxable as it was an estimate and, in the end if the actual cost was less, members received a refund.

Ms Elize Koekemoer, dti Director: Co- operative Development,  said it was a strong policy position that co-operatives were there to benefit from economies of scale and not to make a profit and therefore their transactions were not taxable.

Mr Mabasa said the definition would be flagged for further consideration.

Adv Strydom said that the definition of a tertiary co-operative (Clause 1(u)) had been amended to take cognisance of sectoral and multi-sectoral co-operatives whose members were operational secondary co-operatives and that tertiary co-operatives may join the national apex co-operatives.

The definition of a trust had been amended (Clause 1(v)).

Adv Idensohn said this was because what a juristic person was needed to be amended and brought in line with the Companies Act.

Adv Strydom said that the words 'newly formed and' had been added in front of 'emerging co-operatives' in the Amendment of Section 2 (Clause 2(b)). 

The Amendment of Section 3(1) had been reworded (Clause 3(a)) and ‘5%’ had been removed and replaced with ‘a percentage’ (Clause 3(b)).

Section 3 would get an additional subsection 3(4). The fact that the subsection dealt with instances where co-operatives had more than five members and yet had a proviso for when a co-operative had six members was discussed. Mr G Hill-Lewis (DA)'s suggestion, that the 15% requirement be converted to 17% to fulfil the requirements of both provisos and allow the second proviso fall away, was accepted. (Clause 3(d)).

Adv Strydom said that sub-sections 3(6) and 3(7) would be replaced by redrafted versions (Clause 3(d)).
 
Section 4 would have a new paragraph of sub-section (1) '-(d) the national apex co-operative' which referred to the establishment of a single national co-operative as a fourth tier of co-operatives (Clause 4(a)).

Mr Sipho Zikode, dti Deputy Director-General: Enteprise Development and Empowerment, said that the dti had been engaged in meetings with co-operatives since July 2012 to form a single national apex co-operative, which idea the Department supported.

Mr Hill-Lewis expressed his concern at what role the national apex co-operative would play, given the existence of a co-operatives advisory council.

Mr Zikode said the advisory council advised the Minister while the national apex body would be an advocacy body lobbying on behalf of all co-operatives in South Africa.

Mr Mabasa said tertiary co-operatives could fulfil the role of focusing on industries or interests but that the apex co-operative would represent all interests. If there was no apex co-operative then there would be more clashes while an apex co-operative would create more opportunities and develop co-operatives’ interests non-racially.

Adv Strydom said that in Section 6(c) the minimum number of two co-operatives required for the establishment of tertiary co-operatives was still subject to further discussion (Clause 6(a)).

The insertion in subsection (1) for paragraph (d) dealt with the composition of the national apex co-operative (Clause 6(a)).  

Section 6(2) would get an additional paragraph '(e)' dealing with the proposed name of the co-operatives and the request to reserve that name (Clause 6(d)).

He said that the substitution in Section 12(1) had to include the word ‘entity’ between the words ‘any natural…’ (Clause 10(b)).

Section 15A would be inserted after Section 15 and in subsection 15A(2) ‘deposit taking financial cooperatives’ would be substituted by ‘ legislation applicable to deposit taking financial co-operatives.’ (Clause 14).

Section 15(a)(3)(a) and 15(a)(3)(b) provided redrafted definitions of ‘projected annual revenue’ and ‘annual revenue’ respectively (Clause 14).
 
In Section 21(1)(f) the word ‘managers’ would be substituted by the word ‘employees’ (Clause 18(b)).
 
Section 25(c) provided for the repayment of a member’s shares to beneficiaries, to be deferred for such a period as permitted by the co-operatives’ constitution. The deferral was to allow for the financial well-being of the co-operative.

Adv Idensohn said that concern for the beneficiaries of the dead person also needed to be taken into account and that there should therefore be a maximum period of time stipulated, possibly of two years.

Mr Mabasa said that it should be paid as soon as possible, but not longer than two years.

The Chairperson said that perhaps a percentage could be paid initially. The matter would be reconsidered by the subcommittee. (Clause 22).

In Section 38(1) the words marked in bold ‘unless such commission….the co-operative’ were retained (Clause 29).

Adv Idensohn said that this was further elaborated in paragraph 8 of her Opinion 6 document and essentially copied the requirements of the Companies Act pertaining to the fiduciary duties of directors. She said the Clause however needed to be revisited and redrafted.

The word ‘of ’ needed to be inserted at the start of the Sections 39(1)(d) and 39(1)(e) which were added after  39(1)(c). (Clause 30).

Section 48(6)(b) noted that the Registrar had to be notified in writing if the  submission of a co-operatives’ reports was delayed and Section 48(7) specified the registrar’s duties after receipt of the report (Clause 36).

Section 49(1)(b)(2) indicated that if an auditor or independent reviewer was found guilty of a contravention of its code of conduct or of a conflict of interest, this would be sufficient  proof with  regard to subsections (1)(a)(iii) or (b). It was brought to the Committee’s attention that most of the independent reviewers did not belong to regulatory bodies but were part of voluntary membership organisations. (Clause 37).

Adv Idensohn said the Clause would be revisited and redrafted to take that into account.

Section 50(2A), which would be inserted after Section 50(2), placed the onus on the co-operatives board to notify the Registrar of Co-operatives of the appointment of an auditor or independent reviewer (Clause 38(d)).

Section 50(4) indicated that the auditor’s and independent reviewer’s fees had to be approved by the Registrar (Clause 38(f)).

Mr Zikode said that Section 91F had to be amended so that the Co-operatives Agency reported to the Minister not to the Chief Director: Co-operatives in the Department. (Clause 66).

The part of Section 91BB(3)(b)(ii) which allowed for the possibility of co-operatives converting part of their debt into equity had been deleted. (Clause 66).

Adv Idensohn said that co-operatives in distress or insolvency entered into compromise agreements with creditors to ease the provisions of contracts. There was a real concern that banks could acquire part of co-operatives because of debt. This would eliminate the possibility of co-operatives being taken over  by banks.

Section 97(3)(b) would be substituted by three subsections (b)(i), (b)(ii) and (b)(iii). (Clause 70(c)).

Item 6(b)(2) of Part 1 of  Schedule 1 of the Principal Act which dealt with the provisions of the Sectional Title Act (No. 95 of 1986) had been deleted from the amendments as it was felt that it was wrong to propose legislation on Sectional Titles when these were controlled by a different Minister. (Clause 72).

Mr Mabasa added that it would bring too many players into the property market.

The substitution of Item 6 of Part 2 of Schedule 1 dealt with the application of labour legislation. (Clause 72).

Adv Idensohn said the provision concerned worker co-operatives, which could have members and employees. Employees were governed by existing labour legislation and the concomitant benefits. The law did, however, make provision through exemptions if there were good grounds for non-compliance with legislation. The amendments determined the place where these exemptions could be requested, namely the Bargaining Council and the Minister of Labour.

The Chairperson said this Clause would be flagged for further consideration as she wanted to study the input unions had made on the matter.

Ms S Van der Merwe (ANC) asked that the Department develop a booklet which would make the legislation more accessible to the ordinary person.

Mr Gcwabaza added that the booklet should include a sample constitution.

Adv Idensohn said the single page document on the national apex co-operatives was still a work in progress in the drafting stage. The location of the national apex cooperatives had yet to be determined as well as who could be members and who could form the body.

The meeting was adjourned.