Export Credit & Foreign Investments Amendment Bill: voting; Corporate Laws Amendment Bill: deliberations

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
13 August 2002
EXPORT CREDIT AND FOREIGN INVESTMENTS AMENDMENT BILL; CORPORATE LAWS AMENDMENT BILL: DELIBERATIONS

 

Chairperson: Dr R H Davies

Documents handed out:

Corporate Laws Amendment Bill [B32-2002] (.pdf file)
Export Credit and Foreign Investments Amendment Bill [B29-2002] (.pdf file)

CIPRO website
ECIC website

 

(still being set up)

SUMMARY
Export Credit and Foreign Investments Amendment Bill was passed by the Committee with minor amendments to Clauses 1, 2 and 7. The Committee had concerns about retrospectivity and sovereign risk.

The Corporate Laws Amendment Bill will be further discussed on 20 August as the committee was concerned about the increased costs to small businesses with the Companies and Intellectual Property Registration Office (CIPRO) introducing a fee per search rather than for a fee per registration.

MINUTES
Export Credit and Foreign Investments Amendment Bill
Mr Matthee (ECIC) went through the Memorandum of Objects explaining the reasons for the amendments (see Appendix 1).

The Chairperson noted that the Bill did not bring any policy changes but merely some legal review. It is cleaning up the Export Credit and Foreign Investments Re-insurance Act and making it more clear.

Mr J Strydom (DTI legal advisor) said that the intention of the agency, the Corporation, was to conduct the business of insurance on behalf of the government. The agency enters into the contract with the business and the Trade and Industry Minister becomes the principal so that the risk would be on the government as the principal. The definition in the Act implied that should there be any amendments to the contract of insurance, the Trade and Industry Minister may be required to approve every amendment. This was not intended. He said that there had been consensus as to the wording of the Bill on this issue.

Ms C September (ANC) asked if the committee should not be taking legal advice on the question of sovereign risk - the risk on the government - to be on the safe side.

Another committee member commented that the Bill is trying to simplify the matter. Even before, the Minister did not have to be involved in negotiations of each and every contract. He did not believe there was a problem of sovereign risk.

The Chairperson felt that the lawyers had answered the question on sovereign risk. Further the Minister does not have to be involved in all the negotiations. He asked if there was anyone who was against the amendments.

The Chairperson suggested that they should look at the bill clause by clause.

The law adviser noted some proposed technical amendments to Clauses 1, 2, 7

Mr Bekker said that with regard to retrospectivity of this amending Bill, he wanted an assurance that there are no pending cases in which a person might be prejudiced because of the retrospective effect of the Bill. He added that he did not have a problem with the Bill if there are no pending cases. Another member echoed this concern.

The Chairperson added that there was some concern about the retrospectivity of the Bill as during the briefing at the previous meeting they had thought that it is retrospective from 1 July 2002 but now they realise that it is July 2001.

Ms F Hajaij asked if the effects of retrospectivity of the Bill were looked at with regard to all projects.

Dr Kholo (CEO: ECIC) replied that the other projects have been looked at and there were no problems.

Mr D Lockey (ANC) asked what are the best practices in other countries with regard to export credits and foreign investments. He also asked what the financial implications would be if the Bill was not passed.

Mr Marais said that South Africa follows best practice. The risks they cover are less compared to other export credit agencies from other parts of the world.

An ECIC delegate noted a figure of R1 billion regarding the financial implications.

The Chairperson proposed that the Committee should recommend that the Bill should be accepted by the National Assembly and that NCOP is free to add issues if they want to.

The Chair read out all the clauses plus the proposed changes to Clauses 1, 2 and 7 and the Committee agreed to them and the Bill as a whole.

Corporate Laws Amendment Bill
Adv F Dwinger from the Companies and Intellectual Property Registration Office (CIPRO) went through the Memorandum of the Bill explaining the amendments (see Appendix 2). Points made were:
- The covering of CIPRO's operational costs is not a problem. The problem is the manner of fee payment by way of revenue stamps. The money goes to the Revenue Fund and there is no way to redirect that money to CIPRO. The current income is between R50 to 60 million raised on revenue stamps.
- The form of payment needs to be made as flexible as possible, including an electronic system of payment. CIPRO is currently negotiating with the Post Office to install terminals in post offices all over the country.
- Fees are paid for the reservation of a company name. People do not do their homework when it comes to unique company names and this costs the department because proposed names have often to be refused. The existing company names have been put into a sophisticated computer system, the first of its kind, so that it will be easier for people to establish which names already exist. The proposal is that the fees should be paid per search and not per reservation.
- The department wants to create a user-friendly central database to store information about all the business entities in South Africa. There should be a minimal fee for businesses to keep the database running.
Two members asked what impact would the proposed amendments have on small businesses.

Mr Lockey said that the increase of fees will increase the costs for businesses and will put unnecessary burden on small businesses.

Advocate Dwinger said that the intention is not to increase fees but with the computerisation of CIPRO, they want to make sure that for any name reservation there is a fee paid. The idea is to determine the actual cost. CIPRO wants to cover the operational costs and not to make a profit. The excess money goes to the Revenue Fund. CIPRO does not want to put a burden on small businesses but they want to better the integrity of the database.

A member asked if there is a difference in term of dealing with different sizes of companies, from the listed companies to small businesses. He said that with regard to integrity of database, it is a matter of administration at CIPRO. CIPRO should go to the companies and find out if they still exist - perhaps after a period of one year.

Advocate Dwinger said that they treat the companies according to their size. For a listed company they want more information but require very limited information from the small companies. The cleaning up of the database is not what is important but rather the integrity of the database.

A member suggested that only a fine should be imposed in cases of non-compliance and no jail term, as poor people are the ones that are likely to suffer.

The Chairperson pointed out that the main sanction is deregistration and it is unlikely that a person would be put into jail.

Mr Lockey suggested that companies submit information only when there is an actual change in information instead of submitting annual returns.

Mr Bekker agreed with this suggestion. He was also concerned that there are people who reserve a name without actually starting a business.

The Chairperson said he did not object to the section dealing with a fee per search instead of a fee per reservation.

However another committee member said that he had a problem with that provision, as it is not just.

Adv Dwinger said that the electronic system gives an answer immediately so a person would have certainty whether a company name does not already exist.

The Chairperson suggested that they flag the issue of fee per search or fee per reservation. He asked if there are other ways of submitting returns.

Adv Dwinger replied that CIPRO sends the information they already have to the company and asks if the information is still correct.

Mr Lockey noted that according to the Companies Act, a company has to submit three name and he asked if the company is charged the fee three times.

Adv Dwinger replied that the company is charged only once.

The Chairperson asked members to reflect on what had been discussed before the following meeting on the Bill on the 20 August.

The meeting was adjourned.

Appendix:
Memorandum on Objects of Memorandum on Objects of Corporate Laws Amendment Bill, 2002

1. On 2 July 2002 the Export Credit Insurance Corporation of South Africa Limited (''ECIC'') was established as the official export credit agency of the Department of Trade and Industry (''the Department'') in terms of the Export Credit and Foreign Investments Insurance Act, 1957 (Act No. 78 of 1957) (''the Act'').

2. The principal objective of the ECIC is to facilitate and encourage South African export trade by underwriting bank loans and investments outside the country in order to enable foreign buyers to purchase capital goods and services from the Republic. To achieve this objective the ECIC evaluates export credit and foreign investment risks and provides export credit and foreign investment insurance cover on behalf of government.

3. Although section 2 of the Act is quite clear on the agency role of the ECIC, the definition of ''contract of insurance'' might be interpreted in such a way that the Minister may be required to approve every contract of insurance and any amendments thereto. Whilst such micro management by the Minister was never contemplated, insured parties are not at ease with the phrasing as large amounts of money are at stake. In order to create absolute clarity in this regard, the Bill seeks the repeal of the definition of ''contract of insurance'' and the insertion of a more appropriate definition, namely ''policy of insurance''. The insertion of the definition of ''policy of insurance'' necessitates certain consequential amendments to the Act (clauses 2, 4 and 6).

4. Section 3 of the Act provides that indemnity under a policy of insurance shall not exceed 90 per cent of the maximum percentage of loss defined in such contract. This means that if a transaction had a hypothetical value of R100, the Department could indemnify up to R90. Close scrutiny has revealed that a strict interpretation may allow a maximum indemnity of only R81 (90 per cent of R90). Clause 3 of the Bill seeks to clearly define the percentage of a loss which is covered by an indemnity under policies of insurance.

5. Section 8 of the Act empowers the Minister to appoint public service officers to perform work arising from the Act. With the establishment of the ECIC this requirement is no longer necessary. It is therefore proposed that the section be repealed.

6. The ECIC had not yet been incorporated on the date of commencement of the Export Credit and Foreign Investments Re-insurance Amendment Act, 2001 (Act No. 9 of 2001).With the incorporation of the ECIC the references to ''Export Credit Agency'' have become obsolete. It is therefore proposed that ''Export Credit Agency'' be replaced by ''Corporation'' wherever it occurs in the Act.

The proposed amendments to the Act resulted from requests by interested parties (banking institutions and the Industrial Development Corporation) which finance export loans underwritten by the ECIC. The banking institutions include ABSA Bank, NEDCOR, Standard Bank, First Rand Bank, BOE and Investec.

Memorandum on Objects of Corporate Laws Amendment Bill, 2002
OBJECTS
The Companies and Close Corporations Registration Offices and the Patents and Trade Marks Registration Offices have been amalgamated into a single office styled ''CIPRO'' — an acronym for ''Companies and Intellectual Property Registration Office''. The National Treasury has granted approval for the establishment of the trading entity, CIPRO, under the Public Finance Management Act, 1999 (Act No. 1 of 1999), with effect from 1 April 2002 on condition that CIPRO covers its operational costs within the next two years from funds generated for services rendered by it.

To enable CIPRO to be successful, the manner of payment for the services rendered by it must be changed to give CIPRO access to these funds. The current manner of payment by way of revenue stamps affixed to documents, leads to great difficulty in recovering the money from the National Revenue Fund. For CIPRO to be able to perform its role and function and to introduce e-commerce in the lodgment of documents and disclosure of corporate information, commercially common and generally used forms of payment must be introduced. This Bill seeks to allow this.

A further aspect of concern is the unsatisfactorily compliance with the requirements of the Companies Act and the Close Corporations Act regarding disclosure of certain information. The world trend is to require annual returns to be lodged by all corporate entities to confirm or indicate changes in particulars in respect of the particular entity. The introduction of an annual return will greatly benefit the integrity of the South African registry's data base on registered companies and close corporations. The latter aspect is of utmost importance for the South African legal system, creditors and investors.

CONSULTATION
The National Treasury has approved all the principles involved, the South African Revenue Service concurs and the Standing Advisory Committee on Company Law has noted with approval the developments.

FINANCIAL IMPLICATIONS FOR STATE
The Bill will have no immediate financial implications for the State, but will in time lead to CIPRO not being dependent on the State to cover its operational costs.

PARLIAMENTARY PROCEDURE
The State LawAdvisers and the Department of Trade and Industry are of the view that this Bill must be dealt with in accordance with the procedure established by section 75 of the Constitution since it contains no provision to which the procedure set out in section 74 or 76 of the Constitution applies.