Consumer Corporate Regulation: Department of Trade & Industry briefing, with Deputy Minister present

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Trade and Industry

31 July 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry (dti), in the presence of the Deputy Minister, briefed the Committee on the functions and work that it did on consumer and corporate regulation. The purpose behind such regulation was to promote a competitive market that would provide consumer goods at fair prices. The Companies Act had been re-written in 2008. One of the new bodies created was the Companies and Intellectual Property Commission (CIPC) which took over the registration function of the former CIPRO. It handled intellectual property also which was critical for the protection of innovation which in turn contributed to the economic, social and cultural development of the country. South Africa was a member of the World Intellectual Property Organisation and was ranked 17th in the world for the enforcement of intellectual property rights. Copyright-based industries currently contributed about 4.11% of GDP, and about 4% of employment in the country.

The World Bank Study on Doing Business reflected South Africa as currently 41st in the world, and that had assessed the regulatory and administrative processes that affected business. Although South Africa had one of the world’s five best corporate regulatory systems, it faced challenges from other infrastructure and departments. The dti stressed that reducing the regulatory burden did not imply lack of regulation, but rather streamlining the processes. It was explained that regulations were passed after legislation (including public participation processes) was adopted. The background to the Companies Act was outlined, and an explanation was given of the work and functioning of the CIPC, the Companies Tribunal, Takeover Regulation Panel, Copyright Tribunal and Takeover Special Committee. The Financial Reporting Standards Council and Specialist Committee on Company Law advised the Minister. Specialist committees offered a more effective process than the ordinary courts in adjudication of disputes, as evidenced by the fact that none of the decisions so far had been taken on review. The key features designed to streamline and improve processes in the new Companies Act were also explained. The Corporate Governance Development Programme was another important policy initiative, which aimed to develop corporate skills (mostly of women) and then assisted in placing them with companies.

The purpose and scope of the regulation of intellectual property was set out, together with an explanation of how the legislation now also protected indigenous knowledge. Brief explanations were also given for the Counterfeit Goods Act and the Merchandise Marks Act. It was stressed that the process for all had involved substantial discussion with stakeholders. Regulations were being drafted in preparation for the Intellectual Property Laws Amendment Act coming into operation. The activities – both national and international – of the dti in relation to intellectual property, the fight against piracy, and copyright review were outlined. The Copyright Review Commission had fully investigated royalties paid to artists, and the dti would be fully implementing the recommendations in its report.

A breakdown was provided for the activities of the CIPC, the Companies Tribunal and Takeover Regulation Panel, with trends being set out. There was also fairly detailed information on business rescue, and where there had been failures, the reasons were being investigated. It was noted that all these agencies faced constrained enforcement capacity, and the Companies Tribunal needed a sustainable funding model. The dti and Minister were well aware, and were working on, the need to increase visibility of the work of the Department and its agencies. Finally, it was noted that the Copyright Bill and the Intellectual Property policy review were in the pipeline.

Members spent some time expressing concerns and calling for further information on business rescue, and the costs, and urged the dti to address any instances where it was being misused. It was suggested by one Member that perhaps this was a function that should be outsourced by he dti itself. Specific questions were asked and dti was to provide more information on two company takeovers. Members also expressed concern at the continuing lack of awareness about protection of intellectual property and urged the dti and other MPs to consistently educate people in their constituencies. They asked about collection of royalties, and when they were charged. They expressed concern that third parties were “on-selling” information provided by the dti and its agencies and wondered if this needed to be curbed. They were also very concerned at allegations that “runners” claiming to be able to short-circuit registration processes in the CIPC were prevalent and asked how the dti intended to address this problem, as well as the perceptions that the runners were needed. Several Members, whom the Minister fully agreed with, mentioned the need to ensure that all departments in South Africa cooperated to ease the process of doing business, particularly citing the  Department of Labour and SARS. They asked the dti to address the fact that SAMRO was not invoicing without being asked specifically to do so, wanted turnaround times for registration of companies and specifics on registration of rural cooperatives, as well as more detail on exemptions from the social and ethics committees.

The Committee adopted minutes of meetings held between 24 June and 10 July.
 

Meeting report

Consumer and Corporate Regulation: Department of Trade and Industry briefing 
The Chairperson welcomed the delegation and the Deputy Minister, Mr Mzwandile Masina.

Ms Zodwa Ntuli, Deputy Director-General, Department of Trade and Industry, noted that her presentation on Consumer Corporate Regulation would focus on the regulation of companies, (together with some intellectual property aspects), which aimed to promoting a competitive market that would provide consumer goods at fair prices.

Ms Ntuli noted that she had mentioned intellectual property, because the Companies and Intellectual Property Commission (CIPC) had a dual mandate. Furthermore, intellectual property was critical to the protection of innovation, which in turn was important for the economic, social and cultural development of all countries. CIPIC acted as the body for the protection and enhancement of intellectual property in South Africa. However, in light of the number of cases coming forward, this was not yet sufficient for the intellectual property needs of the country.

South Africa was a member of the World Intellectual Property Organisation and was ranked 17th in the world for the enforcement of intellectual property rights. However, it was important to balance developmental interests with enforcement. The contribution to the development of South Africa was demonstrated by copyright-based industries, such as artists and authors, who contributed approximately 4.11% of the GDP and 4% to employment, without taking into account the informal sector of this industry. She tabled a graph comparing the contributions to GDP and employment contribution of this sector in various other countries, saying that there was a potential for the contribution in South Africa to grow to 11% (see attached presentation for details). She also spoke to a slide detailing the rankings of the World Bank Study on Doing Business, which was based on the regulatory and administrative processes and measures which affected the ease and cost of doing business in South Africa. South Africa's ranking had remained fairly consistent, moving from 39th in 2013 to 41st in 2014. However the review of the regulatory framework had resulted in South Africa having one of the five best corporate regulatory systems in the world, despite challenges with external elements such as electricity supply. She wanted to emphasise that the process of reducing the regulatory burdens on businesses did not equate to the removal of regulation, but said it was rather a process of streamlining the regulation through initiatives such as flexible financial reporting requirements.
 
She outlined the way in which the Department of Trade and Industry (dti) dealt with regulatory issues. The process started with the formulation and adoption of policy by the dti and Ministry. Legislation geared towards the identified policy objectives was then developed and proposed to Parliament. The following step – implementation of legislation once passed - was the most important. At this stage, monitoring and adjudicative processes would be conducted by institutions mandated by the legislation, which fell under the dti, and she cited the CIPC and the Companies Tribunal (CT). This was a more efficient way of regulating than leaving these matters to the ordinary courts, because these bodies were specialised to focus on particular civil disputes, such as unlawful removal of shareholders. Every regulatory system put in place was constantly monitored and evaluated for effectiveness. At regular intervals, an impact review would be conducted, to assess how to improve the regulatory framework.
 
The network of regulatory bodies consisted of specialist committees, staffed by experts on both companies and intellectual property, which performed a policy advisory function in relation to the Ministry. The CIPC and Takeover Regulation Panel (TRP) were both founded through the Companies Act 71 of 2008 (the Act) and each had a specific implementation function in terms of that Act, which she would detail later. The adjudication function was handled by the Companies Tribunal, Copyright Tribunal and Takeover Special Committee.
 
Ms Ntuli then turned to the legal framework for regulation. The old Companies Act of 1973 had undergone a radical review in 2008. It was necessary to modernise the companies’ dispensation, as it was no longer able to support the regulatory initiatives that the dti wanted to institute, and the 1973 Act was inconsistent with the Constitution. The 2008 Companies Act was amended again before it came into operation, regulations were passed and the regulatory bodies, such as the CIPC, were established. The registration functions of the former Companies and Intellectual Property Registration Office (CIPRO) were re-assigned to CIPC, to pool resources in a central regulator.
 
The key features of the 2008 Companies Act included reforms geared towards simplicity and flexibility, through differentiated reporting requirements and regulation, depending on the form and size of companies, as distinct from having separate legal frameworks set up for companies and smaller entities such as close corporations. The concept of Business Rescue was introduced as an intervention before companies reached the stage of liquidation, in order to prevent the loss of productivity and jobs that resulted from liquidations. Social and Ethics Committees were introduced to promote multi-partisan corporate governance, through the representation of employees, and there was an encouragement of showing more sensitivity to the environment and human rights. The dti was nonetheless concerned that despite the introduction of these requirements the CIPC was receiving an increasing number of requests for exemption from this process. Independent reviews were introduced to help reduce the cost of doing business, since small companies would be permitted to have reviews instead of full audits, although they did embody the same assurances and reporting principles as auditing. However, certain stakeholders, especially banks, still insisted on audited financial statements, and that ran contrary to the aims of the Companies Act provisions. The companies registration process had also been streamlined, with initiatives such as being able to register a company with a number, where there were issues with name reservation and clearance issues. Finally, the Close Corporations Act had been phased out.
 
The advisory bodies who advised the dti and Ministry on policy included the Financial Reporting Standards Council (FRSC) and the Specialist Committee on Company Law. (SCCL). The FRSC was established in terms of section 203 of the Act and was mandated to advise the Minister on financial reporting standards, in order to keep abreast of international standards. The SCCL consisted of eight persons independent from the Minister and regulatory bodies. It aimed to support good corporate governance, by advising the Minister on any matter relating to company law or policy, and on the management of CIPC. 

An important policy initiative was the Corporate Governance Development Programme, which, through the dti's Institute of Directors of South Africa, aimed to develop skills in corporate governance. This programme had managed to train 170 women, whose names were noted on a database that was marketed to companies and efforts to place these women continued; for those who had been placed, the feedback was excellent.
 
Ms Ntuli noted that intellectual property was regulated by several pieces of legislation, which were administered by the dti. These included:
- Patents Act 57 of 1978, which provided for the registration and granting of letters of patent for inventions and the rights of patentees
- Copyright Act 98 of 1978, which regulated copyright in respect of artistic works and computer programmes, amongst others.
- Designs Act 195 of 1993, which consolidated the law on designs, provided for the registration of designs and delineated the rights arising from them.
- Trademarks Act 194 of 1993, which provided for the registration and certification of trademarks and collective trademarks.

All of these had been amended to include also the protection of indigenous knowledge, through the Intellectual Property Laws Amendment Act 28 of 2013, although the Patents Act had also been amended in 2005.

The dti also administered the Counterfeit Goods Act 37 of 1997, which aimed to strengthen the prohibitions on trade in counterfeit goods, by giving the South African Police Service powers to enter and search, with or without a warrant, and gave power to customs officials to seize and detain suspected counterfeit goods. This Act was aimed at protecting both local consumers and companies from sub-standard goods. Dti also administered the Merchandise Marks Act 61 of 2002, which regulated the use of marks, including those with protected status and the authorisation for the use of prohibited marks.
 
Ms Ntuli then said that the Intellectual Property Framework had been approved by Cabinet for public consultation and was aimed at harmonising the Intellectual Property legal framework with the laws relating to access to medicine, education, exceptions to the framework and the interface between intellectual property and competition and consumer regulation. The dti had listened to the input of various stakeholders on the changes that dti had proposed.  The Minister had established an Inter-Ministerial Committee for further input and for the policy to be adopted in light of the public comment. The regulations for the Intellectual Property Laws Amendment Act were being developed, to ensure the proper protection of indigenous knowledge. The regulations would have to deal, amongst others, with the establishment of a Council to advise on indigenous knowledge, and the setting up of the National Trust Fund, in anticipation of the Act coming into operation later in this year.
 
Ms Ntuli described the activities in which the dti participated. These included its hosting or participation in the Intellectual Property Forum, which was a pre-consultative platform, the World Intellectual Property Organisation (WIPO) Committee on indigenous knowledge and intellectual property, and the Patent Limitation Conference, which had included a seminar on managing the intellectual property portfolio for small businesses.

Ms Ntuli said that the dti had a multi-faceted approach to the fight against piracy, which included anti-piracy campaigns, the formalisation of the industry to help artists, and the Copyright Review Commission investigating the non-payment of royalties by collection societies. These efforts were necessary because piracy was an endemic problem in South Africa, which was not helped by the lack of enforcement. The campaigns were aimed at raising awareness of the detrimental effect of piracy on local producers of intellectual property. The approach was informed by interactions with affected industries, consequent to a meeting involving the dti and the industry in 2009.

Ms Ntuli said that the Copyright Review Commission (CRC) was an example of the dti’s new approach to commissions, setting them up with a one-year tenure. She emphasised that 70% of the royalties paid were paid to international companies, with 30% paid internally. The CRC was established to investigate concerns by artists that royalties were not being properly distributed by collecting societies to their rightful copyright-owners. The CRC held public hearings, conducted research, and did benchmarking on the collection and distribution of royalties. Its report was published and submitted to Parliament, and had contained key recommendations, including the introduction of an inter-departmental committee at the level of Director General or Deputy Director General, a dynamic minimum requirement for the amount of local content on various forms of media, based on the type of platform, and the review of the Copyright Act and associated legislation. Dti had noted that the administrative charges of these societies in South Africa were well above the international standard. It was also of concern that some collecting societies collected generally, but distributed to their members only, leaving a portion of unallocated funds, with questions around what happened to those funds. The dti planned to fully implement the recommendations of the report and the Deputy Director General had been placed at the head of a committee tasked with this. So far, she noted that the Independent Communications Authority of South Africa (ICASA) had published a paper for comment on local content for regulations, and the South African Broadcasting Corporation (SABC) had produced a status report on payment of royalties, showing only one payment outstanding.
 
Ms Ntuli then gave a breakdown of the activities of the three regulatory agencies, CIPC, the Companies Tribunal and TRP. Under the CIPC, company registrations had been improved drastically, particularly electronic registration, which had grown from 0% in 2011 to 81% in 2014. The turnaround time for manual registrations had dropped, from more than 30 days in 2011 to 11 days presently. The number of registered companies, close corporations and co-operatives showed generally positive improvements, as did the trends on the conversion of close corporations to companies. She reminded Members that dti was involved in business rescue, and the statistics here showed that 1 338 business rescue notices were filed, yet only 349 of these companies had ended business rescue proceedings, and, of these, 141 were terminations of the rescue scheme, 129 were substantially implemented and 73 ended in liquidation. The SCCL was looking at the reasons for the majority of failures of the business rescue process.
 
Ms Astrid Lundin, Commissioner, CIPC, wanted to emphasise that the CIPC was not only to deal with a new mandate, but also to revamp the old CIPRO. This had entailed a fundamental reworking of the processes and systems of CIPC, which included an emphasis on ITC infrastructure, an open plan working environment and reducing paper in the CIPC's work. The CIPC was accessible through its website, and offered services on the basis of digital copies of documents and applications. It had also introduced self-service terminals which were planned to improve efficiencies, and that were currently available at the CIPC's Sunnyside office, with further roll outs planned for the Johannesburg City Centre and the Cape Town office. She noted that the information in the graphs tabled (see attached document) came from the Annual Performance Report, as at March 2014.

Mr Rory Voller, Deputy Commissioner, CIPC, referred to the Minister’s statements on the importance of patent processing and examination. The CIPC had undergone a major revamp and a new personnel structure had been adopted. It was currently in the process of hiring 20 new patent assessors. He also wanted to highlight the issue of the collection societies, where there was continuous communication. He noted also that positions had been created to deal with the indigenous knowledge systems and the implementation of the Intellectual Property Amendment Act, and systems, including a database, were being put in place. He also wanted to emphasise the partnership between the CIPC and the Department of Home Affairs in relation to the self service terminals, which incorporated a biometric identification system.
 
Ms Ntuli described the work of the Companies Tribunal (CT). The Companies Tribunal had handled 296 cases this year, compared to 191 dealt with in the previous financial year. The majority of the cases related to name disputes, followed by applications for exemption from the social and ethics committee. The CT was now operating within the targeted turn-around times for case hearing and the issuing of judgments. It had also managed to have 69% of its decisions issued within 30 days of receipt. It was a mark of its efficiency that none of its decisions had thus far been reviewed. These judgments were available on the CT's website. Practice guidelines were also published on the website, to guide people through the process for applying to the Tribunal.
 
Ms Agnes Tsele-Maseloanyane, Tribunal Member, Companies Tribunal, said that currently the focus of the CT was on building capacity to effectively pursue its functions. She too noted the turnaround times for the issuing of judgments, and said that its success rate in meeting the time frames was being tracked. One of the CT’s major task was handling applications for exemptions from the requirement of having social and ethics committees. Compared to the total pool, the number of applications for exemption was not too large, and 71% of these applications had been rejected. She also noted that the CT was mandated by the Act to provide not just adjudicatory, but also conciliatory and restitution services, and the CT was seeking to establish an alternative dispute resolution mechanism to achieve this.
 
Ms Ntuli went on to describe the Takeover Regulation Panel (TRP), explaining that this body was responsible for adjudicating on affected mergers and acquisitions. The TRP was a self funding entity, and, like the CT, none of its decisions so far had been taken on review. The TRP had, by the end of March 2014, dealt with 54 affected transactions, had made 164 rulings and given 12 advisory opinions. The affected transactions could be broken up:  into 37 fundamental transactions and schemes of arrangement, 11 mandatory offers, two general offers and one partial offer.
 
Mr Lucky Pakeng, Executive Director, TRP, clarified that in form, the TRP had actually been in existence also under the 1973 Act, when it was called the Securities Regulation Panel. He noted that the affected transactions largely were matters involving mergers and securities acquisition. The main mandate of the TRP was to ensure the protection of shareholders in affected transactions, particularly in terms of disclosure, where parties sought to buy out shareholders. In particular, there was an important requirement that the actual value of shares must be disclosed to the affected shareholders, and this was comparable to best international practice. He also wanted to highlight the costs of compliance for small companies. The Companies Act had had some unintended consequences, and the TRP had made use of provisions in the Act to provide exemptions on full disclosure for such companies, provided that there was a certain amount of disclosure. He noted that the TRP had already notified the dti of other instances it had come across in the course of its regulatory processes, of unintended consequences in the Companies Act that needed to be addressed.

Ms Ntuli said that the common challenges faced by the agencies were constrained enforcement capacity for companies and intellectual property, although only the Companies Tribunal faced actual funding constraints and thus needed a sustainable funding model. The Minister had also advised that visibility and accessibility was very important, which tied in to the need to increase the limited education and awareness programmes already in place. There were also concerns around the coordination of enforcement activities between the agencies responsible for intellectual property and companies, to achieve a deeper impact. The establishment of the database for Indigenous Knowledge was also a challenge.
 
Ms Ntuli finally outlined the future work for the dti. She wanted to emphasise the importance of the Copyright Bill, still to be introduced to Parliament, and the Intellectual Property policy review, which should lead to the reform of all aspects of intellectual property. The dti also planned to finalise the implementation of the Copyright Review Commission's recommendations. It also planned to upscale its education and awareness campaigns, especially in relation to anti-piracy.

Discussion
Dr Z Luyenge (ANC) expressed concerns about the need to protect the underprivileged, particularly artists, and the need for registration of their intellectual property, as well as other indigenous intellectual property. For this reason, he appreciated the clear efforts of the dti. However, he was still concerned that most rural communities were unaware of these interventions and suggested that Members use their constituency interactions to educate people. He also had a question relating to hymns and biblical songs, asking how these fitted in the intellectual property framework, particularly if they were performed by a particular artist. He was also concerned about the payment of royalties and would like specifics of the payments made, and more details on the outstanding payments by the SABC.
 
Mr Mzwandile Masina, Deputy Minister of Trade and Industry, replied that there was a Bill in the pipeline which aimed to deal with the issue of artists not having their royalties paid by South African Music Rights Organisation (SAMRO) or by other collection societies.
 
Mr Simphiwe Ncwana, Director: Intellectual Property Law and Policy, CCRD, explained the issues around performance rights. If the author of a particular work had died, and if more than 50 years had passed since registration, copyright in that work would lapse and there would be no consideration of royalties being paid. However, in the case where there was  an original work being performed by another artist, royalties on that work were handled normally by SAMRO. What often happened was that an artist would, instead of performing the original, perform a “derivative version” and these were handled under the Copyright Act and Protection of Performances Act, which demanded that there must be acknowledgement of the original artist, but the derivative performers could enjoy royalties from their adapted work.
 
Mr B Mkongi (ANC) was concerned that the dti was involved in the protection of intellectual property, yet the slides on the TRP spoke about third parties charging their clients for the free advice which the TRP provided.

Mr Pakeng said that the “re-selling” of the free advice of the TRP was not barred by law as it was a part of free enterprise, and was a common practice across regulated industries. Furthermore, it was of ultimate benefit to the regulators if people were aware of the advice and the legislation was then applied in practice. This was the only way through which weaknesses could be that may need to be addressed through amendments.

Ms Ntuli added that there were some quite complex issues around people obtaining free advice from the dti then charging to pass it on. A balance should be struck between the high costs incurred by the Department in producing opinions, and the need to make the information accessible to the public, despite the potential for exploitation. These advisory opinions were very useful to smaller companies which were restricted by cost constraints from accessing such advice in the private sector. The dti was now collating the opinions it provided, with the aim of compiling comprehensive guidelines
 
Ms P Mantashe (ANC) echoed the concerns of Mr Luyenge concerning outreach and advocacy, saying that the partnership with traditional leaders only was insufficient, because there were other stakeholders with ties to the rural community.
 
Deputy Minister Masina replied that the dti had, in its budget speech, spoken of an outreach programme, and was planning to have campaigns in the most remote parts of South Africa  to educate the producers of intellectual property about the activities of the dti, the corporate regulators. There would be quite a strong focus on education on the proposed bill dealing with royalties and anti-piracy.
 
Ms Ntuli added that the dti had said in Parliament that it needed to have a strong presence on the ground in relation to intellectual property, in order that its efforts be effective. Part of this would involve the field workers who were placed in communities to help with all the activities in which the dti was involved, including companies and intellectual properties. The dti further identified Tribal Council offices as the appropriate level to target these communities, and had started some pre-emptive work on the legislation that would be presented shortly.

Ms Ntuli explained to Dr Luyenge that in answer to his question about the payment of royalties by SABC, as mentioned on slide 23, there was only one outstanding instance, which remained to be resolved, and that all other royalty payments had been made.

Ms Ludin noted that while there were plans to open a new office in the Johannesburg central business district, there were also plans to introduce three new facilities as part of the CIPC's roll out. There were concerns about the need for support for the self service stations, both for technical support and partners for the biometric data.
 
Mr D Macpherson (DA) said that there had been much said about the international ranking of South Africa, in terms of ease of doing business and intellectual property enforcement. He was concerned to note other indications contained in the World Bank's report, such as South Africa's drop in macroeconomic ranking, concerns about wasteful government spending and security concerns. He suggested that “ease of doing business” was not in fact limited to ease of registering a company or the lack of regulatory red tape. This was a multi-departmental issue and this should be pursued by the Portfolio Committee.

Mr Macpherson told the CIPC that he had personally received a number of reports from people who were unable to start their businesses, and that there were other relevant institutions which were not as efficient as the CIPC, such as SARS and the VAT registration processes, which meant that although businesses may be registered they still faced other bars to operations.
 
Deputy Minister Masina agreed with the sentiments about the need for coordination with other departments, and said he too was concerned at the lack of a seamless approach to reporting on the factors affecting the business process. This may result in some aspects being relatively positive, while others were detrimental. He said that it had been suggested that discussions should occur at the Cluster level, enabling all stakeholders to be represented in the coordination.
 
Ms Ntuli added that she had qualified the presentation of the statistics, but agreed that there was a need for coordination with other government departments and regulators. Towards this end, she cited the fact that CIPC had a team working on coordinated efforts amongst the various regulators administered by other departments. This should lead to an improved rating. However, she asked Members to bear in mind that the cases could be affected by external factors such as the choice of the cross-section to be analysed, and performance.
 
Mr G Hill-Lewis (DA) echoed Mr Macpherson on the need for co-operation between departments,  particularly the Department of Labour, for registration on matters such as workmen’s compensation. He particularly wanted to stress the importance of this because of the eight-place drop that South Africa had on the ranking for ease of doing business ranking. A major contributory factor to this drop was the delays relating to the Department of Labour. He said that he had worked with SAMRO, and had experienced problems that it did not issue invoices for the payment of fees for the use of copyright material, without being urged to do so. He then raised the issue of “runners” at the CIPC offices, who had clear relationships with staff members of the CIPC and charged high amounts for their alleged ability to speedily resolve applications for registration or other matters. He asked what the CIPC was doing about these people, who were engaged in what might be potentially corrupt, but certainly improper activities.
 
Ms Ludin commented on the issues around coordination. The CIPC had been engaged with SARS for the past three years on the system and infrastructure for data transfer for tax registration. The VAT registration was more complicated, because of the fraud risks that SARS faced in this regard. The CIPC had met with the Unemployment Insurance Fund (UIF) on the previous day, and had reached an agreement on the registration of companies. CIPC also planned to engage with the Compensation Commission which handled Workmen’s Compensation.

Ms Ludin commented that the CIPC was aware of the problems with invoicing at SAMRO, and that it planned to take this up with SAMRO's Chief Executive Officer.

Ms Ludin said that CIPC was also aware of the problem of “runners”, and the extent of the problem, and to deal with this, it had closed the main office on the dti campus in Sunnyside to the public, and opened a smaller one in Sunny Park, which was able to help applicants directly. However, when the interaction with runners was external, then the CIPC had very little scope for redress. She had received complaints about individuals within the organisation, and these must be substantiated so that the CIPC could investigate. She noted that often CIPC staff were not involved at all. There had been instances of runners having taken money from the public but never providing any service, or having registered companies in their own names.

Mr B Mkongi (ANC) asked for more detail on the Corporate Governance Development Programme, asking for the demographic breakdown of the trainee directors, since inception, and particularly their age and whether they were disabled.

Ms Ntuli replied that statistics on the Corporate Governance Development Programme would be provided by Friday, but that the majority were African and female.

Mr Mkongi also wanted to get more clarity on the reduction in the turnaround time for the registration of companies. He asked for specifics on the progress which had been made, particularly regarding the registration of rural co-operatives.

Ms Ludin said that the cooperatives followed a completely manual process, and the cost was R215 which was reasonable. The problem arose when there were spikes in demand, which led to increased turnaround times for that period.
  
The Chairperson asked about the applications for exemptions from the social and ethics committee, and wanted to know the grounds on which these applications were brought.

Ms Tsele-Maseloanyane replied that she did not have an exact breakdown of the grounds for the applications to hand now, but common grounds included the companies claiming that they had a similar structure which could serve the social and ethics committee's function, and that it was not in the public interest to demand that they do more. She would provide more details by the next day.

The Chairperson, speaking to the slide which detailed the decrease in liquidations and the concomitant rise in instances of business rescue, asked the cost of a particular instance of business rescue, and what was meant by an instance being “set aside”.

Adv Voller said that the fees of business rescue practitioners were regulated in the regulations to the Companies Act. However, the practitioners would often negotiate privately with companies on the fee they would charge, to overcome the statutory rate. The CIPC had now added more conditions to the licensing of the business rescue practitioners, in order to further regulate these practitioners. He commented that at times their fees have been seen as excessive, even to the extent that some courts had ordered the removal of certain business rescue practitioners from the registry. CIPC had, in addition, seen some business rescue practitioners themselves going into liquidation, which meant that they must be removed from the registry.

Adv Voller noted that the setting aside of business rescue would entail the court granting an order setting aside a resolution made by either a shareholder or the creditors.
 
Ms Ntuli added that she also felt that the reduction of liquidations was a positive development, but the dti was concerned with several failed business rescue attempts, and was working to determine the causes.

Mr Mkongi asked why the dti was not outsourcing the rescue practitioners’ function, and why this was not done by the dti itself. He asked who would pay for the litigation on business rescue.

Deputy Minister Masina replied that it may not be such a bad thing if people were able to be entrepreneurial and make money in business rescue, through an opportunity provided by government, rather than increasing the burden on the fiscus.

Mr Mkongi wanted to know whether the dti merely intended to have rural outreach programmes, or if these were already under way; if so, then he enquired what the impact had been.

The Deputy Minister responded that regardless of whether the dti had been involved itself in outreach programmes, it was necessary for these to be upscaled to reach as many people as possible, because people on the ground were not aware of the work done by the dti, or the services it provided.
 
Mr Mkongi asked for data on innovations by South Africans, what benefit had been derived from these innovations, and if they remained in South Africa.
 
Mr Hill-Lewis wanted to know details about the Equestra Holdings Ltd hostile take over of Protech Khutele Holdings Limited (the Protech transaction), which resulted in the liquidation of the company, and specifically about the directors having over-valued the company. He asked why this had happened, since dti was to value the company’s shares, and why the shareholders had accepted the overvaluation. Secondly, he was concerned to note obvious asset stripping by the executive director, who had been paid R7 million (out of an approximate R12 million Protech turnover) in the final year of its operation. He asked if the dti was intending to take any action and whether it had any measures in place to deal with this.
 
Mr Pakeng replied that the Protech transaction was one of the hostile transactions causing difficulty to the TRP, and he conceded that the end result had been a failure. The TRP, as a creature of statute, had no powers to interfere beyond the circumstances described in the empowering legislation. In this matter the powers of the TRP were limited to the takeover aspect. Once this was completed, TRP had no further power to intervene in the remuneration of directors and was consequently unable to deal with the asset-stripping allegations. He further explained that during the course of the takeover, a valuation had been conducted by a reputable corporate finance firm, but the shareholders chose not to accept that valuation. A condition of the sale of the company was that 51% of the shareholders had to accept the valuation, which led to the failure of the process and eventual liquidation of Protech.
 
Mr C Mathale (ANC) asked for more information on the sectors that had experienced the most need for business rescue and where the businesses were geographically situated.
 
Ms Ntuli said that these statistics would be provided in writing the next day.
 
Dr Luyenge wanted to know about the 30% of total royalties being paid internally, and questioned if this low number was due to lack of registration or lack of originality in the production of South African intellectual property.
 
Deputy Minister Masina replied that the problem lay in the lack of registration, particularly of patents, to ensure that all South African inventions were protected through patent laws. He said that the proper use of patent laws could help remedy the skewed payment of royalties to foreign entities.
 
Ms Ntuli added that a major factor was the structure of the industry, where many record labels were situated outside South Africa. That meant that the ownership of the intellectual property produced by South African artists was vested abroad. The dti, with support from the Minister, therefore planned to put in place interventions geared towards the generation of a local industry, partly in order to ensure that the intellectual property produced by South Africans remained South African. This was contained in the IPAP.
 
Mr Macpherson returned to the situation cited by Mr Hill-Lewis, echoed his sentiments on asset-stripping, and said that there was a problem with business rescue being abused and turned into a vehicle for moving moveable assets and cash from one company to another. Perhaps the dti ought to play a more active, even proactive, oversight role to deal with these types of problems. It was becoming apparent that there  was a distortion of the purpose of the business rescue procedure, which had real value. Where the dti failed to regulate pre-emptively, this could lead to things like the “R699 per month” scam recently highlighted in the motor industry.
 
Deputy Minister Masina said that the dti would have to be vigilant in order to combat abuses of the business rescue procedure and design a system which ensured that this was identified and prevented.
 
Adv Voller added that, in an effort to deal with the abuse of business rescue, the CIPC, in collaboration with the dti, had initiated a project to look into the effects of business rescue, three years into implementation of the procedure.  The project was awarded to the University of Pretoria, and it was currently speaking to stakeholders, and would produce a report.  SCCL was going to host a company law conference, where that report would be presented and the CIPC would also submit the report to the Committee, to get its input on amendments to the regulations around business rescue.
 
The Chairperson concluded that any abuses of business rescue needed to be monitored, as well as issues around directors’ salaries, which had been regulated even in the “most capitalist” countries. She would like a written analysis of the Protech matter, and the Adcock Ingram Holdings Ltd proposed scheme of arrangement with CFR Pharmaceuticals SA, by the following day, since Parliament would be taking a recess.

The Chairperson agreed that the allegations about “runners” were of concern, particularly if people felt that the only way they could achieve anything with the CIPC was by using such people. The CIPC needed to be proactive and practical in eradicating this problem.

The Chairperson commented that whilst it was understood that a regulatory framework was essential, government needed to strike a delicate balance between regulation and the facilitation of enterprise. She appreciated the presence of the Deputy Minister and his input, especially on policy perspectives.
 
Adoption of Committee Minutes
The Chairperson tabled, and Members adopted, the minute of the meeting on 24 June.

The Chairperson tabled the minutes of 2 July and asked that Members’ names and initials be corrected. Subject to that correction, the minutes were adopted.

Members adopted the minutes of the meeting on 8 July, subject to a correction of the register on page 5.

The minutes of the meeting on 10 July were tabled. Members made technical corrections to the date, and initials of Members. The minutes were adopted, subject to these amendments.

The meeting was adjourned.

 

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