Companies and Intellectual Property Commission 2016/17 Annual Report

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Meeting Summary

Annual Reports 2016/17

The Companies and Intellectual Property Commission (CIPC) briefed the Committee on its Annual Report for 2016/17.

During the year under review some of the organisation’s main highlights included: the automation of the name reservation function, being elected to the Corporate Register’s Forum, stabilising its labour environment, collaboration with four major banks and being elected the chair of the technical working committee on Starting a Business.

On the average number of days to register a company from the date of receipt of a complete application, the annual target of three had been achieved. On the percentage of companies that had filed annual returns by the end of the reporting period, the annual target of 54% had not been reached with actual performance sitting at 48%. One of the reasons for the deviation was that new registrations only filed in the second year in terms of the Companies Act. On the number of seminars held with State Owned Companies (SOCs) to encourage annual return compliance, the annual target of three was met even though not all were in the cities where they were originally planned in. On the number of education and awareness workshops on Intellectual Property (IP) conducted, the annual target of 20 had been surpassed with 25 being held.

For the period 01 April 2016 to 31 March 2017, revenue of R468 million was generated from business activities related to Annual Returns, Companies, Patents, Designs and Trade Marks. R6,1 million of other income was generated primarily from the recognition of deposits older than three years, as well as other sources such as recovery of staff bursary debt and the sale of tender documents. Interest of R121,8 million was earned on the CPD (Corporation for Public Deposits) investment at the Reserve Bank and other related accounts. The main cost drivers for CIPC as a service organisation relate to employee remuneration, IT services, and accommodation and service delivery enhancement projects. Remuneration of staff remains the main cost driver, amounting to R253,1 million (61%) of total expenditure in the 2016/2017 financial year. The Companies and Intellectual Property Commission obtained a clean audit opinion.

The following items were considered by the Auditor General in forming the opinion:

-The Financial statements submitted for audit were fairly presented and were free of material misstatements;

-There were no material findings on the usefulness and reliability of the reported performance information

No instances of material non-compliance with selected specific requirements of applicable legislation were identified

Members asked why a person could no longer register a business as a close corporation. Members were impressed that the turnaround times of the CPIC had been improved by the use of information technology. Members were however concerned that not everyone had access to computers and the internet. Members also pointed out that the good performance of the CPIC was reflective of its stable labour environment. Given that the South African Social Security Association (SASSA) was considering partnering with the South African Post Office (SAPO), the CIPC was asked whether it too would consider partnering with the SAPO. Members were aware that the CPIC had partnered with banks but was concerned about the banks charging exorbitant fees for providing CIPC services. Were the fees charged by the banks more than that of the CIPC? The CIPC was asked how the roadshows that it had undertaken had been received. What feedback had the CIPC received? Perhaps the report was good because it reflected the performance of private companies. Members were appreciative that the CPIC had workshopped SOCs on annual returns compliance but wished to know how the CPIC gauged the success of the workshops held. The CIPC was asked about the R209m in surplus funds that had been paid into the National Revenue Fund. Would the CIPC likely be confronted with this scenario again in the future? The Committee would prefer that the CIPC spent its funds. Government departments usually requested additional funds and here the CIPC was giving funds to the fiscus.  

Meeting report

The Chairperson congratulated the Companies and Intellectual Property Commission (CIPC) on its performance. The organisation had obtained a clean audit from the Office of the Auditor General of SA (AGSA). The CIPC had recently won awards based on its good performance.

The Chairperson apologised that many members were not present in the meeting as it was a challenging time for the provinces. He said that the National Assembly had just passed the Appropriations Bill and it was now following processes in the National Council of Provinces (NCOP). The members that were absent had flown to their respective provinces to present the Bill. The provinces had three days to adopt the Bill. Once members received mandates from the provinces then the NCOP could adopt it.

The Department of Trade and Industry (DTI) was represented by Ms Nontombi Matomela Acting Group Chief Operations Officer (COO).

Briefing by CIPC on its Annual Report 2016/17

The delegation comprised of Mr Rory Voller CIPC Commissioner, Mr Muhammed Jasat Chief Financial Officer (CFO) and Mr Lungile Dukwana Chief Strategy and Executive. Mr Voller undertook the briefing duly assisted by his colleagues.

Mr Rory Voller, Commissioner, CIPC, provided the Committee with insight into some of the highlights of the CIPC for 2016/17. These included the following:

-One-stop facility: InvestSA

-First delinquency order against non-compliance

-“Your Business, Our Focus” campaign

-Pilot of eXtensible Business Language Reporting (XBRL)

-Automation strategy paying off

-Multichannel strategy – “Third Party Model”

-Elected chair of the technical working committee on Starting a Business

-Elected to the Corporate Register’s Forum

-Over 370 000 new companies, most ever since establishment in 2011

-Automation of name reservation function

-Stabilised labour environment

-Improved service delivery standards – maintained or improved in most business areas

-Increased uptake of online services both in the Companies and IP environments

-Central Suppliers Database: integration with National Treasury

-Collaboration with 4 major banks

-Further automation of hybrid processes

-Patent examiners appointed– substantive patent examination

-MoU with the European Patent Organisation (EPO)

-More collaborative partners in the EC, NW and FS

Members were also provided with a breakdown of CIPC’s national footprint across the provinces.

On the average number of days to register a company from the date of receipt of a complete application, the annual target of three had been achieved. On the percentage of companies that had filed annual returns by the end of the reporting period, the annual target of 54% had not been reached with actual performance sitting at 48%. One of the reasons for the deviation was that new registrations only filed in the second year in terms of the Companies Act. On the number of seminars held with State Owned Companies (SOCs) to encourage annual return compliance, the annual target of three was met even though not all were in the cities where they were originally planned in. On the number of education and awareness workshops on Intellectual Property (IP) conducted, the annual target of 20 had been surpassed with 25 being held.

Detail was provided on the trend of corporate and IP registrations over the past five years. On the percentage of positions of the CIPC’s approved structure that had been filled the annual target of 75% had been reached.  A huge part of the briefing covered statistics on performance. For instance the number of companies registered had increased to record breaking levels for the past two years running. For 2015/16 it was 317 498 and for 2016/17 it was 374 844. It was also the highest number of registrations ever achieved since the establishment of the CIPC. However the registration of co-operatives had continued its four year decline.

For the period 01 April 2016 to 31 March 2017, revenue of R468 million was generated from business activities related to Annual Returns, Companies, Patents, Designs and Trade Marks. R6,1 million of other income was generated primarily from the recognition of deposits older than three years, as well as other sources such as recovery of staff bursary debt and the sale of tender documents. Interest of R121,8 million was earned on the CPD (Corporation for Public Deposits) investment at the Reserve Bank and other related accounts. The main cost drivers for CIPC as a service organisation relate to employee remuneration, IT services, and accommodation and service delivery enhancement projects. Remuneration of staff remains the main cost driver, amounting to R253,1 million (61%) of total expenditure in the 2016/2017 financial year. The organisation continues to invest in modernising its infrastructure. During the period under review, IT systems have been stabilised with improved infrastructure leading to improved functionality and greater security.

The Companies and Intellectual Property Commission obtained a clean audit opinion.

The following items were considered by the Auditor General in forming the opinion:

-The Financial statements submitted for audit were fairly presented and were free of material misstatements;

-There were no material findings on the usefulness and reliability of the reported performance information

No instances of material non-compliance with selected specific requirements of applicable legislation were identified

Discussion

Mr W Faber (DA, Northern Cape) asked why registering a business as a close corporation was stopped. The only option was to register a business as a company pty ltd. In his opinion, it was easier to have a close corporation. Some of the benefits were that the business books need not be done by a chartered accountant. His wife had opened up a small business and was forced to register it as a company. The business was not even operating yet but he was required to complete tax returns for it. SA needed small business development and he felt that the requirements for a company were too stringent for small businesses. The CIPC was asked what option was there that was similar to a close corporation.

Mr Voller explained that with close corporations there was an issue of regulatory arbitrage. There were aspects of close corporations overlapping with those of companies. In close corporation law there was no difference between a person who owned a close corporation and a person who only ran it. However; in company law provision was made for exceptions for owner/manager companies. These exceptions were structured the same as provisions of close corporations. For example auditing requirements had been removed. There was also no requirement of holding a certain number of meetings. The small company pty ltd was the same as a close corporation.

 

Dr Y Vawda (EFF, Mpumalanga) got the impression that information technology was assisting the CIPC in a huge way. The turnaround times of the CIPC was hugely improved by the use of information technology. The good performance of the CIPC was reflective of its stable labour environment. When the labour environment of an organisation was stable then the results were good. He understood that the CIPC had a footprint in banks. The South African Social Security Agency (SASSA) was considering taking the South African Post Office (SAPO) on board. Would the CIPC also consider taking SAPO on board? He was concerned that banks might charge exorbitant fees. Was the fees charged by banks for the same service that the CIPC offered more? He asked how the roadshows done by the CIPC had been received. What feedback had the CIPC received? The briefing had alluded to the fact that the CIPC needed legislation to be amended so that there could be extensions when it came to business rescue. The CIPC was asked whether the Committee could in any way be of assistance for legislation to be amended in this regard.  The report by the CIPC was good but he would have liked to have seen more on the state of State Owned Companies (SOCs). Perhaps the report was good because it reflected performance of private companies. He asked how the CIPC felt about conglomerates that monopolised capital. The problem was that SA allowed conglomerates to continue to dominate. There needed to be control over them. He asked the CIPC to shed light on the matter.

Mr Voller responded that the CIPC had had a great deal of discussions with the SAPO. In total there were 1700 post offices in SA. The CIPC wished to install terminals at these locations but SAPO was not ready yet. It had to be borne in mind that the SAPO was going through a turnaround. He assured the Committee that the CIPC was ready to collaborate with anybody. However the collaboration should not have cost implications. On fees, he said that the banks were not allowed to charge more than what the CIPC charged. The price was the same. On SOCs, efforts had been made to educate. The CIPC had requested Ministers to invite the CIPC to address the boards of SOCs. However nobody had taken up the offer yet. The CIPC did undertake investigations. It had investigated the National Nuclear Regulator (NNR). The CIPC had taken the NNR to court. There were governance issues at the NNR. Even South African Airways (SAA) was taken to court over governance issues and on issues around its ex Chief Operations Officer (COO). Denel was also being taken to court on governance issues. He pointed out that SOCs should realise that the CIPC took action against them to make them better. The CIPC tried to improve governance issues. There had to be compliance. The CIPC found a great deal of failures in the energy sector. He noted that conglomerates were more part of the Competition Commission’s work. The Competition Commission would look at how conglomerates functioned and the economic impact it had on the public. The CIPC was only tasked with registrations.

 

The Chairperson asked whether the CIPC had considered sharing terminals.

Mr Voller said that some partners had their own terminals. A sharing model was needed with the SAPO. With SAPO, 1700 terminals would be needed. The CIPC would supply the technology.

Ms Z Ncitha (ANC, Eastern Cape) supported the idea of utilising SAPO. She asked about the decline in membership of co-operatives. What was the reason for the decline? She appreciated the fact that information technology greatly improved the efficiency of the CIPC.

Mr Voller said that the Co-operatives Act had been well received. The Act was passed and the regulations were also done. More services would be done. On the reduction in registration of co-operatives, he explained that in the past provinces had provided incentives for people to register co-operatives. Provinces used to pay people to start co-operatives. The practise had been stopped. He said that the CIPC was highly information technology driven. Its good track record on delivery was attributed to information technology.

The Chairperson said that in 2012/13 he had tried to register a company. At the time the CIPC was still using runners. He was pleased that the CIPC was using information technology more. He was however concerned that not everyone had access to computers and the internet. He noted that the Department of Trade and Industry (DTI) had enlightened the Committee on its efforts on design. He referred to slide 7 which spoke about the CIPC’s design online transactions being 51%. He asked why the figure was so low. On slide 9 which spoke about SOCs the focus had been on annual returns compliance. Apparently three workshops had been held across Cape Town and Gauteng. He asked how the CIPC gauged the success of the workshops held. He observed that on trademarks the target was three and actual performance sat at two. The CIPC undertook to improve on the figure. He was concerned about African concepts being stolen from Africans. SA was a major contributor towards the economy of Africa. He pointed out that the Portfolio Committee on Trade and Industry was considering a bill on patenting rights. Perhaps the CIPC needed to make an input to the Portfolio Committee.

On intellectual property, the Chairperson asked whether there was a contradiction because on the one side the CIPC had spoken about work on increased knowledge and awareness and on the other side there were issues around regulation and conformance by companies to meet legislative requirements. On the financial performance of the CIPC, he asked about the R209m that had been paid into the National Revenue Fund. Would the CIPC likely be confronted with this scenario again in the future? The Committee would prefer that the CIPC spent its funds. If there was some sort of dynamics relating to the funds going to the National Revenue Fund the CIPC should feel free to share it with the Committee. Government departments usually requested additional funds and here the CIPC was giving funds to the fiscus. 

Mr Voller, on the extension of time frames for business rescue, explained that it was requested by practitioners. The time frames were considered too short to turn a business around. The proposal was to amend time frames in the Companies Act. On designs, he explained that the 51% figure was for those applications that were made online. The rest of the applications were done manually. In 2016 there were 2100 new design applications. The average number was 2000 for the past few years. SA had the largest intellectual property office on the African continent. He hoped that the figure would go well beyond 51% for online registration of designs.  On protection mechanisms for trade marks, the CIPC was very much involved. There was education but also enforcement. Members of the public were assisted where their trade marks were stolen. The CIPC worked with the World Intellectual Property Organisation and a manual had been published. The CIPC played an active role and was launching the Innovation Assistance Programme. The Programme would assist those who had a good design and patent but lacked the funds to register it. He gave an example where Louis Vuitton had stolen a Basotho design. There was also the case where BMW had used a design on its seats which belonged to a woman in one of the provinces. The CIPC registered collecting societies that collected revenues of artists. The CIPC vetted the distribution plans of the collecting societies. Distribution plans were audited to ensure that royalties ended up in the hands of artists. He conceded that unfortunately the payment of surplus funds to the National Revenue Fund was going to be a trend. The CIPC had a good surplus of funds and did not mind paying over excess amounts that it did not foresee to need to the National Revenue Fund. National Treasury however had its eyes on the surplus that the CIPC held back as well. The CIPC was sitting with a surplus of R1bn which National Treasury wanted.

Mr Dukwana explained that part of the CIPC’s education drive on trademarks was to encourage owners of companies to firstly register the company in terms of the Companies Act and to register logos/name as a brand in terms of the Trademarks Act. 

The Chairperson pointed out that the indigenous South African aloe plant to be found in the Karoo, parts of the Eastern Cape and the Northern Cape was used to make a bottled drink sold by a South American company. The bottling was done locally in Paarl, Western Cape. He was even served rooibos tea in Geneva and it was called red bush. Another example of a local product was honey bush tea. He was pleased that the DTI was getting involved in the agricultural economy.   

The meeting was adjourned.

 

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