Companies Tribunal & CIPC 2018/19 Annual Report and 2019/20 performance

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Trade, Industry and Competition

27 November 2019
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Company Tribunal 2018/19 achievements were 100% of decisions issued within 40 days from date of hearing; 100% Alternative Dispute Resolution (ADR) cases were finalised within the planned 25 days; 100% of suppliers were paid within 30 days (91% paid within 15 days); it received a clean audit.


The challenges reported by the Company Tribunal included funding and budgetary constraints, the declining number of cases (they do not have enough cases), they have a limited mandate, lack of adequate facilities and external dependencies.

Members asked about the number of cases turned away as they fall outside the Tribunal’s jurisdiction; what it is doing to improve public awareness of the Company Tribunal; its relationship with CIPC; unfilled vacancies; and what the Tribunal would like to be included in its expanded mandate.

The Companies and Intellectual Property Commission (CIPC) 2018/19 key highlights were a clean audit with no material misstatements; introduction of an electronic financial reporting language, eXtensible Business Reporting Language (XBRL); company registration average 1 day; Substantive Search and Examination (SSE) of patent applications in South Africa; International Conference Respect for IP – Growing from the Tip of Africa in October 2018; CIPC introduced Mobile App technology; First Phase of IT Infrastructure migration.

CIPC key highlights for Quarter 1 of 2019/20 are the development of Bizportal – a Presidential initiative; launch of CIPC Broadcast, an online streaming radio service; office accommodation project approved and procurement instruction issued for processing; CIPC annual chairing of BRICS Heads of Intellectual Property Offices  successfully concluded in April 2019. There was a sudden increase in the submission of financial accountability statements (FAS) in Quarter 1 when filing annual returns of 49% compared to previous quarter. This was mainly due to the Hardtop functionality in XBRL implemented in March 2019.

Highlights for Quarter 2 were the tender for the Organisational Design project was evaluated; 30 interns recommended for appointment in Patent Substantive Search and Examination unit after a lengthy recruitment process due to volume of applications; and CIPC Executive Committee approved the proof of concept for the Industrial Property Automation System (IPAS) to full implementation.

Challenges include staff uncertainty - their roles are changing; effects of migration to upgrade systems from legacy systems proved challenging with power failures affecting systems; processes in trademarks, patents and design registration sections remain largely manual; there has been low uptake of the use of independent review as a form of assurance; and there are low levels of reporting by recognised independent review professionals. The whistleblower allegations were addressed.

Members asked about the One Stop arrangement to ensure ease-of-doing business and registration with one day; efforts to engage staff to mitigate uncertainty; CIPC must be clear about what has to be included in the amendment of its Act; underutilised staff; status of the SSE (Substantive Search and Examination); payment of royalties; if interns were sourced from all provinces; how long it takes to deregister a company; the need to improve the call centre; to submit a report on the whistleblower allegations; and to explain the CIPC role in the payment of royalties. Due to time constraints, not all questions were answered and CIPC was to submit responses in writing.

Meeting report

Companies Tribunal performance
Dr Mohamed Alli Chicktay (Chairperson) noted that the Company Tribunal consists of a chairperson and twelve members, that is, acting judges, 2 law professors, 2 advocates, attorneys, accredited mediators. They have about seven vacant and unfunded positions. These vacant positions result in a person working in two portfolios and work overtime to ensure that they have clean audits. He explained the benefits of the Tribunal:
• Cost-effective compared to litigation - offered at no cost and no need for legal representation.
• Informal and flexible in responding to emerging challenges and provide innovative solutions.
• Preserve business relationships that are critical to sustaining business operations.
• Parties control the case outcome and financial risk and risk of uncertain outcomes of litigation are limited.
• Manage reputational risks - confidential.
• Mutually beneficial settlement agreement - not imposed.
• Settlement can be made an order of court - save time and costs.

Overall, the Company Tribunal 2018/19 achievements were 100% of decisions issued within 40 days from date of hearing; 100% Alternative Dispute Resolution (ADR) cases were finalised within the planned 25 days; 100% of suppliers were paid within 30 days (91% paid within 15 days); it received a clean audit.

Ms Maletlatsa Ledingwane, Chief Operating Officer, noted under the Adjudication programme, they exceeded all three targets for adjudication and arbitration of cases. 93% of unopposed cases were finalised within the planned 30 days whereas their planned target had been 90%. All (100%) opposed cases were finalised within the planned 40 days with their target initially being 90%. All (100%) ADR cases were finalised within the planned 25 days with their target 100%. Additionally, 95% of cases were lodged without legal representation. There was a 14% increase in the number of application for exemption from appointing a Social and Ethics Committee (SEC).

Programme 2 targets were achieved: adjudication guidelines were developed; there was a successful advocacy seminar on ADR in partnership with Mandela Institute; Organisational Review was completed; a Specialist Committee on Company Law gave input to enhance the mandate of the Company Tribunal. In terms of financial management, they did not incur any irregular expenditure; All issues raised by the Auditor-General were addressed. It achieved a clean audit for the fourth consecutive year. 100% of suppliers paid within 30 days. 100% compliance with the Cost Containment National Treasury Instruction. Strategic risks were identified and properly managed.

Out of the sixteen different cases they handled, the four highest reported cases concern issues of name disputes, SEC, directors’ dispute, and extension of time to convene Annual General Meeting (AGM).

Education and awareness initiatives include the Tribunal’s Quarterly Bulletin Volume 1 2019, participated in a workshop on ADR framework for small enterprises coordinated by the Department of Small Business Development (DSBD) in KwaZulu Natal, Limpopo, Free State and Western Cape; published an article on LinkedIn and the website on the launch of the Case Management System; reached out to King Cetshwayo district municipality and a meeting was held in Bloemfontein with the Free State Bar Council.

Challenges include funding and budgetary constraints, the declining number of cases (they do not have enough cases), they have a limited mandate, lack of adequate facilities and external dependencies.

The CFO, Ms Irene Mathatho, provided a  financial report of 2018/19 and Quarter 1 and 2 of 2019/20 (see presentation)

Discussion
The Chairperson noted that Dr Chicktay emphasised the need for good relationships. He asked why it is important to have good relationships. He asked why mediation?

Mr F Mulder (FF+) asked for the number of cases turned away because they fall outside the jurisdiction of the Company Tribunal.

Ms N Motaung (ANC) noted that the Company Tribunal needs to improve its public education and awareness. She noted that a relationship with CIPC can help reduce some cases such as name disputes which are the highest. She said that their wasteful and fruitless expenditure is small and can be avoided. She noted in its organogram that the position of Supply Chain Manager is vacant. This a critical position and should be prioritised as it might result in a dispute in the supply chain. Legal advisors that report directly to the COO should be avoided.

Ms P Mantashe (ANC) noted that the Tribunal should clarify what should be contained in the mandate that it is contemplating. She commended them on the work they are doing with little funding. She noted that this is the second entity of the Department of Trade and Industry (DTI) threatening to have finances depleted before the end of the financial year. Generally, its performance is applauded but she does not know from where it is going to find the extra funding. She asked what type of cases their scope should extend to.

Mr S Mbuyane (ANC) asked what exactly they need the Committee to assist them with in amending the legislation. He advised that they should write a report to the Committee stipulating what they need amending in the legislation. He noted the challenges with facilities and that DTI is giving them enough funding for accommodation. He thought the reason they do not have many cases is that CIPC is dealing with the same cases so there is a need to separate the responsibilities because this might result in duplication. He asked how they are dealing with raising awareness about the Company Tribunal. He asked if it was possible for them to get their own internal auditing team. On the IT system, he asked if it is possible to stop outsourcing this and establish their own to minimise expenditure. DTI should come before the Committee to explain what it is doing to assist the Tribunal because they have raised many challenges such as lack of facilities like parking space. He asked what the forecasted revenue generation in the future was so that it can refrain from depending only on DTI. Who are your suppliers? Who is the Company Tribunal doing business with?

Responses
Dr Chicktay replied that among different entities there is a need for good relations because most their roles are interchangeable. For example, the Company Tribunal sometimes serves as an appeal body for matters that come from other entities. Also maintaining relationships is good for the economy of the country.

He replied that mediation is important because litigation destroys relationships. The law is not everything. There is more value in working together. Behind it is the idea of getting people to talk.

He said that they did not have the actual number of cases that fall outside their jurisdiction. However, he their jurisdiction is very little as they cannot deal with cases concerning small businesses and cooperatives.

On improving awareness of the Company Tribunal, they do market themselves to, for example, to law societies. They go to be people who are less fortunate as they have a marketing person that travels throughout the country doing that. Additionally, they work with organisations where they can get excellent expertise. He noted that some company law expertise offered to guest lecture at universities like the University of Cape Town and the University of Witwatersrand. This is because in universities, students are only being taught about litigation, that is, in company law, they are not being taught about the Company Tribunal. People need to be taught how to deal with conflict at a grassroots level instead of only learning about litigation. He suggested the use of radio and social media as a form of raising awareness.

On working with CIPC, he noted that conflict of names is a separate function. There is a bit of complexity, but it is something that one can look at in the future.

Ms Ledingwane replied about the expansion of its mandate, saying that there are a lot more contract related disputes which they could deal with. There are disputes emanating from cooperatives, close corporations, small business, unpaid claims by government which they can deal with. Also in their current mandate, they cannot deal with companies that have maximum two directors and they would want to deal with such companies. Therefore amendments to the legislation can give them more power. For example, the BEE legislation could empower them to do more because there are shareholding disputes which they can deal with. In the current amendments only making ADR compulsory which is a limited expansion. They would like to deal with companies that have more than two directors and to have ADR reserved only for the Company Tribunal. They hoped for more extensive amendments.

Ms Ledingwane replied that the vacancies will be dealt with it although they may face challenges with finances. On the wasteful and fruitless expenditure, they do have controls in place and what led to it was an oversight due to duplication of printing. There are consequences in place as the employers responsible for it are paying back the money. They agree that the vacant position in Supply Chain Management (SCM) is a critical post however the constraint is funding. Consequently, they have staff who are assisting with this role. They get interns each year which they train in SCM so that they assist in its administrative process.

The CFO replied that their suppliers are the normal day to day suppliers such as food caterers.

The Chairperson noted that there is a gap where references have been made about the DTI, CIPC and small businesses but it is something which is possible to fill up. Funding is one issue that they may need to look at.  

Companies and Intellectual Property Commission (CIPC) performance
Adv Rory Voller, CIPC Commissioner, noted their 2018/19 key highlights were a clean audit with no material misstatements; introduction of an electronic financial reporting language, eXtensible Business Reporting Language (XBRL); company registration average 1 day; Substantive Search and Examination (SSE) of patent applications in South Africa; International Conference Respect for IP – Growing from the Tip of Africa in October 2018; CIPC introduced Mobile App technology; First Phase of IT Infrastructure migration.


They engaged in the three programmes:
• The Service Delivery and Access programme saw an increase in the number of calls at the call centre. This was due to application errors; introduction of new user-friendly Interactive Voice Recording (IVR) messages; high number of repeat calls; additional services offered on e-service on introduction of mandatory filing of annual financial statements; changes to BBEE certificates.
Social media queries included queries on system downtime due to IT system migrations. Other queries include clarity on company registration and annual returns processes; status of customers’ application for company registration and name reservation; complaints about delayed response to queries lodged through the query resolution system; lack of clarity in the reasons for rejection of customers’ applications, and; non-response on applications for registration of cooperatives.

• The Innovation and Creativity programme had a spike in local patent applications. Provisional patent applications increased slightly. When it comes to designs, the design filings have remained steady as compared to patents. CIPC approved the Independent Music Performance Rights Association (IMPRA) Distribution plan for 2018 and SAMPRA Distribution Plan for 2017 to ensure that beneficiaries such as performing artists continue to reap benefits accruing from their Intellectual Property (copyright works/performances). IMPRA reported that at least 38% of the distribution is done.

Additionally, CIPC has been a key participant in the parliamentary process to amend both Copyright Act, and the Performers Protection Act. The two Bills have now been voted on by Parliament and will be submitted to the President for signing into law.

• Under the Business Regulation and Reputation programme, 395 320 companies were registered. In terms of business rescue, 217 proceedings were declared a nullity; 721 proceedings were terminated by way of filing a notice of termination; 548 proceedings were substantially implemented by way of filing a notice of substantial implementation; 392 proceedings ended up directly in liquidation; in 22 proceedings the court set aside the business rescue proceedings; and 1263 proceedings are still in business rescue.

New co-operatives registration was 12 270 down from 12 748 in 2017/18. This may be linked to the general low growth rate in the economy. The other contributing factor may be issues related to the perceived delay in the funding of cooperatives. Filing of trademarks applications continued.

Adv Voller reported on 2018/19 performance indicators and annual financial statements (see document).

CIPC key highlights for Quarter 1 of 2019/20 are the development of Bizportal – a Presidential initiative; launch of CIPC Broadcast, an online streaming radio service; office accommodation project approved and procurement instruction issued for processing; CIPC annual chairing of BRICS Heads of Intellectual Property Offices  successfully concluded in April 2019. There was a sudden increase in the submission of financial accountability statements (FAS) in Quarter 1 when filing annual returns of 49% compared to previous quarter. This was mainly due to the Hardtop functionality in XBRL implemented in March 2019.

Performance for Quarter 1 had 78% of the targets met. The following targets were not met:
• Public Companies (with active business status) that filed annual returns by end of reporting period.
• Public Companies (with active business status) that filed audited statements by end of reporting period.

Highlights for Quarter 2 were the tender for the Organisational Design project was evaluated; 30 interns recommended for appointment in Patent Substantive Search and Examination unit after a lengthy recruitment process due to volume of applications; and CIPC Executive Committee approved the proof of concept for the Industrial Property Automation System (IPAS) to full implementation.

The key challenges on the effects of modernisation (automation) include staff uncertainty as their roles are changing. However, organisational design process to realign strategy and functions has resumed and extensive engagement sessions with all staff, organised labour and the executive management is in progress. Effects of migration to upgrade systems from legacy systems proved challenging with power failures affecting systems. CIPC is migrating the patent system to a system (IPAS) provided by WIPO to member organisations. CIPC is working with WIPO to address the migration.

There is a challenge with manual IP processes. The processes in trademarks, patents and design registration sections remain largely manual. However, automation is underway.

Another challenge was the low uptake of independent review as a form of assurance. There are low levels of reporting by recognised independent review professionals/practitioners. All accounting and auditing professional bodies throughout the country were visited to explore ways to address these challenges. Webinar events will be organised to meet targeted audiences and address this challenge.

Lastly, Adv Voller noted that there have been allegations made against himself and other senior managers about activities at the CIPC which have been reported to Parliament, the Public Protector and other individuals and parties. He noted that they have responded at every juncture and have made documentation available. They have engaged with the Auditor General and the report has come out saying that the claims are unsubstantiated.

Discussion
Mr M Cuthbert (DA) said that he is more interested in the ease of doing business and asked what the CIPC is doing to make it easier for South Africans to do business. There has been a lot of progress in creating an online portal for business owners to register. However, he noted that they did not mention the 30 days that it takes to register with the Compensation Fund. He asked what is being done to incorporate that into the portal. What engagements have been done with the Department of Labour on that?

Mr Mulder requested that documents be sent beforehand so they can engage more intensively with the presentation.

Ms Motaung applauded CIPC on the clean audit. She asked what the turnaround time is for deregistering a company. She added that the high rate of incoming calls at call centres is quite a serious matter. She once failed to access their call centre for three days. The report should speak to the organisational structure. She asked how many women and disabled people are in executive positions. She asked how many staff are in the CIPC. She asked how much they spent on ICT, good marketing and accessibility of the entity.

Mr Mbuyane noted that on organisational design they recorded that there was staff uncertainty. This shows the lack of engagement with the staff before the advertisement or establishment of the organisational design because if there had been, there was never going to be uncertainty among the staff. The report should note what in the organisational structure needs to be redesigned and what they seek to achieve in redesigning the organisation.

He asked about the One Stop arrangement which is the process to improve ease-of-doing business

He noted that one sees only CIPC on social media such as Twitter, but never Company Tribunal. He asked why is that as the awareness must go hand in hand. He asked what the CIPC working relationship is like with the Company Tribunal.

On the allegations, he was happy that Adv VolIer had raised it before they asked for clarity. The Committee need a report that addresses these allegations. This is because it has a bearing on the Committee if they do not respond to those allegations.

He said that whilst they are changing the ICT, people cannot register normally. Also if the system is down it means that they are not doing anything. How are they going to balance that because the usual arrangement should continue during the migration.

Ms J Hermans (ANC) noted that inasmuch as CIPC has a very aggressive social media presence, it needs to take the Tribunal along as it is service that the government has given to the people to assist them. Therefore CIPC needs to help market it. They need to have a clear picture of what needs to be amended in the Act

On the whistleblower allegation, the Chairperson said that it was important for DTI and the Committee to look at that so that they can have an agreed approach. The Commission and the Director General should advise the Committee on how to take the process forward.

He asked for a progress update on Substantive Search and Examination (SSE).

On underutilised staff and uncertainty, he asked if they can have a sense of employees in the entity so that a programme can be made for the staff to be assisted to catch up with the modernisation (automation).

Responses  
Adv VolIer replied that on the ease of doing business, CIPC has been at the forefront of trying to influence the ease of doing business for South Africa. The reason CIPC did a lot of IT system processes and the reason they engage with the World Bank for so many years is to understand the exact methodology required for the country to improve the way they do things. For example, there is need to be robust in doing online submissions, informing clients on how to utilise the system; as well as robust structure, access and turnaround and looking at the legislation to ensure that it meets certain criteria. When they look at the services that are required to influence ease of doing business ranking it does not fall under one entity but multiple entities, that is, CIPC, SARS and Department of Labour through the UIF and Compensation Fund. There have not been any problems with CIPC and SARS. The problem is with the UIF and Compensation Fund which unfortunately caused them to lose ranking. In the past six months, they have done commissioner to commissioner meetings under InvestSA to understand what needs to be done to have those two processes reduced in terms of time. This led to the introduction of this portal and over the past two months, they have analysed the system and processes. The portal launch was based on the fact that all processes should be done in one day. However, they launched as a pilot for three months while they iron out all the back-end processes. The teams are actively ensuring that the UIF and Compensation Fund processes are brought to within the space of 24 hours.  

Adv VolIer noted that companies are deregistered after about two years according to the legislation. He noted that they have not deregistered for a while, that is, they are sitting with about 600 000 companies that need to be deregistered currently. CIPC works closely with SARS on this matter and SARS would not want many companies to be deregistered because SARS has claims and once, they are deregistered, it becomes a problem for SARS. Therefore it takes a long time to deregister a company.

On call centres, Adv VolIer noted that its one of the areas of biggest concern. They will check on the organisational design and ensure that they establish more technology and staff as well as tackle the reduction of reasons for people calling.

There are three women out of seven senior managers. He was not sure about the numbers for the disabled. The CIPC staff complement is around 525.

On organisational design, he replied that some staff members do not like change and hence they should be given a chance to choose. Those who are old enough to retire can retire and CIPC pay the penalties for early retirement. For those who want to stay, CIPC ensures they are trained sufficiently so that they form part of the new organisation going forward.

Adv VolIer replied that the CIPC and the Company Tribunal do engage a lot, that is, talking about how they deal with name conflicts and market resolutions. He noted that the Company Tribunal adjudicates over CIPC, therefore, funding them can be problematic because people might assume that the Company Tribunal is adjudicating in favour of the CIPC if they fund it. Therefore, there is a need for a separation and there should be less holding of the hand.

Mr Mbuyane requested what CIPC is doing in the payment of royalties. Also the CIPC office is in Pretoria, therefore making it inaccessible for internships in other provinces. He suggested that they make the internships accessible to all nine provinces.

Due to time constraints, the Chairperson noted that the Committee Secretary will follow through on the questions which were unanswered for them to be submitted in writing. The next meeting is set for 3 December 2019.

Meeting adjourned.

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