Companies Amendment Bill: Briefing; Hague and Madrid Systems: briefing

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Trade and Industry

10 August 2004
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Meeting Summary

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Meeting report

11 August 2004


Mr B Martins (ANC)

Documents handed out:

Department Presentation on the Companies Amendment Bill
Companies Act, 1974
Companies Amendment Bill
Department PowerPoint presentation on Hague and Madrid Systems

The Department of Trade and Industry briefed the Committee on the Companies Amendment Bill and the ratification of The Hague and Madrid Systems that covered the registration of industrial designs and trademarks respectively. Members raised a number of queries concerning the legal implications of the Amendment Bill and the costs and benefits of adopting The Hague and Madrid Systems. The Committee agreed that the Department should review both the Amendment Bill and The Hague and Madrid Agreements before they could be taken further in Parliament.

Department briefing on the Companies Amendment Bill
Mr M Moeletsi (DTI Chief Director: Policy and Legislation) briefed the Committee on the Companies Amendment Bill, highlighting that the Bill provided for interim measures whilst the Corporate Law Reform Project, which was still being formulated, would offer permanent solutions.

Mr E Nkem-Abonta (DA) pointed out that the Committee required a summary of why the former Act was insufficient and how the present Bill would address these problems.

Prof B Turok (ANC) raised a concern that the Bill did not adequately address the larger problems evident in the sector and inquired as to the involvement of NGO's. He also suggested that Clauses 3(c) and 3(d) needed to be elaborated on, as the language was too broad. He proposed that Clause 4 (a) include a provision stipulating that, in addition to the relevant companies, the public and stakeholders should be informed of a rectification order and recommended that those persons who provided evidence of misconduct receive appropriate state protection.

Mr Moeletsi acknowledged the shortcomings in the Bill but emphasised that it was an interim measure. He added that departmental policy regarding NGO's had not been finalized yet but assured the Committee that they would be accommodated in the policy formulation process.

Mr Strydom (DTI Chief Law Advisor) indicated that it was important for Members to reflect on the Act in its entirety. He explained that Clause 2 of the Bill dealt specifically with issues surrounding Section 91A of the principal Act [Uncertificated Security] and pointed out that although the law recognized the transfer of ownership of securities irrespective of fraud or illegality, the original owner of the securities could seek an order compensating for damages incurred as a result of fraudulent activities.

Prof Turok commented that this would make it legally possible to own stolen goods.

Mr Nkem-Abonta agreed and recommended that in such circumstances the Courts instruct a reversal of the transaction. He also noted that the Bill addressed the question of punishment for those responsible for the misconduct.

Ms W Kamodibe (ANC) inquired as to the rationale behind Clause 2 of the Bill.

Mr Moeletsi indicated that electronic transactions were difficult to trace and this necessitated legislation that protected and legally recognised the buyer.

The Chairperson enquired why the original owner could not be protected and pointed out that many people were unable to initiate legal proceedings against fraudulent parties. He asserted that the Department should devise a better legal framework in order to solve the problem.

Mr M Netshitenzhe (DTI) pointed out that it was their intention to protect the original owner. However, due to the complex nature of the transfer system it was not possible to reverse ownership of uncertificated securities.

Mr Strydom added that if the Committee wished to reflect on the ethic of the Bill, the Members would have to revisit Section 91A of the principal Act that provided for the legal recognition of transfers.

Mr Nkem-Abonta voiced concern that the Bill might provide a loophole for criminals, as in practice it would be difficult to prove the culpability of a guilty transferee.

Prof Turok pointed out that the problem originated from the dematerialisation of share certificates and suggested that, if justice was to be compromised, the issue be referred to the Finance Committee who dealt with the nature and form of share transactions.

The Chairperson disagreed and indicated that it was the Committee's responsibility to resolve the matter.

Mr Labuschagne raised a query concerning who should receive the balance of protection, original owner or buyer, and asserted that the responsibility for damages incurred as a consequence of a fraudulent transaction should rest with the company that lost the shares. He also inquired about the extent of fraud and misconduct in the electronic transfer market.

Mr J Maake (ANC) concurred and suggested that buyers should be required to verify ownership of shares.

The Chairperson expressed the view that the Members understood the issues that had been covered in the Bill and urged the Committee to move forward with its business.

Prof Turok recognised the complexity of the issue and the difficulties surrounding the tracing of ownership on the stock exchange.

Mr Strydom acknowledged that the provisions in Clause 2 deviated somewhat from the principles of common law. He then briefed the Committee on Clauses 3 and 4 of the Amendment Bill highlighting that, in the event of misdealing by a director or management member in terms of Clause 3, the Registrar of the Court was obliged to inform the company in which the individual worked that it had, as a member of its management, a person that had committed an offence and must therefore be removed from office. The Amendment Bill also stated that any person who had knowledge of the misconduct must also be removed.

Mr Turok accepted that the Registrar of Companies was the whistleblower but suggested that the individual responsible for uncovering the misconduct ought to be protected. He added that the public should also be informed and asked the Department for figures indicating the scale of fraud.

Mr A Mokoena (ANC) requested clarity on Clause 3 (c).

Mr Strydom replied that there was considerable debate surrounding Clause 3(c) but indicated that the Department had noted the Members' concerns.

Mr Moeletsi explained that a Corporate Governance Bill was to be tabled in Parliament, which dealt with many issues concerning good corporate governance, and added that he did not have the relevant statistics on the levels of fraud and mismanagement in the sector.

The Chairperson requested that the Department's representatives offer a general indication of the scale of criminal activity in the sector.

Mr Netshitenzhe responded that the situation prevailing in the corporate sector in terms of fraudulent activity was unacceptable and needed to be examined.

The Chairperson stated that the Department should supply the Committee with detailed statistics as soon as possible and proposed that the Department revisit the Amendment Bill keeping the Members' views in mind.

Department briefing on Madrid and Hague Systems
Mr Moeletsi briefed the Committee on the Madrid and Hague Systems focusing on the benefits of ratification of the agreements by South Africa. Mr Netshitenzhe then outlined the advantages of the longer registration period as stipulated in the accords.

Prof Turok articulated concern that such agreements typically favoured the more advanced nations and asked that the Department compare the benefits ratification would bring to South Africa to the benefits for the United States of America.

The Chairperson requested clarity on how the protocols would protect local investors.

Mr Mokoena queried whether South Africa was aligned with other nations in terms of the processes followed when altering names and trademarks and inquired how disputes relating to the registration of trademarks would be resolved.

Mr Moeletsi indicated that ratification of the accords would not affect everyday business but emphasised that the protection of intellectual property rights would encourage both local and foreign investors.

The Chairperson questioned the definition of indigenous knowledge systems and inquired whether the Department had approached the Portfolio Committee on Arts and Culture in this regard.

Mr Netshitenzhe acknowledged that the Department would have to qualify the benefits that endorsement of the Madrid and Hague agreements would generate but highlighted that South Africa would join as equal partners. He added that in terms of conflict resolution the registration office and courts were already established and that debate concerning the nature of traditional or indigenous knowledge systems was ongoing.

Dr M Sefularo (ANC) commented on the relatively small number of sub-Saharan nations that had entered into the agreements and inquired how ratification would affect African countries specifically on a regional level.

Mr Moeletsi responded that the Department was still finalising regional policy but emphasised that responsibility for ratification still lay with individual countries.

The Committee agreed that the Department must re-examine the agreements with the Members' views in mind and requested that the Department liase with the Committee Secretary in order to establish when a meeting could be convened to finalise the matter.

The meeting was adjourned.



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