Co-operatives Bill: deliberations

Meeting report

Co-operatives Act 91, 1981
National Cooperatives of South Africa submission
Co-operatives Bill [B4-2005]
Proposed Amendments to the Co-operatives Bill

SUMMARY
The Committee were briefed on proposed amendments to the tabled Co-operatives Bill. The main issues discussed were access to sensitive commercial information held by co-operatives; the differences between natural and juristic persons; the voting regimes in different types of co-operatives; the developmental nature of the Bill; transitional provisions for existing co-operatives to comply with the new Act and compensation for the members of the Advisory Board to be created by the new Act.

MINUTES
Mr J Strydom, Head of Legal Services: Department of Trade and Industry, went through the proposed amendments to the Co-operatives Bill. The following points were made while working through the Proposed Amendments document:

Clause 1 Definition and interpretation
primary co-operatives
Mr J Strydom, Head of Legal Services: Department of Trade and Industry, said the legal meaning of the word 'person' was explained in detail in the Interpretation Act, 1957 and unless otherwise stated in a specific Act, this interpretation would be presumed to take effect. According to this interpretation, ‘persons’ could include natural or juristic persons. Primary co-operatives were intended to consist of natural persons and that should be clearly reflected in this Bill.

‘secondary’ and ‘tertiary co-operatives’
Also in the definition and interpretations, the terms ‘secondary’ and ‘tertiary co-operatives’ should be amended by including the juristic nature of its membership.

'worker co-operatives'
Dr E Nkem-Abonta (DA) welcomed the amendments and asked for a clearer definition of the term "worker co-operatives".

Ms N Maluleke, Director: Co-operatives Unit, Department of Trade and Industry, said worker co-operatives were similar to primary co-operatives, but it primarily provided employment to its members. Companies could serve as individual members of secondary and tertiary co-operatives but served as juristic persons and not as natural persons. She added that secondary and tertiary co-operatives were allowed the discretion to decide their own voting regime.

Mr M Stephen (UDM) said the definitions of secondary and tertiary co-operatives should simply say ‘and other juristic persons’, and not list various forms of juristic persons as was currently the case.

Mr Strydom said he agreed in principle and would reflect on this at a later stage.

Dr Nkem Abonta said it was preferable to mention primary co-operatives and the other types of juristic persons that could constitute the membership of secondary and tertiary co-operatives to provide more clarity on the relationships between the various forms of co-operatives. It was unclear whether natural and juristic persons could serve as members of the same secondary and tertiary co-operatives.

Mr Strydom agreed that a clear distinction was needed between natural and juristic persons.

Mr S Rasmeni (ANC) said he was under the impression that the distinction between primary, secondary and tertiary co-operatives was similar to the distinction between small, medium and big businesses. He feared that the interests of wealthy co-operatives could overshadow small emerging co-operatives if similar distinctions were not made.

'registrar' and 'deputy registrar'
Mr Strydom said the Committee should separate the definition of registrar and deputy registrar in the Bill to clarify their respective portfolios.

Mr L Labuschagne (DA) said ‘a one size fits all’ approach was suitable for smaller co-operatives operating in the ‘Second Economy’. However, co-operatives competing in the First Economy could benefit markedly from economies of scale. He suggested the Committee apply the one-member-one-vote paradigm to all co-operatives and allow individual co-operatives to apply to the Minister for exemption from that voting regime, if two thirds of their membership supported the rival proportional voting regime. He said the Committee must avoid 'one size fits all' solutions, especially since co-operatives appeared to be divided into two very distinct levels.

Ms B Ntuli (ANC) said government was trying to close the gap between the First and Second Economies and not widen them.

Ms F Mohammed (ANC) said she feared preferential treatment was again being accorded to the wealthier segments of the community.

Mr Rasmeni said a thorough study of the current practice in the co-operatives field should have been conducted before deliberating the Bill in Parliament.

Prof B Turok (ANC) asked whether five wealthy ladies who formed a co-operative to sell expensive imported motor vehicles would fall under the definition of primary co-operatives in the Bill.

Mr Strydom said the Bill did not qualify who could form co-operatives; however the Bill should be considered in its entirety. If the ladies in Prof Turok’s example clearly violated the provisions of the Bill they would be compelled to deregister as a co-operative.

Prof Turok asked if the ladies in his example would be eligible for state assistance according to the Bill

Mr Martin said Prof Turok should not push the legal drafters for simple answers when a more comprehensive explanation was obviously required.

Prof Turok said wealthy as well as poor people were welcome to form co-operatives but the primary thrust of the Bill was the alleviation of the dire poverty many South Africans had to endure. This primary objective of the Bill as stated in its Preamble should be consistently reflected throughout the Bill.

Mr Strydom said the Bill did provide the consistency Prof Turok referred to. He said certain provisions of the Bill were repeated unnecessarily as mentioned during the public hearings but the Department was attempting to streamline such provisions.

Ms Mohammed said there was no harm in strengthening the Preamble, as this would only consolidate the developmental nature of the Bill.

Mr Rasmeni said the developmental nature of the Bill should be reflected both in the Preamble and the substance of the Bill.

Mr Martin said one of the hallmarks of sound legislation was consistency throughout the Bill from the preamble to the last page. The entire Committee shared a common goal, that is, the economic development of all citizens, while appreciating the historical inequities prevalent in South Africa.

Prof Turok thanked Mr Labuschagne for referring him to Clause 2(f) of the Bill which stated its developmental nature. Unfortunately the poor did not enjoy the same access to resources as wealthier citizens and this would inevitably be reflected in the number of applications to form co-operatives. The Committee should make it abundantly clear in the Bill that provisions such as Clause 2(f) were vital objectives of the Bill.

Clause 5: Application of the Act
Mr Strydom said the Co-operatives Bill and the Co-operative Banks Bill were intended to work together harmoniously but unfortunately the Co-operative Banks Bill had been withdrawn. Clauses 5(2) and 5(3) of the Co-operatives Bill, which referred to the aforementioned Co-operative Banks Bill, should therefore be deleted.

Mr Rasmeni asked how the two Bills would be harmonised if the Co-operatives Bank Bill was reintroduced at a later stage.

Mr Strydom said it would then rest primarily with the National Treasury to ensure that the Co-operatives Bank Bill was in line with the Co-operatives Act.

Ms Ntuli asked for a definition of the Supervisory Boards referred to in the Bill.

Ms Maluleke replied that the Supervisory Board was the same entity as the Supervisory Committee in the Bill’s Definitions and Interpretation. The Department would amend the names to refer to the Supervisory Committee throughout the Bill to avoid confusion.

Clause 22: Access to Information
Mr Strydom said Clause 22(1) (i) could lead to the minutes of co-operatives’ meetings potentially reflecting the marketing strategy or other sensitive information. If a marketing strategy was considered a ‘current commercial transaction’ as mentioned in the Bill, the co-operative’s Board of Directors could legitimately withhold that information from members. However if a marketing strategy was not considered as a ‘current commercial transaction’, the Board of Directors could be compelled to divulge potential commercially damaging information according to the Bill. He said the Promotion of Access to Information Act was nevertheless still effective and information could be withheld if its release could result in placing the co-operative at a commercial disadvantage.

Ms Maluleke said she would prefer it if Clause 22 of the Bill remained as it was, and instead, a maximum time period be included for which information could be withheld.

Dr Nkem Abonta said the Board of Directors should be compelled to divulge any information after the currency of the transaction lapsed and the potential competitive disadvantage behind releasing the requested information was averted.

Mr Stephens said the Committee should limit the ambit of the right to withhold information. He agreed that a time limit should be imposed by which a co-operative’s Board of Directors had to release the requested information. An arbitration mechanism could be created to call the Board of Directors to account and verify the necessity behind its non-disclosure of information.

Dr Nkem Abota said the creation of an arbitration mechanism could potentially involve unnecessary costs and bureaucracy.

Mr Strydom said it was difficult to specify any duration of time for the release of information as commercial transactions and their potential impact on markets varied considerably. The Bill could simply defer to the Promotion of Access to Information Act, which eloquently resolved all the concerns raised by the Committee.

Ms Ntuli believed that no amendments were necessary as Clause 22(2) clearly stated that only a ‘reasonable period of time’ for the non-disclosure of information provision was allowed.

Mr L Zita (ANC) asked from whom information would be withheld in this scenario.

Mr Strydom replied that Clause 22(1) clearly stated that members of the co-operative had the right to request information from the Board of Directors.

Mr Martin said the Department should include the reference to the Promotion of Access to Information Act and Clause 22(3) should remain as it originally was.

Clause 27: Structure for Decision-making
Ms Maluleke noted that Clause 27(3) should be deleted as it was merely repeating previous provisions.

Clause 28: General Meetings
Ms Maluleke noted that Clause 28 (1) and 28(4) should be deleted as they were merely repeating previous provisions.

Clause 58: Effect of Registration of Amalgamated Co-operative
Dr Nkem Abonta said in light of the drive to simplify the language of the Bill, the word ‘becomes’ as employed in Clause 58 should be replaced with "vests" throughout the Bill.

Mr Strydom said that initially, the drafters of the new Co-operatives Bill had not anticipated a need to include procedures for companies to convert into co-operatives. However, in light of the extensive way it was dealt with in the previous Co-operatives Act, he suggested the relevant sections be copied to the new Co-operatives Bill and modified if necessary.

Dr Nkem Abonta cautioned that companies might abuse the co-operatives regime in an illicit attempt to avoid paying company taxes.

Mr Strydom said he was not familiar with the taxation requirements for companies or co-operatives.

Mr Zita said co-operatives generally enjoyed a less onerous tax burden, but suggested this matter should be dealt with at a later stage.

Chapter 12: Co-operatives Advisory Board
Mr Zita suggested that perhaps civil society; Parliament and / or other role players should also play a role on the Co-operatives Advisory Board envisioned by the Bill in Chapter 12.

Mr Martins said it was not appropriate for the Committee to stipulate who should be appointed to the Co-operatives Advisory Board; however it had every right to advise the Department on the type of person to appoint to the board.

Mr Zita said commissioners were frequently appointed by Parliament and subsequently held accountable by the same entity. Parliament should actualise all its rights and not continually cede its prerogatives to the executive.

Mr Martins said the Committee should investigate the comprehensive rights of Parliament to avoid exceeding its authority.

Dr M Sefularo (ANC) said Parliament and the executive were two very distinct structures and their roles should not be confused.

Dr Nkem Abonta said he fully agreed with Mr Zita that Parliament should actualise the full spectrum of its function and authority.

Mr Martins said he would have been surprised if Dr Nkem Abonta did not ‘take a bite from this apple’ as he had previously argued along similar lines.

Mr Stephens said there appeared to be no interim arrangement for existing co-operatives to convert to the new requirements contained in the Bill.

The Department said co-operatives would be granted a grace period to make the necessary changes and comply with the Bill.

Mr Strydom said Clauses 91 (1) and 91 (2) contained transitional arrangements for co-operatives to conform to the Bill.

Mr Zita said companies should be compelled to consider converting to co-operatives as an alternative to liquidation. The profit motive for private companies was generally higher than for worker co-operatives, and workers would appreciate having continued employment even if salaries were reduced.

Mr Strydom said including the measures for converting companies to co-operatives - as stipulated in the Co-operatives Act - into the new Bill would be a first step towards encouraging companies to consider converting to co-operatives as an alternative to liquidation.

Clause 81: Members of the Advisory Board
Mr Strydom said Clause 82 (4) reserved the Minister’s right to appoint the members of the Advisory Board and added it would be inappropriate for Parliament to stipulate the representation to statutory bodies created under other legislation as indicate in Clause 81(4).

Mr Zita said it appeared Mr Strydom was "cheating" him. He asked whether it was legally wrong or merely impolite. He accepted that placing the conversion provision from companies to co-operatives in the Bill was a step in the right direction but he envisioned a much more proactive stance. There was a historical precedent in other countries.

Mr Strydom said it was legally inappropriate.

Mr Martins said although his suggestion was appreciated, the introduction to his statement was ‘not the best’. Mr Strydom’s bona fides was recognised by everyone in the Committee. Mr Zita agreed and said he was ‘not an Englishman’. Mr Martins said Clause 81(4) should be deleted.

Mr Labuschagne said compelling companies to consider converting to co-operatives before liquidation was an issue for the Companies Act and not the Co-operatives Bill, as the latter would only take affect when the company became a co-operative.

Dr Nkem Abonta suggested the amalgamation of the various statutory bodies into one body that dealt with all economic transformation issues.

Mr Strydom noted that Clauses 81 (2) and 81(3) were in the wrong position and proposed moving them to Clause 80.

Clause 83: Term of Office and Conditions of Service of Advisory Board
Ms N Khunou (ANC) said the members of the Advisory Board served an important function and they should be remunerated accordingly. It was unacceptable that Clause 83 (4) stated their services would not be remunerated.

Mr Stephen said it was often difficult to call volunteers to account. If the services they rendered were valued they should be compensated accordingly.

Mr Labuschagne said it was time that South Africans served their country voluntarily and not always seek compensation.

Ms D Ramodibe (ANC) said it was not necessary to compensate the Advisory Board members as they all served in other paid positions as indicated in the Bill.

Ms Mohammed said the Committee should not set the wrong precedent as serving on Advisory Boards were very prestigious posts and professionals often willingly served on them without any financial compensation.

Dr Nkem Abonta said he had no chance of being appointed to the Board, as he was not a member of the ANC. If Ms Mohammed’s argument were pursued further it could be argued that serving as members of Parliament was a position of honour and prestige, and members therefore should not expect to be remunerated for their services.

The meeting was adjourned.

TRADE AND INDUSTRY PORTFOLIO COMMITTEE

6 April 2005
Co-operatives Bill: DELIBERATIONS

Chairperson: Mr B Martins (ANC)

Documents handed out: