Close Corporations Amendment Bill: Adoption; Trade Practices Amendment Bill, Companies Amendment Bill: Briefing

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Trade and Industry

19 June 2001
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
20 June 2001
CLOSE CORPORATIONS AMENDMENT BILL: ADOPTION; TRADE PRACTICES AMENDMENT BILL, COMPANIES AMENDMENT BILL: BRIEFING
 


Chairperson: Dr. Rob Davies

Documents handed out:

Close Corporations Amendment Bill [B31-2001]
Companies Amendment Bill [B35-2001]
Trade Practices Amendment Bill [B34-2001]
Consumer Affairs (Unfair Business Practices Bill) [B28-2001]
Trade Practices Act 76 of 1976
Briefing Notes on Trade Practices Amendment Bill, Companies Amendment Bill & Close Corporations Amendment Bill (see Appendix)

SUMMARY
The Close Corporations Amendment Bill was unanimously adopted with one technical amendment. The Committee was briefed on the Companies Amendment Bill. All thirty clauses were acceptable to the Committee. Voting will take place the following week. The Trade Practices Amendment Bill was not adopted due to lack of information on concept of "ambush marketing".

MINUTES
Close Corporations Amendment Bill: briefing

Mr Johan Strydom (DTI Legal Advisor) briefed the Committee [see Appendix for briefing]. He pointed out an error in Clause 13. This clause should have read "Section 47 of the principal Act is hereby amended by the deletion of subparagraph (i) of paragraph (a) of subsection (1).

The Committee had no comments to make other than that they agreed to the Bill and the technical amendment of Clause 13. The Motion of Desirability was read and adopted unanimously by the Committee with the one amendment.

Companies Amendment Bill
Adv Flip Dwinger (DTI Legal Manager) briefed the Committee [see Appendix for briefing].

Discussion
Mr Locke asked for further explanation of the implications of Clause 12.

Adv. Flip Dwinger replied that the "the reduction of " share capital was a redundant reference. The Companies Act was amended in 1999 to dispense with capital maintenance rules in terms of which a reduction of a company's share capital had to be done with a special resolution or with a sanction of an order of court. Clause 9 is similar to Clause 12.

Ms B Ntuli (ANC) asked if previously disadvantaged people, especially in the rural areas, who do not have access to electronic technology, had been taken into account in this Bill.

Adv. Dwinger replied that electronic lodgment does not replace anything that exists at the moment. All provisions of the Act regarding lodgment of documents either by hand or post or in any other format are retained in the Companies Act. Electronic lodgment is only an additional way of dealing with the documents. As far as rural communities are concerned, introducing the electronic lodgment of documents was the first step in making the service accessible to them for they could approach one of the centres which can link them with the main service provider, SACRO's offices. They do not need to be able to have a knowledge to operate a computer on their own because they can ask for help from another person who accesses the service.

Ms Ntuli conceded that rural persons could have access to the service from provincial offices or from persons who have internet resources. However does the Bill contain any provisions to protect such people from exploitation by people who have access to computer and internet resources. There was a likelihood that this could happen if it is not guarded against.

Adv. Dwinger replied that there was no provision in the Bill mainly because the Bill does not deal with business practice. The Companies Act cannot prescribe how people should utilize the internet. These services are freely available. However, some would be paid for at a later stage. It would be very difficult for the Companies Act to regulate the conduct that Ms Ntuli alluded to. This would have to be regulated by legislation that regulates business practices.

Prof. Ripinga was concerned that mainly formal organizations had been consulted regarding this Bill. Consumers and civic organizations are not listed in the Bill as being consulted.

Adv. Dwinger replied that it was true that all the formal role-players in the corporate industry were consulted. It was unfortunate that there was no basic forum for consumers to be consulted on basic corporate law, its implementation and its structures. Fortunately, the consumer usually makes use of an accountant to assist in floating a company or forming a business entity. Such consultants and advisors had been consulted.

The Chairperson asked how safe was the internet for these transactions. He was concerned about the high incidence of "hackers". Could one conclude a binding agreement on the internet and how safe was it?

Dwinger replied that the whole system is built within the government structure of internet safety standards. Nothing is beyond any criminal for they will always try to crack the system. He insisted that the information is very safe because it is stored in electronic format in more than one place. Therefore the information can neither be destroyed nor tampered with as there are backup files.

Mr Locke remarked that forming a company does not only entail submitting certain documents via the internet. There are other lengthy documents such as the constitution of the company and its Memorandum and Articles of Association. He asked how would this work in practice and how possible it would be to submit these documents in an electronic format.

Adv. Dwinger replied that electronic documents irrespective of their length can easily be created. The system provides for scanning a large volume of documents into an electronic format. The service is very efficient.

Ms Ntuli asked if there would be any training to inform people about how the system works.

Adv. Dwinger replied that SACRO is already planning a huge marketing campaign about the system with several roadshows and radio interviews about how the system works. This has been done in all official languages.

Clause by clause briefing
Adv. Dwinger then went through the Bill clause by clause:
Clause 1
This clause deals with the definitions contained in the Companies Act. This is an expansion of the existing definitions to include the electronic process.

Clause 2
Deals with disclosure and inspection of copies of documents by SACRO and foreign governments accredited to our government and by other institutions such as universities .

Clause 3
Refers to the manner of payment of fees at SACRO. This also enables the fees to be paid electronically.

Clause 4
Refers to the power of the Minister to make regulations providing for the reproduction of any records in the Companies Registration Office or the office of the Master by microfilm etc.

Clause 5
Deals with the provisions of an order for a company to change its name.

Clause 6
Relates to the use and publication of a company name. It extends it into an electronic format.

Clause 7
Amends section 63 of the Companies Act. It dispenses with a need to lodge a series of copies of documents in company registration. Subclause (b) provides for the changing of a registration number by the Registrar in order to rectify duplications. This was necessitated by the Y2K situation.

Clause 8
Repeals certain redundant sections in the principal Act.

Clause 9
Removes the redundant reference to the reduction of a company's share capital.

Clause 10
Deals with the procedure for the acquisition of own shares.

Clause 11
Deals with a certificate of shares. This clause will allow for electronic signatures alongside the existing autographic and mechanical means by which share certificates may be signed.

Clause 12
Removes the redundant reference to the reduction of a company's share capital.

Clause 13
Allows for a register of company members to be kept in electronic format.

Clause 14
This is an extension to Clause 13 providing that there must be an index to the register of members. The Clause makes it possible for the index to be done in an electronic format.

Clause 15
Amends section 113 of the principal Act.

Clause 16
Provides for the electronic signing of certificates over and above the existing means.

Clause 17
Amends 132 of the principal Act which makes it an offence to forge share and debenture certificates. This extends the proscription to similar conduct in an electronic manner.

Clause 18
Extends existing means to include the signing of certification in an electronic manner.

Clause 19
Amends section 141 of the principal Act allowing a member who wants to sell his shares to make an advertisement for the sale of those shares in an electronic manner.

Clause 20
Deals with section 157 that puts a limitation on advertising a prospectus of a company. This will also cover electronic advertisement.

Clause 21
Deals with section 171 requiring names of directors to be on letterheads and trade documents of the company. This clause extends the same provisions to electronic or other documents issued by the company.

Clause 22
Deals with section 192 of the principal Act regulating compulsory adjournment of meetings.

Clause 23
Amends section 211 of the principal Act.

Clause 24
Amends section 249 of the Act relating to false statements in company documentation. This will also includes electronic documents lodged by a company.

Clause 25
Amends section 250 of the Act dealing with falsification of documents and records of a company. This offence will now include falsification of electronic records of a company.

Clause 26
Amends section 302 of the Act which requires a company to dispatch annual financial statements to all its members. This can now be done by electronic mail if a member has consented to this.

Clause 27
Deals with a penalty for contravening section 333 of the Act dealing with a foreign company doing business in South Africa as an external company.

Clause 28
This is a general provision in the Act that substitutes the reference "certified post" with "registered post".

Clause 29
Repeals section 3 of the Companies Amendment Act 18 of 1990 which never came into operation.

Clause 30
Is only a short title.

The Committee then went through each of the thirty clauses of the Bill indicating informally that it was in agreement of each of these clauses.

Trade Practices Amendment Bill
Mr Ratsheko (DTI: SAPTO) briefed the Committee [see Appendix for briefing].

Discussion
Dr Rob Davies wanted to clarify what ambush marketing entailed. He asked if it were, for example, a firm puts up an advertisement saying that it sponsors a match but in the meantime it is not in fact supporting that match. He asked if that would amount to ambush marketing.

Mr Ratsheko replied that that could be an example of ambush marketing. But the most common example was, for example, if a soccer match is sponsored by Vodacom and during the proceeding of the match, a huge MTN glider hovers over the stadium. He said that this could be regarded as ambush marketing because MTN would in fact be encroaching in the Vodacom marketing zone.

Mr Locke complained that these were hypothetical examples of ambush marketing and asked if there were any real instances of ambush marketing. Ms Ntuli agreed with Mr Locke and also asked how often does ambush marketing occur.

Mr Ratsheko replied that he was not familiar with the problem experienced. There was a case similar to his example which is a reported decision. However he could not recall who the parties were. He indicated that it would be hard for him to give further practical examples.

Mr Locke remarked that it was difficult to identify what ambush marketing was because all sports fields have logos showing companies that do not support the actual event.

Ms Ntuli remarked that if there were no concrete examples what could have prompted Mr Ratsheko to have the amendment. She said that the committee could not pass a Bill for the sake of passing it without knowing how the amendment would affect business in South Africa.

Mr Ratsheko replied that the reasons that have emanated from the institutions that were consulted were purely hypothetical and based on hypothetical explanations of what could amount to ambush marketing.

Prof. Ripinga asked about criminal cases in this regard and how often they come to court.

Mr Ratsheko replied that the Trade Practices Act in its entirety aims to protect consumers and traders. He insisted that he was aware of a decision dealing with ambush marketing yet he did not recall many cases around ambush marketing.

The Chair asked if the Bill was possibly motivated by some academic exercise around intellectual property.

Mr Ratsheko conceded that this could be a very academic Bill to have in the law. It is still a new concept in our legislation.

The Chair suggested that it would be easier if more research were made regarding ambush marketing. Mr Ratsheko would report to them the following week.

Ms Ntuli agreed with Dr Davies. The Committee could not pass Bills that were not clear as the emphasis was more towards advancing black economic empowerment presently.

The meeting was adjourned.

Appendix:
BRIEFING NOTES: COMPANIES AMENDMENT BILL, 2001
The Companies Act, 1973, was written without any consideration of electronic processing of documentation, mainly because it that point in time electronic documentation and any processing thereof were unknown.

Approximately four years ago the South African Companies Regulatory Office (SACRO), in co-operation with SARS, various departments of state, other regulators and interested parties from the private sector, embarked on the development of a completely electronic and computerised system for the incorporation of companies and close corporations and the registration of corporate information in respect of these entities. The development phase has now been finalised and SACRO is ready to proceed with the final implementation of the new system.

This Bill now needs to amend the Companies Act, 1973, to enable the lodgement of documents and disclosure of information in respect of close corporations by means of electronic processes. The Bill seeks to introduce provisions enabling the following:

- the phasing in of electronic lodgement of corporate forms
- the phasing in of electronic payment of prescribed fees and other fees for services rendered; and
- electronic disclosure of corporate information.

The new system has been developed over several years in ongoing co-operation with stakeholders and has already been partially implemented. All types of documentation lodged with SACRO is currently recorded on an electronic tracking system, which makes it possible to determine exactly when any document has been received and what its status in respect of processing is. This information is already freely available on the SACRO Internet website.

One of the main attributes of introducing this new electronic system is that it will enable SACRO to take its registration and disclosure services to the masses and to all remote areas in South Africa. Presently there is only one national office in Pretoria providing these services but with a proper database and electronic processing system, which will allow remote electronic lodgement of documentation and requests for information, these services can be decentralised. In this regard it is the intention to provide the majority of these services not only via the Internet in order to make them readily available, but also at various other public offices throughout the country. This electronic decentralisation of services will form part of the next phase of the automation project at SACRO.
In addition to applying principles of the electronic medium to the processes at SACRO the Bill also seeks to allow companies 10 apply these principles in certain specific areas, for instance, to allow the keeping by a company of a register of members in electronic format; allowing certain documents which currently may be signed by autographic and mechanical means, to also be signed electronic Ally; and allowing companies to send its annual financial statements to those of its members who have consented thereto in writing, by electronic mail.

Lastly the Bill also seeks to remove various obsolete provisions and references, mainly provisions relating to the former TBVC-States, and to rectify an incorrect cross-reference.

BRIEFING NOTES: TRADE PRACTICES ACT, 1976
Amendment of section 9 of the Act
The Trade Practices Act was enacted with a view to criminalise in trade practices such as false or misleading advertisements or communications, which could lead to harmful trade practices being conducted. Certain harmful practices, which were not envisaged during the enactment of the Act, have since emerged.

The purpose of introducing this amendment is to widen the scope of the application of this section. The application of the common law principle of passing-off by our courts did not develop a jurisprudence to 3n extent of catering for problems around issues related to "ambush marketing". This means that ambush marketing is not viewed as a crime, hence no penalty.

Substitution of section 19 of Act 76 of 1976
Further, current penalties imposed on offenders are considered to be lenient and rot substantial enough to act as a deterrent to potential offender 3. As a result thereof there is a need to amend the Act in order to criminalise certain marketing activities which have recently arisen and which are not provided for in terms of the common law or any other legislation

BRIEFING NOTES: CLOSE CORPORATIONS AMENDMENT BILL, 2001
The Close Corporations Act, 198z, was written without any consideration of electronic processing of documentation, mainly because at that point in time electronic documentation and any processing; thereof were but a mere dream of the future.

Approximately four years ago the South African Companies and Close Corporations Office (SACRO), in co-operation with SARS, various departments of state, other regulators and interested parties from the private sector, embarked on the development of a completely electronic and computerised system for the incorporation of companies and close corporations and the registration of corporate information in respect of these entities The development phase has now been finalised and SACRO is ready to proceed with the final implementation of the new system.

This Bill now needs to amend the Close Corporations Act, 1984, to enable the lodgement of documents and disclosure of information in respect of close corporations by means of electronic processes. The Bill seeks to introduce provisions enabling the following;

· the phasing in of electronic lodgement of corporate forms;
· the phasing in of electronic payment of prescribed fees and other fees for services rendered.
· electronic disclosure of corporate information

The new system has been developed over several years in ongoing cooperation with stakeholders and has already been partially implemented. All types of documentation lodged with the office is currently recorded on an electronic tracking system, which make it possible to determine exactly when any document has been received and what its status in respect of processing is. This information is already freely available on the SACRO Internet website.

One of the main attributes of introducing this new electronic system is that it will enable SACRO to take its registration and disclosure services to the masses and to all remote areas in South Africa. Presently there is only one national office in Pretoria providing these services but with a proper database and electronic processing system. which will allow remote electronic lodgement of documentation and requests for information, these services can be decentralised. In this regard it is the intention to provide the majority of these services not only via the Internet in order to make them readily available, but also at various other public offices throughout the country. This electronic decentralisation of services will form pan of the next phase of the automation project at SACRO.

 

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