Financial Matters Amendment Bill: National Treasury briefing

Meeting report

The Chairperson welcomed the Committee and National Treasury’s delegation. He noted that no apologies were received.

Briefing by National Treasury (NT)

Adv Ailwei Mulaudzi, Director: Fiscal and Intergovernmental Legislation, NT, briefed the Committee on the Financial Matters Amendment Bill. He stated that Bill proposes amendments to the:

• Associated Institutions Pension Fund Act, 1963
• Temporary Employees Pension Fund Act, 1979
• Military Pensions Act, 1976
• Government Employees Pension Law, 1996
• Financial and Fiscal Commission Act, 1997
• Land and Agricultural Development Bank Act, 2002
• Auditing Profession Act, 2005
• Auditing Profession Amendment Act, 2021

The amendment to the Military Pensions Act are contained in clause 10. This amendment aims to address discrimination against life partners of military pensioners, retrospectively. The Financial Matters Amendment Act, 2019 recognised life partners and allows life partners to claim benefits from date that Amendment Act commenced. The proposed amendment provides for benefits for life partners of members retrospectively from 27 April 1994 when interim Constitution of 1993 took effect. A 12 month-period is allowed for registration and submitting claims. This is to allow persons to claim from the aforementioned date as that is the date when the right to equality was introduced in our constitutional dispensation.

The amendments to the Government Employees Pension Law are contained in clauses 11-17. The purpose of the amendment is to facilitate administration and make “clean-break” principle apply to members of the Associated Institutions Pension Fund (AIPF) by amalgamation into the Government Employees Pension Fund (GEPF). The GEP Law provides for a “clean break” for GEPF members. The proposed amendment is to allow the clean break principle to apply to members of the Associated Institutions Pension Fund.

Clause 18 proposes to amend section 19 of the Financial and Fiscal Commission Act, 1997, by omitting the provision of the Chief Executive Officer (‘‘CEO’’) of the Financial and Fiscal Commission (FFC) to be its Secretary. Excluding this as a function of the CEO, who is also the accounting officer of the Commission, will enhance good corporate governance. Provision for a secretary for the Commission should be discretionary and may be implemented through an appropriate staffing arrangement. Its regulation in legislation is therefore not necessary.

The amendments to the Land and Agricultural Development Bank Act are contained in clauses 19 – 20. The purpose of the amendment is to align the Act with administration by the Minister of Finance and with provisions of the Companies Act, 2008. The Companies Act, 2008 repealed most of the Companies Act, 1973, including provisions relating to judicial management, and replaced it with business rescue Business rescue in Chapter 6 of Companies Act, 2008 did not replace, by implication, judicial management in Land Bank Act. The Amendment proposes to replace the provision for judicial management for Land Bank with business rescue in terms of the Companies Act, 2008.

The amendment to the Auditing Profession Act, 2005 is contained in Clause 21. This amendment proposes to adjust the powers of the enforcement committee where the auditor admits guilt if the enforcement committee’s view is that conduct does not warrant the sanction of deregistration or disqualification from registration as auditor, it must follow the admission of guilt process or warrant such sanction, it must refer the matter to the disciplinary committee for sanctioning.

The amendment to the Auditing Profession Amendment Act, 2021 is contained in clause 22. The amendment aims to provide that the same processes apply to alleged improper conduct of auditors whether committed before or after the Auditing Profession Amendment Act, 2021 (Amendment Act). The amendment proposes that alleged improper conduct not dealt with before the effective date of the Amendment Act be dealt with in terms of the Auditing Profession Act, 2005 (principal Act), after its amendment by that Amendment Act, with exception of sanctions. These are urgent amendments that are needed by the Independent Regulatory Board for Auditors (IRBA) to proceed with disciplinary steps against auditors alleged to have committed improper conduct before Amendment Act. When the amendment act took effect, there was an oversight in that it did not provide for a scenario stating which processes would apply for those alleged misconducts by auditors that would have been committed before the amendment of 2021.

(See Presentation)

Discussion

Mr G Skosana (ANC) asked about clause ten which speaks to addressing discrimination against life partners of military pensioners retrospectively. What does it mean in relation to the partners that have already claimed and received the benefits? Do they have to make another claim in order to cover the period that was not covered by the current legislation in order to comply with this proposed amendment? Secondly, in regard to the required 12-month period for registering and submitting claims, what will happen after the 12-month period? Will those who do not register and submit such applications forfeit those benefits after 12 months? Our society usually does not respond immediately. They usually take time to respond to things like this. Will there be a provision for people who will submit their applications after 12 months? Clause 18 states that currently the CEO of the FFC is also secretary to the commission, the proposed amendment is that the role of the CEO should be omitted as its secretary, that the provision for secretary of commission should be discretionary and regulation in legislation not necessary. Were there any challenges experienced when the CEO also served as the secretary to the commission? Why do you want to make this amendment?

Dr D George (DA) pointed out that clauses 19 and 20 make provisions for business rescue. The Committee knows the problems at the Land Bank, however, he is not sure what the last point actually means. Is there in fact provision for liquidation? This thing cannot continue forever if it is not going to do what it is supposed to do. What is the intention of that?

The Chairperson requested clarity on clause 22. What is being said is that Parliament should pass an Act and then the auditors are going to be punished retrospectively. Is there no provision in the current Act to do what is being suggested here? What is the intention of clause 22 all about?

Mr F Shivambu (EFF) stated that he did not hear the explanation about the amendments that are being proposed in regard to the Land Bank. Why are the amendments proposed and what is the ultimate purpose because it appears that there is an intention to dissolve the Land Bank from the relative control of the state. That cannot be acceptable because there is a different way in which the Land Bank can be handled. After the oversight visit to the Land Bank, the Committee proposed legislation.  The report that was adopted by the Standing Committee on Finance said that the Committee should repurpose the role of the Land Bank. If we were to look into the report, there are some legislative changes that the Committee said should be mainstreamed and included in the revised Land Bank Act so that there is a different purpose. He reminded everyone that the Land Bank should be turned into a developmental finance institution that will play a significant role that will mainstream the participation of historically disadvantaged people in agriculture instead of it being an institution that goes to the capital markets to look for money because the Land Bank has been operating in a manner that benefits those who were historically empowered. He did not get a sense of that. He had received information that National Treasury intends to dissolve the Land Bank for whatever evil purposes that have led to dissolution and later on to the irrational, senseless disposal of South African Airways.

On the proposed amendments to the Military Pensions Act and what these amendments mean to those who claimed benefits before, Adv Mulaudzi replied that this recognises the discrimination that may have been brought about by the Financial Matters Amendment Act where it provided that access to benefits by life partners would only be from the date when the amendment act commenced in 2019. The proposal now is to allow for retrospective access to these benefits, which means that those that would have applied would have an opportunity to then claim even before the commencement of the 2019 amendments.

On the 12-month period, he replied that this means that if a member does not submit a claim within the 12-month period from the date of the amendments then they would not qualify to submit a claim. Given the question raised by Mr Skosana, National Treasury does recognise that there may be difficulty in regard to some members who are not able to claim within the required period. National Treasury’s view is that when this becomes effective, the GEPF would try to educate their members on the availability of this benefit so that they are able to claim within the prescribed society. NT acknowledged that there might be challenges in that regard.

On the proposed amendments to the FFC in clause 18, National Treasury was informed by the FFC that they rather not have the CEO as the secretary but rather designate an employee of the commission. It should rather be at the discretion of the commission to decide who should be the secretary of the commission.

In the last parts of clauses 19 to 20, he replied to Dr George that the liquidation provisions as provided for in chapter six of the Companies Act do not apply to the Land Bank. He did explain that section 44 of the Land and Agricultural Development Bank already provides for the winding up of the Land Bank in terms of an act of Parliament. The last bullet was just a statement to reiterate that the liquidation provisions of the Companies Act do not apply. However, there is section 44 of the Land Bank that makes provision for the winding up of the bank.

Dr George understood that in respect of the Land Bank liquidation, the Act would require Parliament to process that, which is a much higher hurdle than any other business that gets itself into trouble. We will see what happens during the participation process but he is of the view that it needs to be an easier hurdle to climb over. Given that we cannot sustain unviable entities forever, that is something that can be considered when we have the participation process. However, the answer is clear.

On the Chairperson’s questions about clause 22, Adv Mulaudzi replied that this is a very technical amendment. The Auditing Profession Amendment Act provided a new process in terms of how IRBA would deal with disciplinary processes with auditors when it was passed in 2019. It also created new structures that basically dealt away with the structures that were provided for in the Auditing Profession Act prior to the amendment. When an auditor committed alleged misconduct either before the amendment act or after, we should then use the same process and structures that the Audit Amendment Act provides for. That does not bring any unfairness to anybody because it does not create a new offence that was not there before the amendment. It just provides a similar process to apply to those who would have committed this conduct before and those who would have committed the misconduct after the amendment. However, even when using the new processes in terms of the amendment act, where you are dealing with alleged misconduct that happened before the Amendment Act, IRBA may not impose sanctions that were not applicable at the time of the commission of the offence.

The Chairperson stated that this Act was passed in 2021, and now an amendment is being made a few months after. When drafting is done, is it done to such an extent that every year a law must be amended? Can the state law drafters not do things in a manner that can stand the test of time? We understand that things change in the world but can the state law drafters ensure that their work stands the test of time?

Replying to Mr Shivambu, Adv Mulaudzi replied that the purpose of the amendment in clauses 9 to 20 is to align the Land Bank Act with the administration by the Minister of Finance and to align some of its provisions with some of the provisions of the Companies Act of 2008. The Land Bank Act still makes reference to “judicial management” however, judicial management was mentioned in the Companies Act of 1973; this was repealed by the Companies Act of 2008 and the term “business rescue” was used. The replacement of “judicial management” in the Companies Act did not by implication replace “judicial management” as a process in the Land Bank Act. The amendment, therefore, proposes that the term “judicial management” in the Land Bank Act be replaced with “business rescue” as provided for by the Companies Act. It then indicates that the liquidation processes in chapter six of the Companies Act do not apply to the Land Bank Act because section 24 of the Land Bank Act does make provision for the wounding up of the Land Bank and it makes provision for the winding up of Parliament through an Act of Parliament.

Mr Shivambu stated that this dovetails with exactly what they were told; that the purpose of these amendments by National Treasury is to make it easier to subject the Land Bank to business rescue practitioners and ultimately to liquidate it.

He proposed that all amendments dealing with the Land Bank should be removed. In addition, the Committee and the Land Bank Board should have a special briefing to look into how the Committee can repurpose the Land Bank in a more sustainable and workable manner because the board members were at pains to explain that the current legislative foundation of the Land Bank is not workable in a manner that can perform the facilitation of previously disadvantaged persons into mainstream agricultural economy participation.

If there is logic from some of these legislations or the amendments, the Committee can include them in a separate amendment of the Land Bank Act and not throw broad legislative amendments that are being proposed.

The Committee must agree to not touch the Land Bank now until it had a more substantial policy discussion on how to repurpose the land bank. What is being proposed now is going to make things problematic. He re-iterated that all the aspects in the Financial Matters Amendment Bill that relate to the Land Bank be deleted and the Land Bank Amendment Bill be dealt with separately.

He indicated that the Committee can initiate a Committee Bill to amend the Land Bank Act and if that is not permissible, a private member’s Bill can be introduced to deal with the Land Bank and the purpose of repositioning it as a DFI as it does not make sense not to have a DFI that deals with agriculture in South Africa.

The Chairperson stated that what probably needs to be done before going far with processing this Bill is to have a session with the Minister of Finance as a report has been adopted that deals with how the Committee thinks the Land Bank should be repurposed. That discussion is needed at a political level as it is a serious policy matter that needs the attention of the Minister of Finance. The Secretariat will talk to the Minister about it.

The Chairperson thanked the members of the Committee for the meeting and adjourned the meeting.