National Small Enterprise A/B: DSBD & PLA response to public submissions; Companies A/B: PLA input & DTIC response to public submissions

Meeting report

Opening remarks by the Chairperson

The Chairperson welcomed all those present in the meeting.

First, the Committee would be briefed by the DSBD on its responses to the written submissions made by stakeholders to the NSEAB. After that, the Committee would be briefed by the Parliamentary Legal Services (PLS) on the Amendment Bill, and the two CABs.

The last presentation –made by the DTIC- will include its responses to the written submissions made by stakeholders on the two CABs. This follows the Minister’s recent presentation to the Committee on the Bills.

He said the Committee would begin its clause-by-clause deliberations on the two CABs. The NSEAB is a Section 76 Bill, and the Committee will conduct a comprehensive discussion that includes the provinces' negotiating mandates and submissions. The department will also be expected to respond to the provincial negotiating mandates.

Following those remarks, he asked the DSBD to begin its presentation.

Ms Qinisile Delwa (Deputy Director-General: Enterprise Development, Innovation and Entrepreneurship at the DSBD) introduced the Chief Executive Officers (CEO) of the Small Enterprise Finance Agency (SEFA) and Small Small Enterprise Development Agency (SEDA).

She informed Members that a meeting has been scheduled with the PLS for Wednesday to finalise certain legal matters that still need clarity.

Responses on Oral and Written submissions on the NSEAB

Ms Elize Koekemoer (Director: Policy and Research at the DSBD) took the Committee through the presentation.

• Comment: the Bill contained language and drafting errors
  • Department response: The Bill was certified by the Office of the Chief State Law Advisor as being consistent with the Constitution and properly drafted in the form and style which conforms to legislative practices
• South African Reserve Bank (SARB) submitted that Clause 1A (2) of the Bill (which provides that in the event of a conflict between the provisions of the CBA, Companies Act, Co-operatives Act, Co-operative Banks Act, those of the CBA will prevail) be reconsidered as the Co-operative Banks Act sets out prudential (safety and soundness) requirements for co-operative banks and co-operative financial institutions
  • Department response: This would most likely not be an issue as the Minister only has the power to make regulations in relation to the Act and not other acts. Furthermore, all regulations need to go through the standard consultation processes and any overreach could be rectified at this stage
• Comment: the establishment of the Ombud service should not come at the cost of the advisory body
  • Department response: The Ombud service is not established to replace the advisory body
• Comment: Question whether the amalgamation of the other state-owned companies (SOC) into SEFDA would be effective
  • Department response: The objective of amalgamating them into one single SOC is to ensure effective and efficient service delivery through improved coordination

(See Presentation)

Constitutional and Legal Services Office responses public submissions on the NSEAB

Ms Telana Halley (Parliamentary Legal Advisor) told Members that the presentation focused on the constitutional and legal issues raised in the submissions to the NSEAB, with those related to policy left to the executive. The constitutional and legal matters related to:

• The short (two weeks) period allocated for public comments
  • In response the PLS believed that the period allocated for public comments by Parliament was reasonable and sufficient
• The provision in Clause 4 Section 11 (3), the establishment of the SEDFA, which states that the Minister may, on good grounds, apply to the High Court to appoint a director not recommended by the Board of the agency, even though Section 11 (2) prescribes that the Minister must appoint directors of the board in terms of Section 68 of the Companies Act on the recommendation of the Board
  • PLS response: SEDFA would be registered as a SOC, and in terms of the Companies Act, directors must be appointed in a transparent manner. As the agency would be a SOC, the Minister would be a shareholder. The Minister can apply, in terms of the Companies Act, to the court where he or she feels there are board members that should not be appointed or recommended – this would apply in the instance where the directors of the agency are not in agreement with the Minister.
• Consequential amendments to the Cooperative Banks Act (CBA)
  • PLS response: The amendments will be discussed between the Department of Home Affairs and National Treasury

(See Presentation)

Discussion

Mr M Dangor (ANC, Gauteng) asked what the difference is between the cooperative provisions for banking in this particular registration and the mutual societies and mutual banking regulations.

Mr M Mmoiemang (ANC, Northern Cape) took issue with the South African Reserve Bank (SARB) proposing certain amendments in Clause 1 of Chapter 1 during the public consultation process. He asked whether the SARB did not have the opportunity to present its position before the Cabinet adopted the Bill.

He asked whether Clause 4 of the Bill, which seeks to make an amendment to Section 11 (3) of the Act, allowed the Minister to make appointments of directors regardless of the Board's recommendations to the extent that he may approach the courts. If so, he raised the concern that involving the courts in the appointment process would qualify as judicial overreach.

The Chairperson asked if the directors referred to by the department in the legislation spoke to the board of directors appointed by the Minister or executive directors in the department.

He also asked for clarity on what the department proposed to amend the significant number meant.

Mr Mojalefa Mohoto (Chief Director: Enterprise Development at the Department of Small Business Development), in response to the question on whether the SARB did not get the opportunity to present its position before the Cabinet adopted the Bill, stated that the department engaged with the National Treasury Legal Unit – which is responsible for directing policy for the CBDA – and was advised on how to approach the CBDA Act and repealing of certain clauses, not the entire legislation, so that the provincial authority could remain in the hands of the SARB.

He added that the department always considered the importance of maintaining the SARB’s independence.

Ms Koekemoer supported Mr Mohoto’s remarks and added that the department was unsure why the SARB’s legal unit only made comments on the Bill at this point, as it had initially stated that there were omissions.

In relation to the question of what would be the difference between the cooperative provisions for banking in this particular registration and the mutual societies and mutual banking regulations, she told Members that the department planned to consult with the legal team to address that concern as well as the one raised regarding Clause 4 of the Bill.

Ms Halley explained that the Mutual Banking Act dealt with activities for mutual banks, and the Cooperative Banking Act dealt with the regulations on cooperatives and cooperative banking. Nonetheless, she felt that the department should respond to this question in greater detail.

Touching on the question related to Clause 4 of the Bill, she pointed out that the proposed agency, SEDFA, would be registered as a SOC, and in terms of the Companies Act, directors must be appointed in a transparent manner. As the agency would be a SOC, the Minister would be a shareholder. The Minister can apply, in terms of the Companies Act, to the court where he or she feels there are board members that should not be appointed or recommended – this would apply in the instance where the directors of the agency are not in agreement with the Minister.

She did not feel that this would amount to judicial overreach, as it is common for there to be discord between the directors and shareholders in commercial entities.

She noted the importance of the question of whether the directors would be executive or non-executive, as the Companies Act did not distinguish between executive and non-executive directors. However, it was her understanding that the Minister would appoint the directors.

The Chairperson particularly appreciated the response provided by the PLS on whether it would amount to judicial overreach.

Mr Mhlanganisi Masoga (Director: Policy Development at the DSBD) added that cooperatives tended to describe a wider movement of cooperative institutions, some of which are general benefit and friendly societies. Not all of these societies would tend to utilise mutual banking registration. Those that have formalised themselves into banks have registered as mutual banking enterprises, while other cooperatives, such as family and food cooperatives, register themselves as cooperative societies.

In the Financial Amendment Bill, the National Treasury turned friendly societies into cooperatives, and anything with a banking element was moved under the SARB. The fiduciary regulation of any cooperative banking institution lies with the National Treasury.

The CDBA's continuing education and development function, as it no longer regulates cooperatives and banks, is similar to that of the Small Enterprise Development Agency. 

The SARB’s concern was that if the CDBA trumped its own legislation, then issues of fiduciary responsibility could be threatened.

On unfair trading practices, he highlighted that the department followed the process outlined in the Consumer Protection Act, where the Minister of Trade, Industry, and Competition can declare certain practices unconscionable after considering research and recommendations.

The Competition Commission deals with competition between large and small enterprises, whereas the department focuses on the business relationship between them, particularly mediation.

The Chairperson said the Committee awaited the negotiating mandates from the provinces, which it planned to, including the oral and written submissions received, consider on 19 March. Thereafter, he asked for the PLS to make its presentation on the two CABs.

Briefing on CABs

Ms Fatima Ebrahim (Parliamentary Legal Advisor) informed the Committee that the conventional drafting rule is that terms ordinarily understood or that do not have a specific meaning in the context of a certain piece of legislation do not need to be defined.

Two main constitutional issues related to the right to privacy. The first was in respect of a clause of the Amendment Bill, which seeks to amend Section 26 (2) of the principal Act. This clause seeks to extend the right to inspect and copy the annual financial statements of private companies above a certain threshold – that would be the public interest score – to all persons, as opposed to the current position where it is limited to persons with a beneficial interest.

The submissions argued that this impacts the constitutional right to privacy and offends the provisions of the PAIA, which protects the commercial and financial information of private bodies. It was further submitted that the disclosure may cause financial and commercial harm to companies; it may put a private body at a disadvantage in contractual negotiations or even prejudice it in commercial competition.

Stakeholders were also concerned by this, as the Constitution only provides access to private company information where that information is necessary to exercise or protect another right in the Bill of Rights (BoR).

Section 36 of the Constitution provides that the rights in the BoR are not absolute and may only be limited by a law of general application to the extent that limitation would be reasonable and justifiable in an open and democratic society based on human dignity, equality, and freedom. This was displayed during the hard lockdown when certain rights were limited to prevent the spread of the virus.

Based on this, she pointed out that the question before the Committee was whether the limitation on the right to privacy was reasonable and justifiable. What the Committee could consider in answering the question is the nature of privacy in relation to a company as opposed to an individual, which the Minister mentioned in his presentation to the Committee, she said. During that presentation, he took Members through cases in case law where the courts acknowledged that private companies impact the public in several ways and that establishing a private company is not purely a private matter.

The department has argued that there is no real difference between private companies and SOCs.

In a previous presentation to the Committee, the department said that while it appreciated that shareholders and taxpayers have a clear right to public companies and SOEs, public interest still arises even in private companies. Due to its impact, there is an international move towards opening this type of information to the public.

The Committee, she further advised, would have to consider if this information could be provided in a less restrictive manner. PAIA does allow access to a private company's information but in limited circumstances, which is different from the intention of this clause. She pointed out that the courts have said PAIA is burdensome, as one has to make an application in terms of the Act for the information he or she requires. Thereafter, a process ensues where the institution which is being requested the information can then determine whether it will provide the information or not. Where an institution does not provide the information, a person will have recourse in the courts to try to access the requested information.

Moreover, PAIA requires one to know the specific nature of the information being requested.

The question Members should consider, she said, was whether the limitation on the right to privacy held by a company is reasonable and justifiable in an open and democratic society. When doing so, they need to look at the nature of the right of privacy in respect of companies as opposed to individuals, how important the limitation is when compared to other rights and public interests, and what the impact of the companies will be on the public at large.

One of the comments made argued that the amendment would be in contravention of PAIA as it is limited; thus, there would be a conflict between the two. However, the PLS did not agree with this argument, because whereas PAIA is a law of general application, this was a specific law, meaning it would eclipse the former. This would also mean that an individual member of the public could use either PAIA to access this information or the amendments, if passed. 

Other submissions focused on clause 5, which sought to amend Section 30 of the Principal Act – Section 30 provides that the names of directors and prescribed officers must be listed in relation to their benefits and remuneration. There were concerns that this infringed on the right to privacy and contravened the Protection of Personal Information Act (POPIA).

Here, too, members would need to consider whether it was reasonable and justifiable in an open and democratic society to limit this right to privacy with respect to these persons, she advised. The first thing that had to be considered was the nature of the right. It was submitted that the right of privacy afforded to an individual is different to that of a juristic person, as the threshold for protection is slightly higher. While a company would have a greater impact, it must be noted that an individual's right to privacy would decrease where a private person operates in a public space.

She pointed out that a key question in this respect was how the limitation of the right achieves the objective of public interest and whether disclosure was necessary, as the department has said, to address and close unfair pay gaps. Was it necessary to ensure fair labour practices and equality in the workplace, and did disclosure assist in achieving these socio-economic objections, therefore making it a matter of public interest?

It was important to consider the balance of power between persons seeking information to protect a right and a company that would have defences in relation to PAIA or POPIA. The courts have previously said there are formidable, substantive, and procedural obstacles to accessing information.

One can only exercise or protect a right once he or she has access to information. However, a person may not know they have an interest in information. For instance, an ordinary employee in a large company may not know that he or she is significantly underpaid without knowing what the top executives are earning. Where those persons are named, it would allow the employee to compare their skills and qualifications against their own to make an argument for an unfair difference in salaries.

Concerns were raised that naming executives and their remuneration would place them in danger of crimes such as kidnapping. A possible rebuttal to that, she highlighted, was that certain companies already willingly shared this information. Another concern was that doing so may lead to skilled workers being reluctant to take up these positions as they would not want their private lives to be made public.

The Portfolio Committee was of the view that the limitation of these rights could be defended.

POPIA dealt with the manner in which personal information is processed, she told Members. Whilst the Act does not list remuneration as personal information, it did classify financial and employment history as personal information, the PLS believed those two definitions would be broad enough to encapsulate the inclusion of remuneration. As such, it did not believe that an argument could be made that remuneration was not protected information for purposes of the Act.

Similar to PAIA, POPIA applies to the exclusion of any provision of other legislation that regulates the processing of personal information that is materially inconsistent with an object or specific provision of the Act.

A number of submissions dealt with matters not included in the bill, such as the recommendation that the gender pay gap be added and companies be required to report on the gap. In terms of Rule 286 of the National Assembly rules, the Portfolio Committee would need to seek permission to extend either the subject matter of the Bill or in cases where it wants to propose amendments to other provisions of the legislation. If the Committee was of the view that the Bill should be extended, it would need to make that recommendation to the Portfolio Committee. Moreover, this would require the Portfolio Committee to develop a C-List and B-Bill.

After receiving responses from the department on these matters, the Committee felt that they could be held over as many of them required further public consultation. As many of the recommendations were related to policy, the department indicated it had to consider them before making a decision.

Various submissions raised issues related to drafting conventions. In his presentation to the Committee, he said that drafting was not an exact science. However, it is important that legislation is clear. There is a leading Constitutional Court case on this, which indicates that what is required is reasonable certainty and not perfect lucidity. She advised the Committee to simplify the drafting of the amendments as much as possible when it deliberates on the Bills.

The Western Cape Legislature proposed that there be consistency in the wording of amendments, for example, the term ‘as stipulated’ in clause 4 (b) be changed to ‘as contemplated’ – the department, in its matrix, did not view this change as necessary. Minor issues such as these would not require the Committee to make a recommendation through the Portfolio Committee to make a change. The Constitutional and Legal Services Office (CLSO) and Bills Office would address the changes before they go to the Council.

Moving on to the Second Bill, she indicated that it was tabled in response to recommendations regarding extending the time bars for holding directors for losses, damages and costs, liable, – and time bars related to declaring directors delinquent or under probation – made in the Zondo Commission Report.

The Portfolio Committee amended the wording of the Bill as it will be applied retrospectively, but the principles and timeframes remained the same.

One comment related to Clause 1 of the Bill deals with extending the time bars to hold a director responsible for losses, damages or costs. During the re-drafting of the clause in the Portfolio Committee deliberations, the PLS noted that the prescription act would be excluded. There was a proposal that the clause currently excludes the application of the Prescription Act – which provides that debts expire within three years unless the prescription period is interrupted.

It was said that it would make more sense to redraft the section to make it subject to the Prescription Act in order to remove the onus on the claimant to make a court application in circumstances where there is an interruption or stay of prescription. An example of judicial interruption would be where court documents are served in relation to a debt, or that is an express or tacit acknowledgement of a debtor.

In this instance, the PLS excluded the prescription act in its entirety as it wanted to dispense with any risk of prescription being raised as a defence where there are claims to hold directors liable, and to eliminate confusion. While the PLS appreciated where there is a process to commence with a debt collection prior to the three-year period then the matter of extension falls away. If a director were to acknowledge a debt without the company acting on such acknowledgement within three years, it would only be fair for the company to go to court and explain the reasons as to why it requires an extension, the PLS submitted.

The PLS was satisfied that the legal position was the clearer one.

Touching on Clause 2, which seeks to extend the time bar from 24 to 60 months for the declaration of a director delinquent or under probation. A legal issue was raised on the retrospectivity of this clause. This was responded to by the department, which argued that without the retrospectivity provision, then certain individuals would not be held liable and declared delinquent. At present, no jurisprudence exists retrospectively in relation to civil matters in the CC. There is case law in relation to criminal law where the CC has indicated that retrospectivity cannot apply to criminal matters.

However, there is case law from the Supreme Court of Appeal on a matter related to the South African Revenue Services, where a tax act was made operational from the day preceding the promulgation date. This allowed for retrospectivity for purposes of closing a loophole that SARS had identified that could be used for tax avoidance.

The court - in that matter - ruled that the constitution did not prohibit retrospective legislation in civil law, and that the test would be that laws should be reasonably clear, accessible and prospective in their operation, unless the statute provides otherwise, or its language clearly shows such a meaning. It further stated that the constitutional validity of retrospective legislation should be judged through the application of a rationality test.

During the case's consideration, the PLS felt that the Bill's original draft was not clear enough and created some confusion. Hence, a complete redraft was made to make it clear that clauses 1 and 2 would apply retrospectively.

She highlighted that, as the issue of clarity had already been covered, the Committee only had to consider whether the clauses should be applied retrospectively in furtherance of public interest or made prospective provisions.

The majority of the submissions received on the Bill concerned policy matters and assumptions about how the amendments would practically take shape. Sections 30A and B required significant redrafting, as the PLS believed they were unclear and caused confusion. She advised the Committee to decide whether the department’s explanations for its decisions and why it had rejected certain submissions were valid. Should the Committee decide to make additional changes, the proposed amendments would need to be referred back to the Portfolio Committee for consideration.

She added that the PLS has been discussing areas where it raised concerns with the department and has since reached an agreement on them. The department’s presentation will touch on these matters.

DTIC responses to the oral and written submissions to the two CABs

Dr Evelyn Masotja (Deputy Director-General: Consumer and Corporate Regulation at the DSBD) only took the Committee through a portion of the presentation due to time constraints. As such, it was agreed that the department would have to continue its presentation the following week.

The meeting was adjourned.