South African Postbank Bill [B14-2009] – Informal Deliberations

Meeting report

Briefing by the Department of Communications (DOC)
Mr Willie Vukela, Director: Postal Policy, ICT Development, DOC presented the background to the presentation (see attached document).  During the informal deliberations in the Bill on 17 August 2010, the Committee had requested changes to a number of provisions and had raised issues for inclusion in the Bill.

Mr Alf Wiltz, Director: Legal Services, ICT Development, DOC took the Committee through the changes made to the definitions; the Object of the Act; the provisions related to lending, borrowing and investment; the differentiation from a commercial bank, the Minister’s policy-making powers; the intervention by the Minister; incorporation (Clause 3); registration as a bank (Clause 4) and the exemption from tax liability (Clause 8).

Mr Vukulela covered the changes made to the provisions concerning the composition of the Board (Clause 12); persons disqualified from membership of the Board (Clause 13); the appointment of members of the Board (Clause 14); the resignation, removal from office and vacating of office (Clause 15); the interests of Board members; the criminalisation of failure to carry out fiduciary duties (Clause 16); the procedures at meetings and the committees of the Board (Clause 17); the personnel of the Postbank (Clause 20); the regulations and policy (Clause 25) and the transitional provisions.

Discussion
The Chairperson suggested that the Committee deliberated on the Bill on a page-by-page basis.

Ms J Killian (DA) requested clarity on the term of office of the members of the Board.  She understood that the first Board appointed would serve for a period of three years but the term of office of subsequent Boards would be five years.

Mr Wiltz replied that the provisions were drafted to ensure that there was a degree of continuity and a continuance of expertise from the first Board to subsequent Boards.

Ms Killian referred to page 55 of the presentation.  She asked if the inclusion of the word ‘financial’ had been an oversight as the concept of the interests of Board members had been broadened to include financial interests.

Mr Wiltz explained that an error had occurred and confirmed that the provisions under Clause 16 (1) (a) did not refer to ‘financial interests’.

Mr K Zondi (IFP) referred to the presentation document.  He noted that ‘stepchild’ was omitted from the definition of ‘family member’ (slide 6).  The new clause 9 (4) mentioned the policy determined by the Minister with regard to lending and he wanted to know what the role of the Board was in this respect (slide 12).  Section 32 of the Companies Act imposed a limit of 15% on the number of shares that could be held by a shareholder and he asked where the relevant provision was included in the Bill (slide 31).  The Post Office was exempted from the requirement in the Banks Act to register as a controlling company and he asked what the motivation was behind the exemption (slide 35).  He asked for an explanation of the apparent duplication of slides 52, 48, 53 and 47.

Mr Vukela explained that the presentation included both the requests for amendments made by the Committee and the changed provisions.  The determination of policy was the function of the Minister and the Board could only make recommendations to the Minister on matters of policy.

Mr Wiltz replied that Clause 3 (2) of the Bill dealt with the limitation on shareholding.  Section 43 of the Banks Act imposed rigorous requirements on controlling companies of banks, which were considered to be too unfair and cumbersome on the Post Office as the holding company of the Postbank.  The Department had obtained the approval of the National Treasury to exempt the Post Office from the requirements of Section 43 of the Banks Act (see Clause 4 of the Bill).

Mr Herman Smuts, Principal State Law Adviser, Office of the State Law Adviser, explained that a stepchild was considered to have the same status as a natural child under South African legislation and it was not necessary to include ‘stepchild’ in the definition of ‘family member’ in the Bill.

Ms P De Lille (ID) recalled that the National Treasury had suggested adding sub-clauses (v), (vi) and (vii) to Clause 16 (2), which dealt with the criminalisation of the failure to carry out fiduciary duties.  She asked why the sub-clauses had been omitted from the latest version of the Bill.

Ms Jeanine Bednar-Giyose, Director, National Treasury, explained that the Postbank would be registered as a Company and would be subject to the Companies Act.  The Companies Act of 2008 contained stringent provisions governing the directors of companies.  Directors were held personally liable in the event of the failure to comply with any fiduciary duty.  After further consultation with SAPO and the DOC the National Treasury concluded that it was not necessary to include the same provisions in the Bill.

Ms De Lille pointed out that the recommendation was made by the National Treasury.  She accepted that the criminalisation of the failure to comply with fiduciary duties was covered by the Companies Act but asked if there was any harm in including the provisions under Clause 16 (2) of the Bill as well.

Ms Bednar-Giyose was of the opinion that there would be no harm but suggested that the response of the State Law Adviser and the DOC was sought.

The Chairperson said that the Committee wished to avoid the possibility of including provisions that could be in conflict with other applicable legislation.

Ms Killian pointed out that the Interpretation and Object of the Act (Chapter 1 of the Bill) referred to the Companies Act, 1973 (Act No. 61 of 1973).  If the provisions of a later version of the Act were applicable then the reference to the Companies Act had to be corrected.

Mr Smuts agreed that it was undesirable to include provisions dealing with similar offences in more than one Act.  A ‘signpost’ provision could be included to refer to another Act and to indicate that the provisions of another piece of legislation were applicable.  The new Companies Act had not yet been put into effect and the Bill had to refer to the version of the Act that was in effect.  He understood that the transitional provisions of the Act made provision for references to earlier versions of legislation.

Ms De Lille suggested that the additional sub-clauses were included in the Bill to ensure that provision was made for the criminalisation of the failure of directors to carry out fiduciary duties until such time as the Companies Act of 2008 was promulgated.

Mr Wiltz explained that the Department had attempted to address the concerns of the Committee with regard to the inclusion of provisions to criminalise transgressions by directors.  The proposed provisions under Clause 16 (1) were similar to other comparable Acts.  The alternative was to delete Clause 16 (2) as the relevant offences were covered by other applicable legislation.  He said that the National Treasury had withdrawn other recommendations and conceded that the inclusion in the Bill was unnecessary.  It would be clear when certain serious transgressions had occurred that could be prosecuted without any difficulty.  Other types of transgressions were more difficult to legislate, for example compliance with a code of conduct and undermining the integrity of the company.  The issue required careful consideration.

Ms De Lille pointed out that the Department and the National Treasury had agreed with the requests of the Committee to include changes to the provisions of the Bill.  However, the Department had made changes without further consultation with the Committee and needed to motivate why the changes were made.  Her concern was over the process that had to be followed rather than the merits of the changes that were made to the Bill.

The Chairperson concurred that the Department should not have deleted provisions in the Bill without pointing it out to the Committee.  He queried the provisions included in the new Clause 25.  He assumed that the phrase ‘with the concurrence of the Minister of Finance’ meant that the Minister of Communications had consulted with the Minister of Finance.  The provision that required that the policy governing the Postbank was approved by the Cabinet appeared to have been omitted.  The Committee had requested that provision was made to declare any decision made by the Board that was in conflict with the policy as null and void.  The Bill did not include such a provision.  He disagreed with the provision that required the policy of the Postbank to be subjected to a public discussion.  Such a public process could give the competitors of the Postbank a competitive advantage.  He queried the need to make allowance for a period of 60 days.  The Postbank would be owned by the State and the Cabinet had to approve the policy governing the Bank.  The policy had to be published in the Government Gazette and the Board of the Postbank did not have the right to make decisions that were in conflict with the policy.  The provisions included in Clause 25 were not agreed by the Committee and he asked for an explanation from the Department.

Mr Vukela replied that the Committee had requested that the Bill included provisions covering the four new issues of lending, borrowing, ministerial intervention and the role of the National Assembly.  He gave the assurance that all four the issues had been addressed in the Bill.  The provision requiring that the decisions of the Board complied with the policy was included in Clause 9 (3) (b).  Clause 25 had been re-drafted.  The Department agreed that the National Assembly played a role and that the policy governing the Postbank had to be approved by the Cabinet.

The Chairperson asked where provision was made for the approval of the policy by the Cabinet.

Mr Vukela conceded that the Bill did not include such a provision.

The Chairperson pointed out that certain provisions included in Clause 25 had not been discussed with the Committee.  The Committee had requested that the Minister of Communications was required to consult with the Minister of Finance.  Such consultation was necessary because the Postbank was a bank.  The Committee had requested that provision was made for the policy governing the Postbank to be submitted by the Minister to the Cabinet for approval before it was tabled in the National Assembly for consideration.  The policy must then be published in the Government Gazette.  As the sole shareholder, the Government had to provide guarantees and would be liable should the Postbank fail.  The provision made for the policy to be subjected to a public process was not discussed with the Committee, was not desirable and should be omitted.  He queried the necessity for including the provision requiring the decisions of the Board to be compliant with the policy in Clause 9 rather than in Clause 25.

Mr E Kholwane (ANC) was not aware of a requirement that policies have to be subjected to public scrutiny.  He was under the impression that all ministerial policies have to be approved by Parliament.

Mr Wiltz replied that the Department had acted in good faith when making changes to the Bill.  It was not always clear what changes were requested by the Members of the Committee and what had been agreed to.  He advised that all policies were subjected to a public consultation process in terms of the Promotion of the Administration of Justice Act (PAJA) and the Constitution.  It was better if the requirement was specified in the Bill.  The reason for the provision for a consultation period of 60 days was that the period of 30 days allowed by PAJA was generally considered to be too short.  The omission of the requirement that the policy was approved by the Cabinet was an oversight and would be included in the next draft Bill.  He said that the DOC had not attempted to hide any changes to the Bill and had covered all the changes made in the presentation to the Committee.  The Committee had the discretion to approve or reject the changes.  The provision concerning the alignment of Board decisions with the policy was moved to Clause 9 because the Department felt that it was more appropriate but the Department had no objection if the provision was included under Clause 25.

The Chairperson said that the Committee had no intention of questioning the integrity of the Department.  A distinction had to be made between the public policy on the Postbank and the operational policy that governed the administration of the bank.  Although the Board was responsible for determining the operational policy, it had to be aligned with the policy of the Government.  In the case of the Postbank, the Government was liable should the bank collapse and it was essential that the Cabinet understood the consequences and the potential risk when approving the policy for the bank.  The Minister could determine the policy and submit it to the Cabinet for approval.  There was no need for an elaborate public process to determine the policy.  He asked that the clause was re-drafted and submitted to the Committee for approval.

Ms De Lille noted that the Department proposed that Clause 28 (b) dealing with the transitional provisions was deleted.  She asked if Clause 28 (a) would remain.

The Chairperson explained that the transitional provisions were covered in the new Clause 29.  The page-by-page deliberation of the Bill was resumed.  He felt that there would be no harm in including ‘stepchild’ in the definition of ‘family member’.

Ms Killian pointed out that the definitions would be reconsidered at a later stage to ensure that all definitions were included and clearly defined and understood.

Mr John Wentzel, Chief Operations Officer, South African Post Office (SAPO) proposed that Clause 4 (4) was changed to read ‘The Company shall not expand the scope of its banking and investment activities …..’ and that Clause 4 (6) was deleted.

Ms De Lille asked if the amount of R750 million currently held by the Reserve Bank would be transferred to the Postbank.  She asked if this money formed part of the liquid assets of the Postbank and if it was necessary to make provision for the transfer in the Bill.

Mr Wentzel advised that SAPO had no access to the amount held by the Reserve Bank and was not included in the liquid assets of the Postbank.  Clause 4 (6) restricted the investment activities of the Postbank.

Mr Omega Shelembe, Acting Chief Director, National Treasury confirmed that the matter was discussed with SAPO and the National Treasury had no objections to the proposal made by SAPO.

The Chairperson agreed to the amendments to Clause 4 and resumed the page-by-page deliberations on the Bill.

Ms De Lille asked if there would be any obligation on the company to pay dividends to the Government.

Mr Nick Buick, Chief Financial Officer, SAPO explained that any dividends would be paid to SAPO as the shareholder.  SAPO may pay over dividends to Government.

Mr Wentzel proposed that Clause 14 (1) (b) was amended to refer to ‘members of the Board of the Post Office’ instead of ‘non-executive members of the Board of the Post Office’.  He explained that the restriction to submit the names of only non-executive members of the SAPO Board would reduce the potential pool of suitable persons to serve on the Board of the Postbank.

The Chairperson understood that the Board of the Postbank would comprise ten members.  One member would be the manager of the bank, seven were appointed by the Minister and two would be nominated by SAPO.  The Registrar of Banks had to concur with the nominations and the nominees had to meet the ‘fit and proper’ requirements.  He asked if it was desirable for executives of SAPO to serve on the Board of the Postbank.

Mr Wentzel explained that the provision prevented the nomination of an executive.  For example, the Post Office would not be able to nominate the Chief Financial Officer of SAPO to serve on the Postbank Board.  The Board of SAPO was comprised of 16 members, four of whom were executive directors.

Mr Smuts remarked that the entire Clause 14 (1) referred to non-executive members of the Board and further changes would be necessary if the proposal from SAPO was accepted.

Mr N van den Berg (DA) said that it was difficult to be both a player and a referee.  He suggested that the clause remained unchanged.

Ms M Magazi (ANC) felt that consideration should be given to phrase the clause in such a way that SAPO would be able to nominate the CFO as a member of the Board.

Mr Kholwane was concerned if the relationship between the Postbank and SAPO would be clouded if SAPO executives served on the Postbank Board as well.

Mr Wentzel advised that SAPO was concerned that there would be insufficient financial expertise and oversight if the CFO of SAPO was not a member of the Postbank Board.  SAPO would accept the decision of the Committee on the matter.

Mr Gift Buthelezi, Acting Deputy Director-General, ICT Policy Development, DOC, said that the appointment of Board members was a corporate governance issue.  He cautioned against the appointment of executive members to the Board as there could be undesirable consequences if an executive was suspended from the company but remained a member of the Board.

The Chairperson ruled that the provisions of Clause 14 would remain unchanged.

Ms De Lille suggested that the provisions of Clause 16 (1) (vi) and (vii) were included in Clause 16 (2) as the new Companies Act covering such transgressions was not yet in effect.

The Chairperson said that the issue was debated during the proceedings.  The Committee was advised that matters relating to a code of conduct and bringing the company into disrepute were too vague to criminalise.  He ruled that the phrasing of Clause 16 remained unchanged.

Ms Mandiza Mbekeni, Legal Executive, SAPO referred to Clause 29 of the Bill.  SAPO requested that Section 51 (2) of the Postal Services Act remained in place.  SAPO had explained the necessity for not repealing this section in an earlier submission made to the Committee.

The Chairperson agreed that Section 51 (2) of the Postal Services Act should not be repealed.  No further changes to the draft Bill were required.

Mr Smuts advised that the Bill would be re-drafted.  It might be necessary to include other minor changes in the new version of the Bill.

The Chairperson advised that no further debate would be held, other than discussing the revised provisions of Clause 25.  The Committee would formally approve the Bill during the following week.

Ms Killian was concerned that the Members of the Committee would not have sufficient time to discuss the final draft of the Bill with the legal advisers to ensure that no issues were inadvertently missed or left out.

The Chairperson replied that the Bill was a collaborative effort between the Department, the National Treasury and the State Law Adviser.  He had confidence that the final version of the Bill would be in order but any problems could be brought to his attention.

Mr kholwane asked if the final version of the Bill could be provided before the meeting of the ANC study group on the following day.

Mr Vukela agreed to provide the re-drafted version of the Bill by 24^th August 2010.

The Chairperson thanked all the participants for their input.  He advised that the Bill would be debated in the House during the first or second week of September 2010.

The meeting was adjourned.