Companies and Intellectual Property Commission & Companies Tribunal 2021/22 Quarters 1-3 Performance

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Trade, Industry and Competition

16 March 2022
Chairperson: Ms J Hermans (ANC)
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Meeting Summary

The Portfolio Committee on Trade and Industry met via a virtual platform to receive briefings from the Companies and Intellectual Property Commission (CIPC) and the Companies Tribunal on each entity’s financial and non-financial performance for the 2021/22 financial year to date (Quarters 1-3).

The CIPC reported that 32 (91%) of the 35 quarterly targets were achieved.

Members were informed that with the amendment to the Companies Act, the CIPC had become a fully-fledged Regulator and the organisation was, consequently, being re-designed. The Commission was also employing Artificial Intelligence to respond automatically to questions and queries on the online companies registration process and other online processes. An exciting advance was that the Industrial Property Administration System (IPAS) software

For the third year in a row, CIPC received a clean audit in 2020/21, with a financial surplus of R122 308 000 and net assets of R550 637 000.

The Tribunal highlighted that it had a limited mandate. The Companies Act gave the CT the mandate to hear certain decisions and also to adjudicate the more popular issues. The CT could not hear all cases but mainly name disputes, directorship disputes and so on. Regarding arbitration, the CT could not hear a case unless both parties gave permission for the CT to arbitrate and respondents often did not give permission, especially if the respondent knew that the applicant could not afford to go to court. For that reason, the Act needed to be amended to allow for mandatory arbitration and also the types of disputes that could be adjudicated by the CT should be expanded.

Members heard that the Tribunal had increased its baseline to improve support and maintenance of case management and had also enhanced marketing and communication initiatives but had insufficient funds to fill vacant positions. Its main challenges were funding and budgetary constraints as well as a declining number of cases. Inadequate funding also impacted on facilities available and created external dependencies.


To the CIPC, Members asked about World Bank of ease of doing business report and South Africa’s ranking, if the Commission assisted the B-BBEE Commission to deal with the challenges of fronting, why was there so much non-compliance by businesses, what sanctions were imposed on companies that contravened the Companies Act and how many had been found to be in contravention of the Act and the de-registration of companies.

To the Tribunal, Members asked about vacancies, internal audit capacity, awareness campaigns and reach, the decline in the number of cases and the entity’s facilities.  

Meeting report

Opening Remarks
The Chairperson remarked that the presentations on quarterly reports were part of the Committee’s budgetary oversight. The purpose of the two presentations that day was to engage on the financial performance of the entities for Q 1 to 3 of the 2021/22 financial year, i.e. to 31 December 2021, so that the Committee could assess the entities’ management of their budgets.

Presentation by the Companies and Intellectual Property Commission (CIPC) on its financial and non-financial performance for the 2021/22 financial year to date (Quarters 1-3)
Ms Nontombi Matomela, Acting COO, Department of Trade, Industry and Competition (dtic), introduced Adv Rory Voller, Commissioner of the CIPC and Dr Mohamed Alli Chicktay, Chairperson of the Companies Tribunal.

Adv Voller presented the CIPC Non-Financial Performance. He stated that while CIPC had many achievements, there had been some non-achievements but that new achievements at CIPC became bottom-line expectations going forward. The public expected only the best from CIPC as a frontline organisation.

With the amendment to the Companies Act, CIPC had become a fully-fledged Regulator and the organisation was, consequently, being redesigned. CIPC had also engaged with Artificial Intelligence (AI) systems to create bots to respond to questions and queries relating to the online companies registration process and other online processes. It vastly improved customer service in that regard. Additional business processes had been automated and AI would be incorporated in many other aspects of the business processes.

Adv Voller commented that he only used consultants where highly skilled expertise was required. The entity re-design was taking place in-house as his staff understood the organisation best.

An exciting advance was the Industrial Property Administration System (IPAS) software developed and owned by the World Intellectual Property Organization (WIPO). It is a fully automated system for patent and trademark registrations was being implemented by CIPC to automate patent and trademark registration processes in SA.

He reported that 32 (91%) of the 35 quarterly targets were achieved to date.

Other achievements included hosting a WIPO Summer School for a range of stakeholders in the Intellectual Property (IP) sector and the enhancement of the CIPC flagship channel, BizPortal, by giving business owners access to all SARS services through a collaboration with SARS. A partnership had been formed with the National Small Business Chamber to assist the micro and small business sector with access to information to not only formalise their businesses but also to remain compliant. A private sector partnership with GoogleSA through the BizPortal platform now gives small business owners access to a range of services offered by Google.

The Protection of Personal Information Act (POPIA) had to be incorporated in CIPC, but certain exemptions had been obtained as CIPC was in the business of sharing information to facilitate the processes of business. The cessation of tender processes as instructed by National Treasury had held up the CIPC.

The Commissioner stated that the implementation of the CIPC Telecommuting policy had shown remarkable success since implementation in 2020. There had been increased productivity although no additional production staff appointments were made: registration of companies increased from 386 000 companies in 2019 to 486 000 in 2020 and in 2021 510 000 companies were registered. There had been a reduction of family responsibility leave by 63% and sick leave had reduced by 50% since 2020. Employees were happier and generally more productive, especially as they experienced reduced travelling expenses, medical expenses, travelling and reliance on aftercare facilities. The policy allows for hybrid working arrangements.  Costs for CIPC had also reduced, as had the occupational health and safety risk for the organisation.

The way forward for CIPC included strengthening virtual channels to avail all the CIPC products and services 24/7; the revision of all current mobile services to function in the same way as the modernised web services; and strengthening of existing, while seeking new, partnerships to leverage partners’ key organisational competencies and capabilities.

Other advancements would include:
-Enhancement of the Chat-bot services as a new Customer Electronic Channel;
-Implementation of AI in the processing of names and Intellectual Property;
-Development of the capability to measure the uptake of each channel;
-Ensure an increase in the uptake of virtual channels for digital marketing and branding;
-An automated foreign director verification by April 2022, automated director changes by June 2022, and automated voluntary deregistration by July 2022.

Mr  Muhammed Jasat, CFO, CIPC,  presented the Financial Performance. For the third year in a row, CIPC had received a clean audit for the 2020/21 financial year with a financial surplus of R122 308 000 and net assets of R550 637 000.

(See Presentation)

The Chairperson thanked the Commissioner and invited the Companies Tribunal to present.

Discussion
Mr M Cuthbert (DA) requested permission to put a question. He was pleased to hear the passion of Adv Voller, especially as opposed to the attitude of other officials that presented to the Committee. He believed it was evidence of a nice culture at CIPC.

Mr Cuthbert stated that prior to the World Bank Report being canned on technical grounds, that report had shown that SA was very low on the world ranking of ease of doing business. Could the Commissioner indicate how much the CIPC had improved in that regard?

Mr Mbuyane suggested proceeding with the second presentation and delaying questions until after both presentations.

The Chairperson agreed.

Presentation by the Companies Tribunal (CT) on its financial and non-financial performance for the 2021/22 financial year to date (Quarters 1-3)
Dr Chicktay introduced his colleagues at the CT: Monica Ledingwane, COO and (Hulsani) Bridget Ramugadi, who had joined the CT as CFO that month.

Ms Ledingwane presented the Non-Financial Report. The benefits of the Tribunal’s services were that it was cost-effective as compared to litigation as there were no costs for the service and there was no need for legal representation. It was informal and flexible and offered Alternative Dispute Resolution methods which were not acrimonious and preserved business relationships that were critical in sustaining business operations. Parties controlled the outcome of the case and thus limited financial risk as well as the risk of uncertain outcomes associated with litigation. The confidential nature of the process managed reputational risks and, while mutually beneficial settlement were reached by agreement. Agreements were not imposed but could be made an order of court, which saved time and cost.

A summary of key targets was showcased:

-100% of opposed cases were finalized within the planned 40 days (Target=93%)

-95% unopposed cases were finalized within the planned 30 days (Target=93%)

 -All (100%) ADR cases were finalized within the planned 25 days (Target=95%)

-100% Suppliers paid within 30 days

-100% compliance with Cost Containment National Treasury Instruction

Ms Ramugadi presented the Financial Report, noting that the Companies Tribunal had spent 74% of the budget by end of third quarter and it forecast that it would spend the remaining budget in the fourth quarter. The Tribunal had increased its baseline to improve support and maintenance of case management and had also enhanced marketing and communication initiatives but had insufficient funds to fill vacant positions.

The organisation’s main challenges were funding and budgetary constraints as well as a declining number of cases. Limited funding also impacted on facilities available and created external dependencies.
The limited mandate of the Tribunal created challenges that would need to be addressed via legislation.

(See Presentation)

Discussion
Mr C Malematja (ANC) observed that the entities were doing very well but there were those who were prepared to take chances in what became a very serious matter. How was the CIPC assisting the B-BBEE Commission to deal with the challenges of fronting which was the equivalent of fraud? Prevention was better than cure. What was the Commission doing to extend its educational programme to people in underdeveloped and rural areas?

Mr Z Burns-Ncamashe (ANC) told the Tribunal, although he hesitated to disclose it, that he had not known of its existence until he had joined the Portfolio Committee. If he, with all his awareness and knowledge, and all the exposure that he had, did not know about the CT, how many of the people, especially in the rural areas did not know about the CT? He doubted that it could assist them. What of those who experienced challenges in their business ventures as there were unscrupulous people from whom people in rural areas needed to be shielded? A lot of awareness programmes were necessary. If awareness programmes were held in inaccessible areas and if the means of holding the awareness programme was inaccessible, it was as good as not having the awareness programme. He cited various villages across the country and stated that it was such rural areas that provided the measurement for ascertaining whether the services were accessible to people. What was the Tribunal’s plan to address that lack of awareness?

He noted that the organogram of the CT had a number of strategic positions that had not been filled. He understood that some strategic positions were unfunded but what remedial action was being taken to correct the situation? The CT needed adequate personnel. The website of the CT stated that no vacancies were being advertised, so how did the CT expect to attract people to the positions? Why was the CT dependent on external auditors which was a result of inadequate internal capacity? What was CT doing to build internal audit capacity?

Mr Burns-Ncamashe informed Adv Voller that the walk-in centres in Cape Town, Johannesburg and Pretoria were appreciated, but did the CIPC have plans to open offices in the rural provinces? SA was not limited to the metropolitan areas. The rural provinces were quite important. It was important to have a footprint accessible to where the people were. If people were to have challenges, as they might have with unscrupulous operators, they needed to be able to access services.

Those services would address the historical challenges of inequality and unemployment. A significant number of the youth did not want to be employed; they wanted to be entrepreneurs and to create jobs for others. What he really wanted to know was the extent to which the footprint of CIPC could assist young people and give them the information they required.

Ms Y Yako (EFF) stated that the CT had listed five challenges. Why was the number of cases declining? What were the specific mandate challenges? Regarding the lack of facilities, did the CT not have space, or did other departments not assist the Tribunal?

Ms N Motaung (ANC) noted the corporate compliance cases where CIPC was dealing with irregularities. Why was there so much non-compliance by business and what was being done about it? What sanctions were imposed on companies that contravened the Companies Act and how many had been found to be in contravention of the Act?

Ms R Moatshe (ANC) agreed that there had been a rapid increase in the registration of companies, but what percentage faced de-registration annually?  The previous day, the Competition Commission had stated that 40% of companies de-registered in their first year of establishment. Why were statistics provided only for the volumes at service centres in the big metros only and not for the other provinces?

Mr S Mbuyane (ANC) said that start-up businesses complained that SARS still demanded returns even after a company had been dormant for five years. What advice could Adv Voller provide to such businesses? Why could CIPC provide statistics on the number of calls received but not on the number of calls answered? Regarding the acquisition of tools via the tender process, could the CIPC explain the reasons for the delay and current status quo?

Adv Voller told Mr Cuthbert that he had worked with the World Bank to understand the methodology used to rank countries according to ‘ease of doing business’. It was clear that SA had multiple sets of processes that had to be lumped together at a single point to conclude the process, i.e. register as a company, register for tax, register for Department of Labour processes, etc. He had challenged the World Bank, asking if it were world class that all the processes could be registered within less than a day. That was acceptable to the Bank, as was the acquisition of a tax number within a single day. The problem lay in all the Department of Labour processes that took a number of days. The CIPC portal had actually come about to take into account the fact that the World Bank required an integrated service. Once a country had such a portal, it took a year for the World Bank to access the portal and determine whether there would be a change in ranking. The World Bank had said that the portal would make a huge difference to SA’s ranking.  

However, the Bank had then folded the current report and the system because the methodology was open to corruption and manipulation. Personally, he agreed fully with that assessment of the system. The Bank was introducing a new concept, named ‘business-enabling environment’, using more indicators. Several countries, including SA, were giving input into the new system. He would be referring the Bank to ways in which the previous methodology had failed to look at differences across countries and had therefore failed to understand and take account of. Apples were not being compared to apples in the previous system. That explained why Rwanda had been ahead of SA on the ranking of the World Bank. He was hoping for an improvement in SA’s ranking.

Adv Voller agreed with Mr Malematja that B-BBEE fronting was fraud and a scourge. CIPC provided the B-BBEE Commission with information, assistance, investigating capacity and advice, but it could only assist the B-BBEE Commission as it was the mandate of B-BBEE to deal with fronting, not that of CIPC. Regarding external education, especially in the rural areas, he informed the Committee that on Monday of that very week, CIPC had been conducting an awareness campaign in Lusikisiki in the Eastern Cape, a particularly rural area. CIPC partnered with its provincial partners to provide workshops and educational activities. It partnered with Small Enterprise Development Agency (SEDA) and Deputy Minister Gina of Trade Industry and Competition and the majority of those visits were to small towns. He had dealt with the matter in his presentation as educational awareness was a core function.

He explained to Mr Burns-Ncamashe why statistics for only certain SSCs (self service centres) had been provided. Firstly, he stated that CIPC had a presence in every single province as indicated in the slides, although the model was different. Initially, CIPC ran its own SSCs in every province but there was also an empowerment programme for entrepreneurs, so CIPC was now working with the provincial SSCs. CIPC was collaborating with SEDA on empowerment programmes. The Commission had joint indicators with dtic and it took the message of corporateship and entrepreneurship to the people.

The CIPC did a lot of work as far as enforcement and compliance was concerned but it could do more. With the current focus on CIPC’s regulatory capacity, the Commission would be able to beef it up. Adv Voller said he was looking at more warm bodies in that area to bring in more expertise. He intended making an impact with high profile cases because CIPC wanted to be the change that would make a change. Currently, many physical visits were taking place, including boardroom visits to places such as the Johannesburg Stock Exchange.

He added that wrongdoing was subject to a fine and CIPC had recently imposed an administrative fine of over R1 million. He personally signed off 10 to 15 compliance notices per day. CIPC was also going after delinquent directors. They were taken to court, held to account and entered in the DDR (Delinquent Directors Register) so that they could no longer become directors.

Adv Voller agreed that the percentage of companies de-registered was high. The figure was 300 000 to 400 000 per cycle but CIPC took action only after no returns for two years and several notices warning of de-registration to clean up the system. Lots of small companies registered before developing a business plan. He suggested that one should start a business as sole proprietor and later form a company if appropriate. Registration only gave limited liability but one needed the business plan first.

He explained that the question about why he had provided statistics for the service centres in the three big metros was the same question asked previously: the big centres were controlled by CIPC and therefore it had the statistics. In the last couple of months the CIPC had been looking for the statistics relating to business flowing through the centres controlled by the provinces and other partners, but he did not have those figures as yet.

Adv Voller responded Mr Mbuyane’s question. He pointed out that the annual return was different from a tax return. SARS and CIPC had been linked for many years and all that a company had to do was to write to CIPC and ask it to prove to SARS that the company was dormant. When a financial accountability summary was submitted, information regarding the dormancy of the company could be checked and provided to SARS. SARS would also be able to tap into the CIPC database.

Regarding the CIPC call centre, it had been a pain from the beginning because it was linked to the dtic call centre system. During COVID, staff had been moved off-site and they had used a web-based system on which not all calls could be recorded so CIPC had a new tender out and now Nashua (under its new name which he could not recall) was working on a cloud-based system which would be a huge improvement. It would give more functionality, allow for better statistics and for more call centre agents.

Mr Jasat responded to the question about tenders. He said that the tender for the search tool had been delayed as CIPC had a specific set of requirements but it was unsure whether the market could provide the tool, so CIPC had to go out on a Request for Information, including to overseas companies. That meant that it was a multi-stage tender process. The information received had been used to draw up the Terms of Reference, which had subsequently been advertised. CIPC was currently in the process of evaluating the tenders.

Dr Chicktay responded to Mr Burns-Ncamashe, saying that the CT was well-known but noted his remarks. The CT worked quite consistently at getting its name known. The Tribunal was known by arbitrators and attorneys and the CT went out with the dtic on awareness programmes. Different social media networks were used to create awareness, as well as radio, TV, etc.

He explained that some people knew about the CT and others did not, largely because the CT had a limited mandate. The Companies Act gave the CT the mandate to hear certain decisions and also to adjudicate the more popular issues. The CT could not hear all cases but mainly name disputes, directorship disputes and so on. Regarding arbitration, the CT could not hear a case unless both parties gave permission for the CT to arbitrate and respondents often did not give permission, especially if the respondent knew that the applicant could not afford to go to court. For that reason, the Act needed to be amended to allow for mandatory arbitration and also the types of disputes that could be adjudicated by the CT should be expanded. Later that week, the CT would be looking at how it could hear cases or arbitrate in disputes arising from a wider range of organisations. In that way, the CT would be able to impact on the lives of many more people. It was also possible that fewer people in deep rural areas registered companies, opting rather for sole proprietorships or partnerships. One idea to increase awareness was to work more closely with CIPC so that people learnt how to form companies and how to address any problems that might arise. Sole proprietors could not use the CT but if that were allowed, it would allow the CT to touch the lives of even more people.

Regarding the number of positions not filled, Dr Chicktay stated that CT could not expend further funds on personnel as the budget was already tightly stretched. Charging a fee for the Tribunal’s services would not give the CT sufficient funds to fill those posts so he had been consulting with the dtic. Ideally, the CT would be self-funded and one suggestion had been that a certain amount from companies registrations went to the Tribunal. Increasing the mandate was another possibility, but while there were opportunities, they required legislative changes.  The CT was a member of the Company Law meetings that advised the Ministers on changes needed to the Companies Act.

He assured Members that the CT website had indicated the vacancy for the CFO, as well as other posts, but that vacancy was now filled. He added that books could not be audited by internal auditors. It was important for efficient auditors to check on the CT’s use of government funding. Besides which, companies were required to use external auditors.

Dr Chicktay informed Ms Yako that dtic did, indeed, provide facilities but they were not ideal: space was limited and there was no air conditioning nor windows, which was a challenge. Online engagements had resolved the problem during the pandemic. However, CT could not afford to pay additional rent from its limited budget.

He reiterated that disputes between companies needed the consent of both the applicant and the respondent. Applicants usually wanted to go to arbitration but the one being sued often did not give permission as the case could be avoided or dragged out by refusing arbitration. CT believed that issue needed an amendment to the legislation. The CT was also looking to expand its services to entities beyond only companies. The CT held seminars and partnered with universities to raise awareness and it was believed that upcoming conference would have a great impact in terms of creating awareness.

Ms Ramugadi added that the use of external auditors was a statutory requirement in terms of section 55 of the Public Finance Management Act. The Auditor-General would conduct the audit unless permission was given for a private external auditor. She noted that an external audit was good for the governance of the organisation.

Mr Mbuyane asked the dtic about its statement made in a previous meeting that there were joint Key Performance Indicators (KPIs) shared across the dtic and its entities: that had been the reason for the questions on the B-BBEE fronting and the economic concentration because if concentration was not addressed, small businesses would just close. The dtic had a strategy to link KPIs across the portfolio and so if the B-BBEE Commission could not deal with fronting, the National Empowerment Fund and the Industrial Development Corporation could identify companies that needed assistance and CIPC should be able to look into those matters.

The Chairperson indicated that she had to be at Parliament for a meeting and requested that Mr Mbuyane take over if Members wished to continue the engagement.

Mr Burns-Ncamashe said that he needed to provide a context for his question about the external audit so that the presenters could respond appropriately. He wanted to know if there were sufficient, functional internal audit capacity? If the entities did not have sufficient internal auditors, was there a plan in place to acquire them? Often there were warm bodies in the entity but they did not seem to have the requisite capacity to deal with that function. He was not understating the necessary statutory requirements but he did not want to see the internal audit services outsourced. He wanted to assess internal capacity.

Adv Voller said that he had a lot of expertise in internal audit, and they had an IT auditor. Before changes were signed off, the internal auditor had to sign off. He also had an IT auditor and, although he had resigned, he would be replaced. Large internal audit requests were very rare, but those would be outsourced.

The Chairperson thanked the CIPC and CT teams for the robust engagement.
                                                       
Closing Remarks
The Committee Secretary informed Members that the following meeting would be on Tuesday 23 March 2022: a briefing by the dtic and its entities on the Economic Recovery Plan and the first draft of the Committee response to the Public Protector Report.

The meeting was adjourned.

 

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