Corporate & Commercial Update, Legal Review, Constant Change reported in Business Brief
All successful economies need a strong legal framework within which to operate. This gives local and international businesses the ability to operate with more certainty. Furthermore, it provides protection to local citizens transacting beyond the country's borders.
The structure in which businesses operate continues to become more complex. The risks and costs relating to ignorance of legal issues can materially hamper any business. The New Companies Act, Consumer Protection Act and Competitions Act are but a few changes that South Africa's active legislature is seeing.
Changing legislation, foreign Investment and an increasing focus on the African continent has meant that legal firms throughout South Africa have had to adapt in order to meet diverse client requirements. With the rising interest in Africa as an investment destination, and the increasing footprint of multi-nationals on the continent, the need for experienced, local and reputable legal services is becoming critical to the success of establishing these businesses.
Chairman of Werksmans Attorneys, Des Williams says, "The current trend appears to be a view of South Africa as a 'gateway' into the rest of Africa. When based in South Africa, you are trading in a mainstream, international economy that has a large capital base and large, highly sophisticated banking, accounting and legal systems. There are several flights a day to the major capitals of Europe, America, and the Far East and Africa, as well as education and health systems of sufficient quality to attract expatriates. Doing business in South Africa, particularly from Johannesburg, has traditionally been and still is easier and more commercially effective than anywhere else in the region."
POTENTIAL IN SOUTH AFRICA
Foreign law firms have also recognised the potential in South Africa, both as a market and as a gateway to other African markets Williams says that the company's major advantage over other local law firms and foreign law firms competing in this market lies in our well established Lex Africa network. "We have recognised the potential far ahead of the trend and are the first South African law firm to explore partnerships across the African continent. In 1993, we pioneered the Lex Africa network, which currently consists of leading law firms in 30 African countries," he says.
Pieter Steyn, Chairman of Lex Africa and Director at Werksmans Attorneys says, "Africa is a land of great opportunity but it is also associated with diverse challenges and risks. Any new or established business in Africa, whether local or foreign, must be positioned off a strong legal base and be able to deal effectively with legal or commercial issues, particularly if they have cross border business interests in other African countries. This requires an intimate knowledge and understanding of local laws, customs, business practices, cultures and language."
Closer to home, the implications of changing legislation in South Africa are far-reaching for all businesses and it is imperative for a legal partner to guide clients and avoid potential pitfalls.
Williams adds, "Imminent implementation of new legislation provides us with the opportunity to better serve our clients and the local economy. As such, we have invested significant resources in providing our clients and the broader business community with insights into the most recent legal developments across a diversity of key industry sectors. Currently, the Consumer Protection Act, Companies Act and recent Employment Legislation are top of mind for most clients and will remain a focus for much of 2011."
He says, "It is encouraging to note that – following the recession – business in the legal arena has increased. M&A, banking and finance, litigation and competition work are a few of the areas in which we have noticed increased activity over the past few months. I believe that increasingly complex legislation and regulation, as well as foreign investment and interest in Africa, will continue to drive these areas of the business."
DLA Cliffe Dekker Hofmeyr recently announced the appointment of Chris Ewing as Chairman of the firm. The appointment has been made with the long term sustainability of the firm in mind and underscores the firm's progress towards achieving its growth and transformation strategies developed over the past 10 years under Ewing's watch. "
As Chairman, I will concentrate on developing our growth strategies, which will include our relationship with DLA Piper globally and in Africa. I will be able to spend more time on client relationships and I look forward to returning to the practice of law in a client oriented role. I am looking forward to serving as a mentor and adviser to our younger lawyers," Ewing said.
Ewing adds that the legal services industry is in good shape at present. "All the law firms have recovered from the recession and are now in the process of hiring new staff to handle the abundance of new work," he comments.
Another trend that Ewing is seeing is the globalization of the industry with many law firms partnering with global entities that result in many benefits such as, intellectual property benefits. In 2005, Ewing formalized the firm's association with DLA Piper, marking the first such affiliation of a South African law firm with a global partner. He led the firm through the merger with Hofmeyr Herbstein & Gihwala in 2008, which established Cliffe Dekker Hofmeyr as one of the country's largest business law firms. Ewing was then appointed CEO of Cliffe Dekker Hofmeyr, just ahead of the global economic meltdown.
"The movement of partners is happening at a rapid rate of recent. Law firms have to expect that as much as they will gain exceptional talent into their organization, they will also lose it just as fast. It has become vital to offer employees attractive packages and create a flexible culture and environment," remarks Ewing.
It has become imperative to properly engage with employees and give them everything that they would need to perform at their best and deliver exceptional standards of work. The human resources department for lawyers has long ago, moved away from just being about hiring and firing, it now has a more strategic role in an organization, paying careful attention to encouraging, motivating, developing and retaining employees. Ewing says that law firms should have proper recruitment strategies in place that are revised on an annual basis. He believes that it is not just about poaching from fellow law firms, it has become about nurturing, developing and mentoring the future of South Africa, hence he advises law firms to strive harder to empower the youth of this country, the future lawyers.
Cliffe Dekker Hofmeyr recruits 50 aspiring lawyers on an annual basis. Ewing says that it is a stringent process of sifting through over 1000 CVs to the shortlisted candidates. He envisages that more and more companies will afford candidate attorneys the opportunity to learn and grow.
There are many ways to attract and retain the best talent to an organization and this does not only revolve around competitive salaries, it is other financial and non-financial rewards that make the difference. In this tight labour market, the retention of current employees and the attraction of key talent are major challenges. A comprehensive approach to 'total rewards' is a primary lever to assist in achieving a sustainable pipeline of human resources. Salaries are just one way to recognize and reward staff. Other forms of rewards include:
- Short term incentives
- Long term incentives
- Development and growth
- Recognition and fair rewards
- Employee well-being
- Meaningful work and role clarity
EDUCATION -The forgotten part of a legal team
Education is the often overlooked, yet vital part of a business's attention to the legal environment. According to June Marks, CEO of June Marks Attorneys, she says that it is unfortunate that South Africa's legal and business environment is riddled with difficulties, such as:
- Technology advances rapidly
- New legislation is introduced constantly
- Corruption is rife.
"Lawyers play a pivotal role in surviving the warzone, as they are the trained professionals who keep up to date with all legislation and developments. Yet, the attorney's profession is an often misunderstood one, and the unfortunate truth is that if a company's staff do not understand the attorney, the results are disastrous. Not only can it lead to financial losses in litigious matters being lost but incorrect advice being given or worse given that your attorney is there to protect you," says Marks.
HOW CAN THIS BE AVOIDED?
It is of vital importance for employees to be educated on the law, on the South African legal system and on the workings of the attorney's profession. Although not widely known, yet often resulting in litigation and criminal cases, in terms of section 332 of the Criminal Procedure Act, a company is held liable for the criminal acts of its employees. This means if your employees do something wrong, your company will be held liable. So, employees must be educated on constant legal developments and how they affect the company and the environment at large.
The legal services industry has been inundated with changing legislation and in all honesty, there is no country in Africa or the world that can say that they have been through the changes that South Africa has faced or facing.
The Institute of Directors in Southern Africa (IoDSA) has welcomed the introduction of the business judgment rule into South African company law, which seeks to protect directors from liability to the company and shareholders as a result of poor decision-making.
"What this means is that when the business judgment rule applies, it is taken that a court will largely be prohibited from examining the merits of the directors' decision and that a presumption of due care and good faith will be created regarding that director," says Natasha Bouwman, Legal Specialist, Institute of Directors in Southern Africa.
The Companies Act no 71 of 2008 (new Act) introduced the business judgment rule into South African company law for the first time, after being developed in the US in order to:
- Deter a risk-averse culture among directors as their liability increases. It is envisioned that the rule could help prevent directors not taking part in risky activities that could be beneficial to the company.
- Persuade competent individuals to take up the position of director. There exists a limited pool of competent people who could properly serve as directors in SA.
- Avoid 'judicial second guessing': The evaluation of business decisions by judges after the event is problematic because judges then have the benefit of hindsight – something the directors did not have when taking decisions.
- Avoid shareholder management of the company. If certain decisions made by directors are protected by means of the business judgment rule, shareholders will be wary of bringing legal action against directors, owing to the potential of failing in their action and the legal costs involved.
BUSINESS ENTITIES UNDER THE NEW COMPANIES ACT
The new Companies Act seeks to repeal the Companies Act 61 of 1973 in its entirety. Among the stated purposes of the new Companies Act are the aims to simplify the legislation in order to encourage entrepreneurship, enterprise efficiency and to create flexibility in the formation and maintenance of companies. Under the new Companies Act, there will be two categories of companies, namely, profit companies and non-profit companies.
According to Simla Ramdayal, Senior Associate at Edward Nathan Sonnensburg, no provision is made for the incorporation of close corporations after the new Companies Act comes into effect. Close corporations in existence prior to the effective date of the new Companies Act will continue to remain in existence until deregistration, dissolution or conversion into a company in terms of the new Companies Act. Provision is made in the new Companies Act for close corporations to convert into a private company if an aggregate of 75% of the members' interest in a close corporation consent to the conversion. The Close Corporation Act will be amended by the new Companies Act and will remain in force indefinitely.
"Section 21 companies that are in existence prior to the effective date of the new Companies Act will continue to remain in existence. However, every pre-existing section 21 company will be deemed to have amended its "Memorandum of Incorporation" ("MOI") as of the effective date of the new Companies Act to expressly state that it is a non-profit company, and to have changed its name in so far as required to comply with section 11(3) (b) of the new Companies Act (the requirement that the name must end with the expression "NPC")," says Ramdayal.
Under the new Companies Act, one or more persons may incorporate a profit company and three or more persons may incorporate a non-profit company by submission of a Notice of Incorporation and the MOI for registration. Symbols and "any letters" will be permitted to be used in the name of a company (in accordance with the regulations to be promulgated under the new Companies Act). This has been criticized due to the fact that many companies may have to upgrade their systems to read symbols and possibly foreign alphabets.
MOI's and shareholders' agreements under the new Companies Act, shareholders will no longer be able to regulate the management and administration of a company by using a shareholders' agreement to override the provisions of a company's Memorandum or Articles of Association.
Shepstone & Wylie Attorneys Partner: Commercial, Claire Cowan says that the new Act simplifies the constitutive documents of a company by replacing the Memorandum and Articles of Association with a single document known as the Memorandum of Incorporation (MOI). From the date on which the new Act came into operation, the Memorandum and Articles of Association of a pre-existing company will automatically become the MOI of that company.
"In future, shareholders' agreements have to be consistent with the provisions of a company's MOI. The new Act allows shareholders a period of two years following the effective date to review and amend their shareholders' agreements to accommodate this change. During this two year period any provisions in a shareholders' agreement concluded before the effective date, that conflict with the MOI, will continue to override the provisions of the MOI," adds McGee.
Most of the typical provisions contained in a shareholders agreement relating to the management and administration of a company are now contained in the new Act in the form of "alterable provisions", which are standard rights, duties and powers which will apply to a company unless they are varied in a company's MOI. As a result, many of the provisions of a shareholders' agreement may be comfortably included in the MOI, provided that they are tweaked where necessary to comply with the provisions of the new Act.
McGee says that although the new Act gives each pre-existing company a two year grace period during which the provisions of its MOI will override any inconsistent provisions of the new Act, it is imperative that during this period, every pre-existing company reviews its MOI against the standard provisions in the new Act to determine their effect on the management and administration of the company and to what extent, if any, such standard provisions should be amended in the MOI.
Likewise, shareholders should review their shareholders' agreements against the corresponding alterable provisions of the MOI to make sure that where required, the alterable provisions are amended to accommodate the provisions of their shareholders' agreements.
Small and start-up businesses work predominantly on trust and verbal agreements – because being cautious and doing it formally, costs time and money. It works until something goes wrong!
Advocate Richard van He!den, Managing Director of www. LawUnlocked.co.za says that entrepreneurs are by their nature optimists. It takes commitment and a positive outlook to take on the hardships in building a new business. But many businesses start trading without any proper legal agreements in place, basic agreements like regulating the relationships between partners and shareholders of the business or its relationships with employees, suppliers and customers.
"But the hard lesson that many businesses have learnt is that these agreements become vital once the business is established. You may have been able to wing it on the basis of informal arrangements with your customers or suppliers, especially when the transactions involved were for just a few thousand rands, but the picture is very different and far more risky when your volumes have increased to a point where your business finds itself transacting for hundreds of thousands of rands without protecting itself contractually. Often, habits of informal agreements are so deeply ingrained you don't even realise you're still winging it legally, until you have to go to court," says van Heiden.
He says that the opportunity for sorting out these legal measures is best taken in the early days of the business. "Understandably, the need for entrepreneurs to wing it comes from the exorbitant costs that lawyers charge on an hourly basis. New business owners simply cannot afford the high costs and try to resume work without proper contracts in place," says van Heiden.
It is possible to benefit from innovative legal drafting solutions that are now available on the web, but only when the drafting is tailored and customised to an individual case, as a real live lawyer would do. There are applications such as www.LawUnlocked.co.za that are based on solid legal principles, combined with clever application of computer science and artificial intelligence. This can give business owners quality, customised contracts at completely affordable rates.
"At the very least, it will save business owners a bundle in fees in only needing a lawyer tweak the more complex or unusual contractual terms to an agreement. At the very best, an 'artificial intelligence' legal document will give business owners substantial protection against the most commonly encountered risks. Entrepreneurs shouldn't delay formalising their legal agreements. You've worked too hard to see it all go up in flames or being worn out in a duel to the death in court, where no-one wins but the lawyers," comments van Heiden.
THE FINAL WORD
One of the best ways to find good legal representation is to rely on the recommendations of trusted family, friends, or business partners. If they have employed the help of law firm before, they can tell you if they were satisfied or displeased and probably even give you advice about what to look for and ask when choosing a representative.
June Marks Attorneys, LawUnlocked,Werksmans Attorneys, DLA Cliffe Dekker Hofmeyr, Spoor & Fisher, IoDSA, ENS
Shepstone & Wylie 031 575 7000
Claire Cowan, Partner
Contact: 031 575 7404 and firstname.lastname@example.org
Litigation Update, Inspiring tomorrow’s businesswomen today, reported in Baywatch
written by, Megan Erasmus
The Zululand branch of the Business Women's Association (BWA) of South Africa held its annual 'Businesswomen of Tomorrow' event at the St Cathrine's school in Empangeni on Friday.
The event, which is inspired by the Cell C 'take a girl child to work day', gathers a group of intellectual and inspirational business women to speak to a group of grade 11 and 12 girls from a number of different schools in Zululand, to inspire them to reach higher and dream bigger.
Among the many speakers this year was Natasha Pedro from the Umfolozi Casino Resort, Bandile Xaba from Shepstone and Wylie Attorneys, entrepreneur Makhosi Mthiyane and Elena Mattioda.
Event coordinator, BWA's Sherry Bevan, says the function is always highly anticipated by all involved.
'Very often we have businesswomen contacting us as much as a year in advance saying they would like to speak, and the response for the girls is always positive.'
The schools that participated this year included the Richards Bay Secondary, Empangeni High, Hluma High, John Ross College, Betesda High and St Cathrine' s.
Snowy Mabaso of Betesda High says the event was very nice and informative.
'The speakers gave good advice about life in general.'
Hlume High's Sihle Mthethwa agrees, saying events like these show girls that they should stand up for themselves, and not be dependent on anyone.
Never a truer word has been spoken!
Corporate & Commercial Law, New Company’s Act Update, Sweeping Changes, reported in Financial Mail
It was almost a decade in the making, contains 225 sections over more than 200 pages, has undergone numerous rewrites and was amended even before it was finally signed into law three weeks ago.
From the outset, the legislation drew relentless criticism and most of the amendments, redrafting and delays were to correct a host of inconsistencies, ambiguities, technical problems and even spelling, grammar and typographical errors.
But, for business, the new Companies Act remains a source of lingering concerns, confusion and uncertainty This law, together with the Consumer Protection Act, presents companies with severely challenging corporate and commercial conditions. Among the sweeping changes are stricter personal liability for directors who make bad decisions. Anyone who has suffered damages can now institute action directly against a director or manager. This could result in fewer executives accepting board appointments. It is clear that the intention is to make directors more accountable to shareholders, but setting the standard so high could sway some directors from making difficult decisions that may expose the company, and themselves, to risk.
The new law also alters shareholder agreements and the way shares are issued, redefines mergers and acquisitions, and ends the further registration of close corporations. The act creates the new Companies & Intellectual Property Commission (CIPC) and disbands the almost dysfunctional Companies & Intellectual Property Registration Office (Cipro).
Newly appointed CIPC head Astrid Ludin admits that the ultimate success of the legislation will depend on smooth implementation.
Government has argued that the Companies Act simplifies the registration and administration of businesses, introduces greater flexibility in areas such as corporate auditing, and provides for innovative business rescue plans for financially distressed companies.
For the corporate sector, however, the drive to make things simpler has in fact compounded the complexity and increased the burden of compliance, making it more difficult to do business in SA.
It is too early to put a firm figure on the total cost of complying. But Kabby Esat, a partner at Shepstone & Wylie law firm, estimates that if each unlisted company spent on average R10 000 and each listed company R500 000 over two years on compliance, the costs could be anything between R2,5bn and R3bn.
"One of the intentions of this legislation is to make the registration and administration of businesses simpler, but … it actually adds a much larger layer of bureaucracy for companies."
Stephen Kennedy-Good, a director at Deneys Reitz, says one of the consequences of the added protection for minority shareholders could be to compromise a critical area of corporate activity — mergers and acquisitions (see box).
Another contentious area is section 45 of the act, which prohibits intercompany loans. Madelein Burger, a partner at Webber Wentzel, says that except under tight conditions, this section could seriously affect a company's credit status with financial institutions.
Previously, if companies within a group having the same shareholders or holding company wanted to make loans to each other or secure each other's debts, a board resolution was required. Now, any loan from one company to another in the same group, or any security provided for another company in the group, will need a special resolution that must be supported by 75% of voting shareholders.
"Can you imagine the cost implications and logistical challenges of getting board members and shareholders together to approve every transaction?" says Burger.
But Ludin is confident that most of these concerns can be addressed through focusing on education and compliance over the next six months. One of her first tasks since taking office two weeks ago was to establish a working group of various stakeholders that will address the more pressing issues.
Much of the success will depend on whether the new CIPC can overcome the fraught and often crippling problems that plagued the former Cipro, which compromised the security of a number of companies. "We realise there are ongoing concerns around the registration of companies, and this needs to be resolved," says Ludin. "Over time we need to build a strong and credible regulator. We know that credibility is key to both local and international business confidence."
Though it is likely that some of the more glaring ambiguities and contradictions in the legislation will be addressed through further amendments, other contentious areas will be settled by judicial rulings and interpretation by the courts. The battle has only begun.
Get agreements in order
Companies have been given a two year transitional period to bring shareholder agreements in line with the provisions of the new Companies Act. So, on May 1 2013, any provisions that are inconsistent with the legislation will become void.
Currently, a shareholders' agreement could include provisions that the company shall not perform certain acts, such as issuing shares, without prior written approval from shareholders or without a special resolution being passed.
Under the new act, the board of directors' authorisation is sufficient for an ordinary issue of shares, meaning that any provisions to the contrary in a shareholders' agreement will be void.
And if a company gives notice that it is intending to sell the majority of its assets, under the new act, minority shareholders have the right to force a buy-back of their shares at fair value.
During the transitional period, shareholder agreements will continue to have force. But in the event of a conflict between those provisions and the provisions of the company's memorandum of incorporation or the new act, the shareholders' agreement will prevail.
So company executives should review existing shareholder agreements and eliminate any inconsistencies. Shareholders should also be cautious about making any changes to agreements during this transitional period.
For the first time in SA law, a company can merge with another and transfer all assets and liabilities without the consent of creditors.
However, creditors are protected by additional provisions within the Companies Act in the area of fundamental transactions, which require that they must be informed of any merger plans.
But even with these safeguards, creditors could feel vulnerable, fearing that the mergers are a ruse by their debtors to transfer their liabilities to other companies.
Together with mergers and acquisitions, the new act defines three other distinct areas of fundamental transactions: disposal of all or the greater part of a company's assets; schemes of arrangement; and takeovers.
These activities will be regulated under the new Takeover Regulation Panel, which replaces the Securities Regulation Panel.
The legislation offers strong powers and rights to shareholders; all transactions will require 75% approval.
Where the transaction involves disposing of the majority of the holding company's assets, then the same level of shareholder approval is required. But if 15% or more of the shareholders veto the transaction, they have the right to have the transaction reviewed in court.
Should the minority shareholders not go the court route, they are protected by a provision that grants them appraisal rights, which compels the company to repurchase their shares at fair value.
The act also forbids directors or executives from taking any action that could negatively affect or deny shareholders the opportunity to assess an offer on its merits.
Kabby Esat, Partner
Contact: 031 575 7403 and email@example.com
Corporate & Commercial Update, IDZ to go solo, reported in the Zululand Observer
The Richards Bay Industrial Development Company (RBIDZ) is set to operate independently from the City of uMhlathuze in the future.
This after the City's Council resolved at its Executive Committee sitting on Tuesday that it was in favour of cancelling its 40% minority shareholding in the Company.
The decision was made after Council considered legal analysis from Attorneys – Shepstone and Wylie on the risks and benefits of Council's shareholding in the company. The report showed that such shareholding would most likely not be beneficial for Council.
Co-owners of the RBIDZ company comprise shareholders Ithala Bank (60%) and the City of uMhlathuze (40%).
On 30 November 2010, Council considered a report pertaining to the challenges, commitments and options of Council's shareholding in the RBIDZ.
Council also requested that a further report be submitted to advise them on the business and legal risks, as well as the potential benefits relating to Council's shareholding in the RBIDZ.
The City's decision to cancel it's shareholding in the RBIDZ is expected to prevent possible points of uncertainty and conflict between Council and the Company in the future.
The value of Council's 40% share in the restructured RBIDZ transaction equates to R57 140 000.
The arrangement will also result in the RBIDZ Company having to acquire any additional portions of land that it may need at the ruling market related value.
Council resolved that the concurrence of the RBIDZ Company be obtained to proceed with the legal requirements to cancel the Shareholding Agreement.
Restructuring – Earlier this year, the City approved the restructuring of the Land Sale Agreement and the related Services and Shareholding Agreements with the RBIDZ.
This allowed for the RBIDZ to take transfer of Phase 1A and Phase 1F in a phased approach.
Phases 1B, C, D and E would then remain with the City and would have to be de-proclaimed as the IDZ.
With the IDZ Company taking occupation of Phase 1 A in terms of the lease agreement, Council agreed on Tuesday that the RBIDZ should make payment of R34 510 000 due by them prior to transfer.
Council also agreed to the leasing of an approximate 18 hectare portion of land located between Phase 1A of the RBIDZ and the Mzingazi Canal to the company to enable them to incorporate the property into the adjacent industrial development
Corporate & Commercial Update, How the Consumer Protection Act favours the buyer, reported in th Witness
How the Consumer Protection Act favours the buyer
The Consumer Protection Act (CPA) introduces many changes that will benefit consumers (natural persons or small businesses with an asset value or turnover of less than R3 million). Some of them are:
You can cancel any agreement which you conclude after receiving marketing that promotes or offers goods or services, provided that you do so within five business day after concluding that contract or taking delivery of the goods. If you do so, you must return the goods and the supplier must give you a refund.
It is illegal for a supplier to charge you for any goods, repairs or maintenance services unless the supplier had first given an estimate that you accepted or you pre-authorised the work up to a maximum value and the cost does not exceed that amount, or you turned down the estimate. Nor can the supplier charge a fee for preparing that estimate unless that cost was also first disclosed and accepted by the consumer.
Genetically modified organisms
It is illegal to produce, supply, import, export, package, sell, distribute or market maize, soya beans and imported canola oil that contains more than five percent genetically modified organisms without a label that specifically says so. If those goods are intentionally and directly produced using genetic modification processes, then they must be labelled, "Produced using genetic modification".
If it is impossible or not feasible to test those goods for the presence of genetically modified organisms, then they must be labelled, "May contain genetically modified ingredients". These labels must be conspicuous, written in plain language and easily legible.
Unfair or unjust contract terms
The act requires that agreements with, and notices to, consumers are written in plain language. The act also requires prices and terms which are fair, reasonable and just. Provisions that limit the supplier's risk or liability or which result in the consumer accepting additional risk or liability or acknowledging any fact, must be specifically brought to the consumer's attention in a conspicuous manner in a notice, which is written in plain language, at the time that the consumer concludes the agreement or makes payment.
You have a right to receive goods which are reasonably suitable for their intended purpose, which are of good quality, in good working order, free of defects, usable and durable for a reasonable period of time. These provisions will not apply if you are informed that the goods are offered in a specific condition and you expressly agree to accept them in that condition, or act in manner consistent with doing so. Suppliers will have to specifically inform you of all defects, whether latent or patent.
These are just some of the rights available today to consumers in terms of the act. It is important that consumers learn as much as possible about their rights so that they can rely on the protections offered.
Cathryn Bode, Partner
Contact: 031 575 7407 and firstname.lastname@example.org
Corporate & Commercial Law, Tax Law Update Gordhan remodels retirement landscape, reported in Business Day Law & Tax Review
Gordhan remodels retirement landscape
Written by Anton Lockem, Shepstone & Wylie
The proposed changes to the taxation of retirement fund contributions announced by Finance Minister Pravin Gordhan in his February budget speech could change the retirement landscape. These changes, if the proposals are accepted, are expected to come into operation on March 1 2012.
At present employer contributions to pension and provident funds are not subject to fringe benefit tax in the hands of participating employees. On the other hand, employee contributions toward a pension fund qualify as a tax deduction provided the contribution does not exceed 7,5% of pensionable earnings, while employee contributions to a provident fund do not qualify for any tax relief.
Therefore many employer provident funds are structured on a non-contributory basis, that is only the employer contributes to the fund, while pension funds are structured on a contributory basis, that is both the employer and employee contribute to the fund. This is done in order to optimise the tax efficiency of the current retirement contribution regime.
The minister now proposes that all employer contributions should attract fringe benefit tax, and that employees will be allowed to deduct up to 22,5% of their taxable income for contributions to a retirement fund, with a cap of R200 000.
Should the proposed changes come into effect, most employer funds, including umbrella funds, would have to change their existing contribution design should they wish to optimise the tax benefits available.
From a legal perspective, the implementation of such changes could prove to be more challenging than meets the eye. Not only will the fund rules have to be amended to reflect the changes, the consensual framework that governs the relationship between the employer and employee would also have to reflect the changes.
From a practical perspective, employers would have to ensure that their payroll parameters and remuneration frameworks are adjusted to accommodate a new contribution regime, all of which will add further to the increasing cost of administration and compliance for business. It is proposed further that lump sum withdrawals from provident funds be subject to the same one third limitation that currently applies to retirement annuity and pension funds.
The proposed one third limitation on the commutation of provident fund lump sum benefits will not only undermine the reason why these funds were chosen as retirement vehicles in the first place, but ignores the reality that pensioners may have budgeted capital requirements at retirement.
Anton Lockem, Partner
Contact: 031 575 7413
Litigation Update, Brilliant and hard-working KZN Judge President dies, reported in the Witness
INGRID OELLERMANN and BONGANI HANS
Kwazulu-Natal Judge President, Herbert Msimang, died yesterday evening in the intensive care unit (ICU) at Midlands Medical Centre in Pietermaritzburg where he had been receiving treatment for a heart ailment.
The Witness was able to confirm Msimang's death with a close family friend and colleagues last night. He had been in the ICU since early February after reportedly suffering a second stroke. Msimang was appointed to the Bench in KwaZulu-Natal in January 2002, and was appointed Judge President of the High Court on April 29, 2010.
He came under intense public scrutiny during 2005 and 2006 when he presided over now-President Jacob Zuma's corruption trial in Pietermaritzburg. In September 2006 he struck the case off the court roll after refusing a request by the prosecution for a postponement. Msimang has been described by colleagues and former teachers as having a "brilliant legal mind" and an impressive memory. Msimang practised law in Pietermaritzburg for many years from about 1981 in the practice Rutsch and Msimang. The firm later amalgamated with Shepstone, Wylie &Tomlinson to become Tomlinson, Mnguni & James. Last year one of Msimang's four daughters, Ayanda, was admitted as an attorney. She is the only member of the family to follow in her father's footsteps. While Msimang's family was still too traumatised to comment last night, retired KwaZulu-Natal Judge President, Vuka Tshabalala, who preceded Msimang, last night paid tribute to him and described him as "brilliant and hard working". Tshabalala said Msimang's death was a sad loss to the province. "He introduced a number of changes into the court system, which seem to be working well." The office of KwaZulu-Natal Premier, Dr Zweli Mkhize, also sent astatement of condolence. "We have put in place laws, which protect the weak and vulnerable members of society — children, orphans, women, and people living with disabilities, ill-health and others. "Judge Msimang played a tremendous role during the creation of such laws," said the statement.
Msimang was a commissioner for the Independent Electoral Commission (IEC) in the province for the last five years. Head of IEC in KZN, Mawethu Mosery, said: "As the IEC commissioner, the judge was a strict person who made us respect the law especially when it comes to very contested matters. "He left us when we are closer to the elections, and we don't have time to find a person with his wisdom to replace him."
Also shocked by the death was Pietermaritzburg Judge David Ntshangase. "I did not know about his death. I'm shocked and out of words. "He had a vision of where to take our courts to," said Ntshangase.
According to the IEC's website, Msimang obtained law degrees at the University of Zululand (B. Juris), the Tulane University of Louisiana (LLM) and the University of South Africa (LLB). After lecturing in private law at the University of Zululand for a number of years, Msimang practised as an advocate at the Lesotho Bar in Maseru and as an attorney in what is now Mpumalanga and KwaZulu-Natal, prior to his appointment as judge of the High Court in the province.
Litigation Update, Baker throws counterpunch, reported in the Zululand Observer
The string of legal suits against the City of uMhlathuze continues to mount despite vigorous attempts by the leadership to extricate itself from its financial woes.
City Electrical Engineer Dwayne Baker brought an urgent interdict against the municipality in the Durban Labour Court on Wednesday.
Baker was supposed to appear before an internal disciplinary hearing on the same day, which was subsequently postponed after the pending application was served on the municipality.
Baker, through his attorneys Botha Incorporated, challenged the jurisdiction of the municipality to convene a disciplinary hearing against him without permission from the Bargaining Council as per the collective agreement.
In addition, the appointment of Senior Manager: Corporate Services Mbali Ndlovu as Presiding Officer was challenged which, according to Baker, constituted a clear breach of the express terms of the collective agreement that the presiding officer must be impartial.
Ndlovu had reportedly been involved in the formulating, signing and pursuit of previous charges against Baker on behalf of the municipality.
Demonstrating Mbali's involvement in the matter, Baker's legal team asked the court to disqualify her from being appointed to act as an impartial chair.
Interim – Baker requested the Labour Court to grant an interim relief pending the appropriate resolution of the dispute before the Bargaining Council.
The matter was then postponed to 29 April and the municipality has given an undertaking that they will not continue with disciplinary proceedings in the interim, conceding that Mbali would indeed be disqualified from acting as the presiding officer.
The municipality, represented by Shepstone and Wylie in Durban, are to file opposing papers by 15 April followed by a response from Baker's legal team by 26 April.
If the interim relief is granted, the City will also be ordered to pay legal costs.
The City Council had authorised the appointment of a Disciplinary Committee and a Prosecutor in December to deal with internal disciplinary proceedings against Baker.
This followed his sudden suspension along with four other senior officials at the City's Electrical Department late last year.
It is the contention of Baker that the municipality has failed to comply with the provisions of the Collective Bargaining Council Agreement and the matter has been referred to the Bargaining Council for dispute resolution.
Ratepayers have consistently questioned the City's exorbitant legal costs at the expense of citizens and latest proceedings will undoubtedly add to rising concerns.
Corporate & Commercial Law Update, Jitters over new law for consumers, reported in Business Report
THE CONSUMER Protection Act, which came into effect yesterday, presents substantial risk to business and although many retailers and suppliers have worked hard to comply, the broad scope of the act and the late publication of the regulations has made it difficult to manage this risk.
Added to this is that despite managements' best efforts to train staff, incorrect information from a frontline staff member to a customer could land a company in hot Water. Penalties for non-compliance can be up to 10 percent of turnover. or R1 million, whichever is higher.
Rosalind Lake, a director at law firm Deneys Reitz, said the Consumer Protection Act had increased risk for business and presented massive challenges in terms of implementation in some areas as the final regulations were only published on Friday.
Although given the late publication of the regulations the National Consumer Commission is expected to show some leniency initially.
"After all the act is about compliance not punishment," she said. But even with a period of grace in terms of implementing some of the regulations, many aspects of the act stand alone and are effective from April 1.
Lake said the new legislation put a lot of pressure on suppliers, as its scope was very broad, covering the promotion of products, contracts, warranties and liability.
The National Consumer Commission will act on behalf of consumers, so making a complaint will be a lot easier than previously when consumers had to go to court themselves.
A lot of the uncertainty relates to product liability, which gives consumers far more scope to claim damages against suppliers. Previously a consumer had to prove injury was caused by a factory defect, which was difficult given how hard it was to get that kind of information.
Now in terms of the new act it is up to the retailer, supplier or importer to prove why they are not accountable for the harm caused given their role in the supply chain.
"The liability section of the act is extremely broad and it will be interesting how it pans out," Lake said.
The ambit of this section will be determined by the courts, which are reluctant, unlike courts in the US, to award huge claims.
For businesses to manage their risk in terms of liability they will need to review their insurance policies, taking note of the wording of their insurance contracts, which usually have several exclusions.
They would also need to ensure they had indemnities protecting them from the actions of other businesses in their supply chain, Lake said. "There will be indemnities up and down the supply chain, but we will have to see how well they hold up in court," she said.
Tamra Veley, a Pick n Pay spokeswoman, said: "Our suppliers have always been responsible for the quality of goods supplied and this is reflected in the agreement they have entered into with Pick n Pay. This principle has not been changed by the Consumer Protection Act."
Graham Rebello, the channel executive for Massmart, said quality management systems within manufacturing facilities and through to retail stores were crucial to ensure product safety, quality and durability meet the requirements of the act.
"Buyers and sellers will be scrutinising product packaging, labelling, instruction manuals and warnings to ensure customers have the information required to make informed decisions," Rebello said.
Patricia Pillay, the head of retail council and legislative affairs at the Consumer Goods Council of South Africa, said one of the biggest risks for retailers was the high turnover of staff in this industry. A new a staff member, who had not yet been trained on the act, could give incorrect information to a customer that might have huge implications for the company.
Massmart, the owner of Game, Makro and Builders Warehouse, has spent over R1.5 million directly in implementing the act, excluding travel and training hours.
This was money well invested as companies did not want to face the penalties that could be imposed in terms of the act for non-compliance, Rebello said. Spending included developing training material and the hosting of five vendor conferences in South Africa and one in Asia.
The likes of Unilever, Pick n Pay, Shoprite Checkers, Clicks and others have also trained staff.
But Lake said for smaller businesses implementing the act was hugely problematic with training, the rewriting of contracts and reproducing labels being costly.
Big companies had had teams of attorneys advising them on the new act, but for small enterprises there was not enough information available on how to implement their provisions, Lake said.
Beware product liability under CPA – Section 61 of the Consumer Protection Act, 2008 introduces drastic remedies for consumers who suffer death, injury or illness, or the loss of, or physical damage to, movable or immovable property as a result of having been supplied unsafe or defective goods, or if they are given inadequate warnings or instructions regarding hazards which may arise from using the goods supplied. A consumer will be entitled to claim compensation for harm suffered in respect of any defective goods supplied to that consumer since April 24, 2010. In terms of section 61, all manufacturers and suppliers of the goods which have caused harm to consumers in the manner specified in the section, are jointly and severally liable for that harm, as well as for any economic loss which a consumer may suffer indirectly as a result of that harm. Section 61 applies to all goods which are supplied to a consumer.
Impact on retirement funds – The Consumer Protection Act is likely to have a major impact on retirement funds. The CPA aims to promote and advance the social and economic welfare of consumers, defined as any user of goods or services, or a person who has entered into a transaction with a supplier of goods and services. This will include all retirement fund members, pensioners and beneficiaries, such as those to whom a death benefit is paid, as well as small funds. Entities with assets or turnover in excess of R3 million have been excluded from the definition of consumer, so most retirement funds will fall into the category of "suppliers". Boards of trustees need to ensure compliance with the obligations imposed on suppliers except insofar as they relate to the provision of services under the Long-term Insurance Act.
The Consumer Protection Act has introduced a new set of considerations and requirements for franchisors and franchisees. Most importantly, the definition of "consumer" in the act includes a franchisee and, accordingly, the multiplicity of consumer protections and rights embodied in the act apply equally to franchisees in their dealings with their franchisor. The ones which may require many existing franchisors to amend their current business practices include:
- The consumer's right to select their own suppliers
- The consumer's right to return goods
- Cooling off
Future of fixed-term agreements – According to the draft regulations to the Consumer Protection Act, 2008 from March 31, 2011, suppliers of goods and services will not be permitted to conclude a fixed-term agreement to supply goods and/or services to a consumer for a period exceeding 24 months from the date on which the consumer signs the agreement. The act also provides that a consumer may cancel a fixed-term agreement at any time on 20 business days' notice to the supplier. This spells the end of the common practice of locking consumers into one-sided agreements from which they are unable to escape. Suppliers will have to constantly monitor the expiry dates of each of their fixed-term agreements. – Reports by Shepstone & Wylie
Employment & Pension Law Update, Social media comments can be a minefield, reported in Business Day Law & Tax Review
Social media comments can be a minefield
RUDE ONLINE REMARKS- Employees should beware of whinging about employers on the internet
By VERLIE OOSTHUIZEN Shepstone & Wylie Attorneys
Most employers and workplaces have strict rules and policies regarding intemet and computer resources. More often than not, social networking sites such as Twitter and Facebook are blocked on the company network to prevent employees wasting valuable work hours "tweeting" and connecting with "friends" in cyberspace. However, with the advent of smart phones it has become very easy for employees to surreptitiously log on to these sites and "update" their profiles from their mobile phones without their employer's knowledge. While it is difficult to discipline these employees unless their work is suffering, they may easily be charged with misconduct if they make derogatory comments about their employers. It was recently reported that a senior employee was dismissed from a theatre company for making slanderous and bigoted remarks about his superiors on his Facebook profile. It is our opinion that this type of misconduct is going to be a regular feature in workplaces. Many employees do not realise the sheer number of people who are witness to the complaints that they may post about their employers on social networking sites. It is very easy for their superiors to obtain this information and it provides ample evidence of a breakdown in the trust relationship. Employees may not be aware of the duty of good faith that they owe to their employer and that the very act of denigrating that employer, be it in frustration or in an attempt to be humorous, will be a breach of that duty or may amount to defamation. There will be very little that an employee will be able to do to defend themselves if it has been discovered that they are writing rude remarks about their company, superiors or even colleagues on a social networking site. Further, employees must remember that anything that is contained on those sites is very difficult, or even impossible, to permanently erase and a canny IT specialist may be able to find the offending comments long after they have been forgotten by their author. Employers are advised to take these types of incidents seriously in the workplace as the social media has been exhibited as an extremely powerful tool. If the company's name is being blackened by disgruntled employees disciplinary action can and should be taken against offenders.