complying with changes in legislation - home page - · web viewthe purpose of cpd is to help...

Complying with Changes in Legislation 2010

Facilitated by ProBeta through Itukisa (Pty) Ltd

September - October 2010

ALL RIGHTS RESERVED COPYRIGHT

The views expressed in this document are not necessarily those of the Seta’s.

COMPLYING WITH CHANGES IN LEGISLATION

THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001 AND THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT, 2008 9

Purpose of the Act 9

Definition of a money laundering activity 9

Money laundering legislation in South Africa 9

The Financial Intelligence Centre (“FIC”) 9

Money laundering control measures 10

Directives 14

Registration by accountable institution and reporting institution 14

Responsibility for supervision of accountable institutions 14

Appointment of inspectors 15

Inspections 15

Administrative sanctions 16

Appeal 18

Compliance and enforcement 18

Schedules to the Act 20

REVISED DRAFT REGULATION OF TAX PRACTITIONERS BILL 22


Application of the Act 22

Registration of registered tax practitioners 22

Duties of tax practitioners 24

Disciplinary matters 25

FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT 30


Definition of advice 30

Intermediary services 31

Authorisation of financial services providers 31

Application for authorisation 31

Lapsing of licence 32

Qualifications of representatives and duties of authorised financial services providers 32

Debarment process of representatives 32

Compliance officers and compliance arrangements 32

Accounting and audit requirements 33

New submission dates for financial statements 33

Determination of fit and proper requirements for financial services providers 34

Competency 34

Requirements for professional indemnity and fidelity insurance cover for providers 38

Financial interest and conflict of interest management policy 38

THE NATIONAL CREDIT ACT NO.34 OF 2005 40


Overview of the Act 40

Chapter 1 – Interpretation, Purpose and Application 40

Chapter 2 – Consumer Credit Institutions 44

Chapter 3 – Consumer Credit Industry Regulation 44

Chapter 4 – Consumer Credit Policy 45

Chapter 5 – Consumer Credit Agreements 47

Chapter 6 – Collection, repayment, surrender and debt enforcement 53

Compliance and reporting – Chapter 8 of the Regulations 54

Debt counselling 55

CONSUMER PROTECTION ACT 57


Background 57


Exemptions 59

Fundamental consumer rights 60

Protection of consumer rights and the consumer voice 68

Business names and industry codes of conduct 69

PROTECTION OF PERSONAL INFORMATION BILL 70



What information is protected? 70

Exclusions 71

Conditions for lawful processing of personal information 71

Processing of special personal information 73

Information Protection Regulator 73

Information Protection Officer 73

Notification of processing 73

Rights of data subjects regarding unsolicited electronic communications and automated decision making 74

Enforcement 74

Offences and penalties 74

Implementation timeline 74

THE COMPANIES ACT, 71 OF 2008 75

Objectives 75

Categories of companies 75

Criteria for names of companies (Section 11) 75

Reservation of name and defensive names (Section 12) 76

Right to incorporate company (Section 13) 77

Registration of company (Section 14) 77

Memorandum of Incorporation, shareholder agreements and rules of company (Section 15) 77

Amending Memorandum of Incorporation (Section 16) 78

Legal status of companies (Section 19) 78

Validity of company actions (Section 20) 79

Reckless trading prohibited (Section 22) 79

Form and standards for company records (Section 24) 79

Location of company records (Section 25) 81

Access to company records (Section 26) 81

Financial year of company (Section 27) 82

Accounting records (Section 28) 82

Financial statements (Section 29) 84

Annual financial statements (Section 30) 84

Annual return (Section 33) 88

Shareholder right to be represented by proxy (Section 58) 88

Shareholders acting other than at a meeting (Section 60) 88

Shareholders meetings (Section 61) 88

Notice of meetings (Section 62) 89

Conduct of meetings (Section 63) 90

Meeting quorum and adjournment (Section 64) 90

Shareholder resolutions (Section 65) 90

Board, directors and prescribed officers (Section 66) 91

Election of directors (Section 68) 91

Ineligibility and disqualification of persons to be director or prescribed officer (Section 69) 91

Board committees (Section 72) 92

Board meetings (Section 73) 93

Director's personal financial interests (Section 75) 93

Directors conduct (Section 76) 94

Liability of directors and prescribed officers (Section 77) 95

Indemnification and directors’ insurance (Section 78) 96

Financial assistance for subscription of securities (Section 44) 97

Loans or other financial assistance to directors (Section 45) 97

Distributions must be authorised by the board (Section 46) 98

Mandatory appointment of company secretary (Section 86) 98

Appointment of auditor (Section 90) 99

Rotation of auditors (Section 92) 99

Rights and restricted functions of auditors (Section 93) 99

Audit committees (Section 94) 100

Continuation of pre-existing companies (Schedule 5) 101

Business Rescue 101

COMPANIES AMENDMENT BILL, 2010 103

Objective 103

Right to incorporate a company or transfer the registration of foreign company (Section 13) 103

Memorandum of Incorporation, shareholder agreements and rules of company (Section 15) 104

Amending Memorandum of Incorporation (Section 16) 104

Validity of company actions (Section 20) 104

Registration of external companies (Section 23) 104

Access to company records (Section 26) 105

Annual financial statements (Section 30) 105

Company or subsidiary acquiring company's shares (Section 48) 106

Conduct of meetings (Section 63) 106

Shareholder resolutions (Section 65) 106

Board committees (Section 72) 107

Director's personal financial interests (Section 75) 108

Indemnification and directors’ insurance (Section 78) 108

Appointment of auditor (Section 90) 108

Audit committees (Section 94) 108

Effect of business rescue on employees and contracts (Section 136) 108

Continuation of pre-existing companies (Schedule 5) 108

KING III 109

Structure of the report 109

Application of the code 109

Effective date 109

Chapter 1 – Ethical leadership and corporate citizenship 109

Chapter 2 – Board and Directors 110

Chapter 3 – Audit committees 114

Chapter 4 – The governance of risk 114

Chapter 5 – The governance of information technology 115

Chapter 6 – Compliance with laws, rules, codes and standards 115

Chapter 7 – Internal audit 115

Chapter 8 – Governing stakeholder relationships 116

Chapter 9 – Integrated reporting and disclosure 116

INTERNATIONAL STANDARDS ON AUDITING 117

Background 117

ISA 200: Overall objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing 117

ISA 210: Agreeing the Terms of Audit Engagements 118

ISA 260: Communication with Those Charged with Governance 118

ISA 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management 119

ISA 320: Materiality in Planning and Performing an Audit 119

ISA 450: Evaluation of Misstatements Identified During the Audit 120

ISA 540: Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures 120

ISA 550: Related Parties 121

FINANCIAL REPORTING FRAMEWORK FOR NON-PUBLIC ENTITIES 123

Purpose 123

Objectives 123

Scope 123

Transitional provisions and effective date 124

Principles, recognitions and measurement 124

Specific line items on the financial statements 128

ENVIRONMENTAL TAXES 131

Carbon dioxide vehicle emissions tax 131

Exemptions for certified emission reductions 132

Allowance for energy efficiency savings (Section 12 L) 132

THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001 AND THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT, 2008

PURPOSE OF THE ACT

The objective of the Financial Intelligence Centre Act (FICA), 38 of 2001 is to establish a Financial Intelligence Centre and a Money Laundering Advisory Council in order to combat money laundering activities. The legislation aims to combat money laundering activities by getting “accountable institutions” to report suspect and unusual transactions that may be indicative of possible money laundering opportunities to the money laundering office.

FICA aims to impose certain duties on institutions and other persons who might be used for money laundering purposes.

DEFINITION OF A MONEY LAUNDERING ACTIVITY

A money laundering activity means any activity which has, or is likely to have, the effect of concealing or disguising the nature, source, location, disposition or movement of the proceeds of unlawful activities. By definition any interest which anyone has in such proceeds as listed above is also guilty of money laundering and includes any activity which constitutes an offence in terms of section 64 of this Act or section 4, 5 or 6 of the Prevention of Organised Crime Act 1998 known as POCA.

MONEY LAUNDERING LEGISLATION IN SOUTH AFRICA

The Prevention of Organised Crime Act (POCA) came into being in 1998.

This Act defines offences relating to proceeds of unlawful activities that are punishable. This includes money laundering, assisting another to benefit from the proceeds of unlawful activities and acquisition as well as possession or use of proceeds of unlawful activities.

As a result of international pressure, this legislation was clearly not enough to conform to world standards in combating money laundering. The Financial Intelligence Centre Act 2001 (FICA) was passed and needs to be read in conjunction with POCA.

THE FINANCIAL INTELLIGENCE CENTRE (“FIC”)

The Financial Intelligence Centre was established as an institution outside the public service but within the public administration as envisaged in section 195 of the Constitution. The principal objective of the Centre is to assist in the identification of the proceeds of unlawful activities and the combating of money laundering activities.

The other objectives of the Centre are:

To make information collected by it, available to investigating authorities, supervisory bodies, the intelligence services

and the South African Revenue Service to facilitate the administration and enforcement of the laws of the Republic;

To exchange information with bodies with similar objectives in other countries regarding money laundering activities,

the financing of terrorist and related activities, and other similar activities;

To supervise and enforce compliance with this Act or any directive made in terms of this Act and to facilitate effective

supervision and enforcement by supervisory bodies.

MONEY LAUNDERING CONTROL MEASURES

The principal money laundering control measures as contained in the Act are:

Duty to identify clients (section 21);

Duty to keep records of transactions and business relationships (section 22);

Reporting duties and access to information (section 29 and others);

Formulation and implementation of internal rules (section 42);

Training and compliance (section 43).

Duty to identify clients

An accountable institution is obligated to establish the identity of any prospective client before any business relationship is established with the client. This must be done even if only one transaction will be concluded with the client. This will include establishing the identity of a person on whose behalf the client may be acting. If any transactions have taken place before the FICA took effect, the institution must trace all accounts at the institution that were involved in such a transaction.

Accountable institutions will have one year to identify all their existing clients that they have a business relationship with. If an accountable institution refuses to do the above, it is guilty of an offence and liable for the prescribed penalties.

A business relationship will be deemed to have been established if an arrangement exists with a view of concluding transactions on a regular basis.

In addition to establishing and verifying the identity of existing clients, accountable institutions will also be required to trace all accounts that they have that are involved in transactions concluded in the course of the business relationship with that client.

Duty to keep records

This duty placed on accountable institutions must be performed as soon as a business relationship exists or a transaction has been concluded with a client. The details that should be included in the records are:

Identity of the client;

Where a client is acting on behalf of another person:

○ Identity of such a party; and

○ The client’s authority to act on behalf of another person;

The manner in which the identities were established;

The nature of the business relationship or transaction;

Where a transaction has taken place:

○ The amount involved; and

○ The parties involved in the transaction;

○ All accounts that were involved in such a transaction or relationship;

○ The name of the person that verified the identities of the parties;

○ A copy of any document that was used to establish the identity of the parties.

It is allowable to keep the above information in electronic form. The above mentioned information must be kept for a period of five years after the termination of a particular business relationship or for the same period after a single transaction. The keeping of records may be done by a third party on behalf of the accountable institution as long as the FIC is furnished with the details of the said third party. When any records mentioned above are presented in a matter before a court, the records shall be deemed admissible as evidence of any fact that would normally have been admissible had it been stated orally. A certified printout or extract would also be acceptable.

If any of the records are tampered with, or not kept in the prescribed detail, the accountable institution is guilty of an offence.

Reporting duties

There are instances where an accountable institution must report certain particulars to the FIC. This will include the following instances:

Cash transactions above a prescribed limit1;

This relates to where an amount in excess of a prescribed amount is either paid or received by an accountable institution to or from a client or a person acting on behalf of a client. The money must be in cash form and thus includes coin, paper and travellers cheques.

Suspicious and unusual transactions;

This provision includes any person that carries on a business, manages one, is employed by such a business or knows or suspects an unusual transaction. Unlawful or suspicious transactions would include:

○ A business that has received or is about to receive proceeds derived from unlawful activities;

○ Any transaction to which the business is a party that:

― Facilitates the transfer of proceeds received as a result of unlawful activities;

― Has no apparent business or lawful purpose;

― Is conducted in order to avoid having to comply with the reporting duty as laid down by this Act;

― May be relevant to the investigation of the evasion of any type of tax levied by SARS.

○ Using the business for any purpose relating to money laundering;

Any person to whom the above applies, must inform the FIC within the prescribed period after such knowledge was acquired or such a suspicion arose. A person that is obligated to inform the FIC is not permitted to disclose the content or the existence of such a report to any person, including the person to whom the report pertains unless:

○ It is within the scope of powers conferred to that person by means of legislation;

○ The disclosure is for the purpose of complying with the Act;

○ The purpose of the disclosure is for legal proceedings;

○ The person has been granted permission through a court order.

There is a special defence available to someone that has been charged with the failure of reporting a suspicious or unusual transaction. Any person that is involved in an accountable institution as an employee or similar position can raise the following as a defence:

○ The fact that the matter was reported by him to the person that is responsible for ensuring that the accountable institution complies with the Act;

1 This section is not yet operational and the threshold for reporting has not yet been established.

○ That he had complied with the internal rules that regulate the reporting of information;

○ That he / she had reported the matter to his / her superior.

The above defences are only available to employees, partners, directors and trustees of accountable institutions. The effect of the FICA is that a person of an accountable institution will be able to raise the same defence when charged with contravening the Prevention of Organised Crime Act whereas any persons in the same capacity in non-accountable institutions will not be able to raise the defence of internal reporting as far as a contravention of the Prevention of Organised Crime Act goes. It would be the safest to report any activity that imposes a reporting obligation directly to the FIC.

Conveyance of cash to or from the RSA2;

If any person who intends conveying or who has conveyed or who is conveying an amount of cash or a bearer negotiable instrument in excess of the prescribed amount into or out of the RSA he / she must report on demand all particulars relating to such an intention to a person identified by the Minister. Such an identified person shall then in turn send a copy of the report to the FIC.

A person will only be guilty of an offence on relation to this provision if the person wilfully fails to report the conveyance. The person that has the duty of forwarding the report to the FIC will be committing an offence if he or she fails to do so. This may lead to a fine not exceeding R1 million or five years of imprisonment.

Electronic transfers of money to or from the RSA3;

An accountable institution will have a reporting duty if it receives or sends money via electronic transfer across the borders of the RSA. It then has a duty to report the details of such a transfer within a prescribed period after the transfer of the money.

When a request is received from the FIC to furnish additional information, this information should be furnished without delay. When a transaction has been reported, the person responsible for the report is allowed to continue the transaction after such report has been made. Only when the FIC instructs the reporter not to proceed with the transaction should he / she terminate the transaction. Such an order may only be made by the FIC if it has reasonable grounds to suspect that such a transaction is unusual or suspicious. The maximum period for which the transaction may be suspended is five days unless the FIC is in possession of information that proves the transaction to be indeed unlawful. The purpose of the five days is to grant the FIC time to investigate the transaction and the client, and to establish whether there are grounds to cancel the transaction. The five day period does not include Saturdays, Sundays or public holidays.

The FIC supersedes any other confidentiality agreement imposed by any other institution or controlling body except that of professional privilege between an attorney and his / her client. This privilege relates to confidential conversations between:

○ An attorney and his / her client that relates to legal advice or litigation that is pending or has commenced; OR

○ An attorney and a third party that relates to litigation that is pending or has commenced.

A person or institution that has complied in good faith with the reporting requirements cannot be the subject of criminal or civil action with relation to the specific case. A person that did report a matter to the FIC has the right to have his / her identity kept secret. He / she will forfeit this right if he / she testifies in the proceedings, although he / she cannot be compelled to testify. If a reporter does not testify, his / her report can be entered as evidence as long as his / her identity is kept secret as well as any additional information.

2 This section is not yet operational

3 This section is not yet operational

Internal rules

An accountable institution must formulate and implement internal rules concerning:

The establishment and verification of the identity of its clients;

The nature and the type of records which must be kept;

The steps to be taken to determine when a transaction is reportable, to ensure the institution complies with its duties under FICA.

An accountable institution must make its internal rules available to each of its employees involved in transactions to which FICA applies and the internal rules must set out in detail the procedures to guide the compliance officer and employees in the discharge of their duties under FICA.

An accountable institution must, on request, make a copy of its internal rules available to the FIC and to its supervisory body.

Training and compliance officer

An accountable institution must provide training to its employees to enable them to comply with the provisions of FICA and the internal rules applicable to them.

The accountable institution must appoint a compliance officer (section 43(b)) who must ensure compliance by the accountable institution with FICA and the compliance by its employees with the internal rules.

The compliance officer will have to:

Become familiar with the money laundering laws and the particular compliance risks that the business faces;

Ascertain the current level of compliance by the business and its employees with the duty to report suspicious and unusual transactions;

Draft a compliance risk management plan, policy documents, appropriate internal rules, forms and training material;

Train employees on the law and the relevant internal rules;

Implement the compliance risk management plan; and

Monitor compliance and report to management on compliance.

DIRECTIVES

The Centre may by notice in the Gazette, issue a directive to all institutions to whom the provisions of this Act apply, regarding the application of this Act.

The Centre or a supervisory body may, in writing, issue a directive to any category of accountable institutions, reporting institutions, or other category of persons to whom the provisions of the Act apply to:

Provide information, reports or statistical returns specified in the notice, within the period specified in the notice;

Cease or refrain from engaging in any Act, omission or conduct in contravention of the Act;

Remedy an alleged non-compliance;

Meet obligations imposed by the Act.

The cost incurred in complying with a directive must be borne by the accountable institution, reportable institution, or other person concerned.

A supervisory body may issue a directive only after consulting the Centre on the directive.

REGISTRATION BY ACCOUNTABLE INSTITUTION AND REPORTING INSTITUTION

Every accountable institution and every reportable institution must within the prescribed period register with the Centre.

The Centre must keep and maintain a register of every accountable institution and reportable institution registered with the centre.

A registered accountable institution or reportable institution must notify the Centre, in writing, of any changes to the particulars within 90 days after such a change.

RESPONSIBILITY FOR SUPERVISION OF ACCOUNTABLE INSTITUTIONS

Section 45 is amended by the inclusion of subsection (1).

Every supervisory body is responsible for supervising and enforcing compliance with this Act or any order, determination or directive made in terms of this act by all accountable institutions, regulated or supervised by it.

The obligation forms part of the legislative mandate of any supervisory body and constitutes a core function of that supervisory body.

A supervisory body may utilise any fees or charges it is authorised to impose or collect to defray expenditure incurred in performing its obligations.

A supervisory body can:

Require an accountable institution supervised or regulated by it to report on that institution’s compliance;

Issue or amend any licence, registration, approval or authorisation;

In making a determination as to whether a person is fit and proper to hold office in an accountable institution, take into account any involvement, whether directly or indirectly, by that person in any non-compliance with this Act or any involvement in any money laundering, terrorist or related activity.

A supervisory body must report in writing to the Centre on any action taken against any accountable institution.

APPOINTMENT OF INSPECTORS

The Director or head of the supervisory body:

May appoint any person in the service of the Centre or supervisory body as an inspector;

May determine the remuneration to be paid to such a person;

Must issue a certificate of appointment signed by the director or head of the supervisory body.

The certificate of appointment must specify:

The full name of the person;

ID number;

Signature;

Photograph;

Description of capacity;

Extent of powers.

An inspector may undertake inspections in terms of section 45B.

When an inspector undertakes inspections he / she must be in possession of a certificate of appointment, and on request show that certificate to any person affected.

INSPECTIONS

An inspector may:

At any reasonable time and on reasonable notice enter and inspect any premises of an accountable institution, reportable institution or other person;

In writing direct a person to appear for questioning before the inspector at a time and place determined by the inspector;

Order any person who had any document in his or her possession or under his / her control to produce that document;

Open a strong room, safe or other container, or order any person to open it;

Use any computer system or equipment on the premises or require reasonable assistance from any person on the premises to use that computer system to access any data or to reproduce any document;

Examine or make extracts from or copy any documentation or remove any documentation;

Seize any document which in the opinion of the inspector constitutes evidence of non-compliance.

An accountable institution, reportable institution or other person must without delay provide reasonable assistance to an inspector.

The Centre or supervisory body may recover all expenses incurred in conducting an inspection from the accountable institution, reportable institution or other person.

An inspector may not disclose to any person not in the service of the Centre or supervisory body any information obtained in the performance of his / her functions.

An inspector may disclose information in the following circumstances:

For the purpose of enforcing compliance;

For the purpose of legal proceedings;

When required to do so by a court;

If it is in the public interest to disclose.

An inspector of a supervisory body may conduct any inspection, other than a routine inspection, only after consultation with the Centre.

No warrant is required for the purposes of an inspection in terms of this section.

ADMINISTRATIVE SANCTIONS

The Centre or supervisory body may impose an administrative sanction to any accountable institution, reporting institution or other person when satisfied on available facts and information that the institution or person has failed to comply with:

A provision of this Act;

A condition of a licence, registration, approval or authorisation issued or amended;

A directive issued;

A non-financial administrative sanction.

When determining an appropriate administrative sanction the following factors must be considered:

The nature, duration, seriousness and extent of the relevant non-compliance;

Whether the institution or person has previously failed to comply with any law;

Any remedial steps taken by the institution or person to prevent a recurrence of the non-compliance;

Any steps taken or to be taken against the institution or person by:

○ Another supervisory body; or

○ A voluntary association of which the institution or person is a member.

Any other relevant factor, including mitigating factors.

The Centre or supervisory body may impose any one or more of the following administrative sanctions:

A caution not to repeat the conduct which led to the non-compliance;

A reprimand;

A directive to take remedial action or to make specific arrangements;

The restriction or suspension of certain specified business activities; or

A financial penalty not exceeding R 10 million in respect of natural persons and R 50 million in respect of any legal person.

The Centre or supervisory body may:

Make recommendations to the relevant institution or person in respect of compliance with this Act;

Direct that a financial penalty must be paid by a natural person or persons for whose actions the relevant institution is accountable in law, if that person or persons was or were personally responsible for the non-compliance;

Suspend any part of an administrative sanction on any condition the Centre or the supervisory body deems appropriate for a period not exceeding five years.

Before imposing an administrative sanction, the Centre or supervisory body must give the institution or person reasonable notice in writing:

Of the nature of the alleged non-compliance;

Of the intention to impose an administrative sanction;

Of the amount or particulars of the intended administrative sanction.

The institution or person may, in writing, within a period specified in the notice, make representations as to why the administrative sanction should not be imposed.

After considering any representations the Centre, or supervisory body may impose an administrative sanction the Centre or supervisory body considers appropriate.

Upon imposing the administrative sanction the Centre or supervisory body must, notify the institution or person in writing:

Of the decision and the reasons therefore; and

Of the right to appeal against the decision.

The Centre must, prior to taking a decision consult the relevant supervisory body, if applicable.

Any financial penalty imposed must be paid into the Criminal Assets Recovery Account.

If the institution or person fails to pay the financial penalty within the specified period and an appeal has not been lodged within the required period, the Centre or supervisory body may forthwith file a certified copy of the notice with the clerk or registrar of a competent court, and the notice thereupon has the effect of a civil judgement lawfully given in that court in favour of the Centre or supervisory body.

An administrative sanction may not be imposed if the respondent has been charged with a criminal offence in respect of the same set of facts.

If a court assesses the penalty to be imposed on a person convicted of an offence in terms of this Act, the court must take into account any administrative sanction imposed under this section in respect of the same set of facts.

Unless the Director or supervisory body is of the opinion that there are exceptional circumstances present that justify the preservation of the confidentiality of a decision the Director or supervisory body must make the decision and the nature of any sanction imposed public if:

An institution or person does not appeal against a decision of the Centre or supervisory body within the required period; or

The appeal Board confirms the decision of the Centre or supervisory body.

APPEAL

Any institution or person may appeal against a decision of the Centre or supervisory body to the appeal Board.

An appeal must be lodged within 30 days in the manner, and on payment of the fees, prescribed by the Minister.

An appeal shall take place on the date and at the place and time determined by the appeal Board.

An appeal is decided on the affidavits and supporting documents presented to the appeal Board by the parties to the appeal.

The appeal Board may:

Summon any person who, in its opinion, may be able to give information for the purposes of the appeal or who it believes has in his, her or its possession, custody, or control any document which has any bearing upon the decision under appeal, to appear before it at a time and place specified in the summons, to be questioned or to produce that document, and retain for examination any document so produced;

Administer an oath to or accept an affirmation from any person called as a witness at an appeal; and

Call any person present at the appeal proceedings as a witness and interrogate such person and require such person to produce any document in his, her or its possession, custody or control, and such a person shall be entitled to legal representation at his or her own expense.

The chairperson of the appeal Board determines any other procedural matters relating to an appeal.

Any party to an appeal is entitled to be represented at an appeal by a legal representative.

The appeal Board may:

Confirm, set aside or vary the relevant decision of the Centre or supervisory body; or

Refer a matter back for consideration or reconsideration by the Centre or the supervisory body concerned in accordance with the directions of the appeal Board.

The decision of a majority of the members of the appeal Board shall be the decision of that Board.

The decision of the appeal Board must be in writing and a copy thereof must be made available to the appellant and the Centre or supervisory body.

If the appeal Board sets aside any decision of the Centre or supervisory body, the fees paid by the appellant in respect of the appeal in question must be refunded to the appellant.

If the appeal Board varies any such decision, it may in its discretion direct that the whole or any part of such fees be refunded to the appellant.

A decision of the appeal Board may be taken on appeal to the High Court as if it were a decision of a magistrate in a civil matter.

The launching of appeal proceedings does not suspend the operation or execution of a decision, unless the chairperson of the appeal Board directs otherwise.

COMPLIANCE AND ENFORCEMENT

The following all constitute offences under the Act:

Failure to identify persons;

Failure to keep records;

Destroying or tampering with records;

Failure to give assistance to the FIC;

Failure to advice the Centre of a client;

Failure to report cash transactions (date of commencement to be proclaimed);

Failure to report suspicious or unusual transactions;

Unauthorised disclosure;

Failure to report conveyance of cash or bearer negotiable instrument into or out of Republic (date of commencement to be proclaimed);

Failure to send a report to the Centre (date of commencement to be proclaimed);

Failure to report electronic transfers (date of commencement to be proclaimed);

Failure to comply with a request;

Failure to comply with direction by Centre or supervisory body;

Failure to comply with monitoring order;

Misuse of information;

Failure to formulate and implement internal rules;

Failure to register with the Centre

Failure to provide training;

Offences relating to inspection

Hindering or obstruction of Appeal Board

Failure to attend when summoned

Failure to answer fully or truthfully

Obstructing of official in performance of functions;

Conducting transactions to avoid reporting duties;

Failure to appoint a compliance officer.

Penalties

A person convicted of an offence under FICA is:

Liable to imprisonment for a period not exceeding 15 years, or

To a fine not exceeding R 100 million.

However, a person convicted of an offence mentioned in sec 55, 61A, 62, 62A, 62B, 62C, 62D is liable to imprisonment for a period not exceeding 5 years or to a fine not exceeding R10 000 000.

SCHEDULES TO THE ACT

SCHEDULE 1 – LIST OF ACCOUNTABLE INSTITUTION

An attorney as defined in the Attorneys Act, 1979 (Act 53 of 1979);

A Board of executors or a trust company or any other person that invests, keeps in safe custody, controls or

administers trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988);

An estate agent as defined in the Estate Agents Act, 1976 (Act 112 of 1976);

A financial instrument trader as defined in the Financial Markets Control Act, 1989 (Act 55 of 1989);

A management company registered in terms of the Unit Trusts Control Act, 1981 (Act 54 of 1981);

A person who carries on the "business of a bank" as defined in the Banks Act, 1990 (Act 94 of 1990);

A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993);

A person who carries on a "long-term insurance business" as defined in the Long-Term Insurance Act, 1998 (Act 52

of 1998), including an insurance broker and an agent of an insurer;

A person who carries on a business in respect of which a gambling licence is required to be issued by a provincial

licensing authority;

A person who carries on the business of dealing in foreign exchange;

A person who carries on the business of lending money against the security of securities;

A person who carries on the business of rendering investment advice or investment broking services, including a

public accountant as defined in the Public Accountants and Auditors Act, 1991 (Act 80 of 1991), who carries on such

a business;

A person who issues, sells or redeems travellers' cheques, money orders or similar instruments;

The Postbank referred to in section 51 of the Postal Services Act, 1998 (Act 124 of 1998);

A member of a stock exchange licensed under the Stock Exchanges Control Act, 1985 (Act 1 of 1985);

The Ithala Development Finance Corporation Limited;

A person who has been approved or who falls within a category of persons approved by the Registrar of Stock

Exchanges in terms of section 4 (1) (a) of the Stock Exchanges Control Act, 1985 (Act 1 of 1985);

A person who has been approved or who falls within a category of persons approved by the Registrar of Financial

Markets in terms of section 5 (1) (a) of the Financial Markets Control Act, 1989 (Act 55 of 1989);

A person who carries on the business of a money remitter.

SCHEDULE 2 – LIST OF SUPERVISORY BODIES

The Financial Services Board established by the Financial Services Board Act, 1990 (Act 97 of 1990);

The South African Reserve Bank as defined in the South African Reserve Bank Act, 1989 (Act 90 of 1989);

The Registrar of Companies as defined in the Companies Act, 1973 (Act 61 of 1973);

The Estate Agents Board established in terms of the Estate Agents Act, 1976 (Act 112 of 1976);

The Public Accountants and Auditors Board established in terms of the Public Accountants and Auditors Act, 1991

(Act 80 of 1991);

The National Gambling Board established in terms of the National Gambling Act, 1996 (Act 33 of 1996);

The JSE Securities Exchange South Africa;

The Law Society of South Africa.

SCHEDULE 3 – LIST OF REPORTING INSTITUTIONS

A person who carries on the business of dealing in motor vehicles;

A person who carries on the business of dealing in Kruger Rands.

REVISED DRAFT REGULATION OF TAX PRACTITIONERS BILL PURPOSE OF THE ACT

The purpose of this Act is to regulate the tax practitioner profession to ensure that tax practitioners are appropriately qualified, have the necessary experience, adhere to ethical practices and are held accountable for their professional

conduct.

APPLICATION OF THE ACT

This Act applies in respect of every individual who is required by section 23 to register with the Board.

Chapter II that deals with the establishment of the Independent Regulatory Board for Tax Practitioners does not apply to a registered tax practitioner who:

Is registered with the Independent Regulatory Board for Auditors established in terms of section 3 of the Auditing Professions Act, 2005 (Act No. 26 of 2005);

Is a person who is admitted and enrolled as an attorney, notary or conveyancer by the court in terms of section 15, 17 or 18 of the Attorneys Act, 1979 (Act No. 53 of 1979);

Is a person who is admitted and authorised to practice and enrolled as an advocate on the roll of advocates in terms of the Admission of Advocates Act, 1964 (Act No. 74 of 1964); or

Is a person whose profession is regulated by law through a statutory body that the Minister is satisfied is similar to the bodies and professions in this subsection and the details of which are published in the Government Gazette.

REGISTRATION OF REGISTERED TAX PRACTITIONERS

REGISTRATION OF TAX PRACTITIONERS

Every natural person who:

Provides advice to any other person with respect to the application of any Act administered by the Commissioner; or

Completes or assists in completing any document to be submitted to the Commissioner must register as a registered tax practitioner with the Board.

The provisions of this section do not apply in respect of a natural person who:

Provides advice or completes or assists in completing any document for no consideration;

Provides advice solely as an incidental or subordinate part of providing goods or other services to another person for which advice no consideration or fee is charged;

Provides advice or completes or assists in completing any document solely:

○ To or in respect of the employer by whom that person is employed on a full-time basis or to or in respect of that employer and connected persons in relation to that employer; or

○ Under the direct supervision of any person who is registered as a tax practitioner; or

○ Is a licensed clearing agent referred to in section 64B of the Customs and Excise Act, 1964 (Act No.91 of 1964).

APPLICATION FOR REGISTRATION AS REGISTERED TAX PRACTITIONER

An individual must lodge a written application for registration with the Board within 30 days from the date that this Act becomes applicable to that individual.

The application must be in the form, and contain such information as prescribed by the Boar, and must be accompanied by the fee prescribed by the Board.

APPROVAL OF APPLICATION FOR REGISTRATION

The Board must approve an application for registration as a registered tax practitioner if the Board is satisfied that the applicant:

Complies with the appropriate standards of qualifications and experience for registered tax practitioners determined by the Board;

Will comply with the Code of Professional Conduct for registered tax practitioners determined by the Board;

Is a fit and proper person;

Is ordinarily resident in the Republic;

Is not disqualified from registration; and

Meets any other requirements determined by the Board from time to time.

The Board may not approve an application for registration as a registered tax practitioner if the applicant:

Has at any time been removed from an office of trust on account of misconduct;

Has at any time been convicted (whether in the Republic or elsewhere) of theft, fraud, corruption, money-laundering, forgery (including uttering a forged document), perjury or any other offence which involves dishonesty, in respect of which that applicant has been sentenced to imprisonment without the option of a fine or to a fine exceeding an amount determined from time to time by the Minister for this purpose;

Is an unrehabilitated insolvent;

Is for the time being declared by a competent court to be of unsound mind or unable to manage his or her own affairs;

Is disqualified from registration under a disciplinary or other measure or suspended imposed in terms of:

○ This Act;

○ Any act of a statutory body contemplated in section 3(2);

○ The Attorneys Act, 1979 (Act No. 53 of 1979); or

○ The Admission of Advocates Act, 1964 (Act No. 74 of 1964).

As a transitional rule during the initial period of registration of tax practitioners the Board:

May apply different standards regarding the qualification and experience of the applicants and if further consideration of the qualifications or experience is required, allow the tax practitioners a period of one year from the commencement date of the Act, or such longer period as the Minister may allow, to operate as tax practitioners on a temporary registration, provided that:

○ The tax practitioner has registered as a registered tax practitioner in terms of section 67A of the Income Tax Act, 1962 (Act No. 58 of 1962) or in terms of section 24 of this Act within one year after the date of commencement of this Act; and

○ That the tax practitioner has or will have carried on the profession of tax practitioner for a period of three years prior to the expiry of the period of temporary registration.

REGISTRATION AND ISSUE OF CERTIFICATE

If an application for registration as registered tax practitioner is approved, the Board must enter the applicant’s name in the register of registered tax practitioners and issue to the applicant a certificate of registration.

DUTIES OF TAX PRACTITIONERS

DUTIES WITH REGARD TO THE PRACTICE OF A REGISTERED TAX PRACTITIONER

A registered tax practitioner may not knowingly employ any person who is:

Being suspended from practice;

Whose name has been removed from the register of registered tax practitioners by virtue of a finding of improper conduct and punishment imposed on the person;

Engage in practice if any fees or monies determined by the Board have not been paid in full;

Sign any statement, report or other document which purports to represent advice given or work performed unless the advice was given or the work was performed by the registered tax practitioner;

Engage in the practice of a registered tax practitioner during any period that he or she has been suspended from practice; or

Fail to account or unreasonably delay in accounting for any money or property received for or on behalf of a client or any other person when called upon to do so.

The above does not apply in respect of work performed:

Under the personal supervision or direction of an registered tax practitioner;

By or under the personal supervision or direction of any other registered tax practitioner who is a partner, co-director, co-member or supervisor in relation to him or her;

On behalf of the registered tax practitioner by any other registered tax practitioner;

By any other registered tax practitioner in a partially completed assignment which that other registered tax practitioner could not complete as a result of death, disability or other cause not under his or her control and which assignment the registered tax practitioner concerned is engaged to complete;

Outside the Republic by a member of a professional body outside the Republic whose status, in the opinion of the Board, is at least equal to that demanded by the Board for the profession in the Republic.

DISCHARGING OF DUTIES OF REGISTERED TAX PRACTITIONER

A registered tax practitioner must in the discharge of his or her duties in respect of the tax affairs of a person comply with:

Any Act administered by the Commissioner; and

The Code of Professional Conduct determined by the Board for registered tax practitioners.

INFORMATION TO BE PROVIDED BY REGISTERED TAX PRACTITIONER

A registered tax practitioner must, within 14 days of receipt of a written request from any person for whom he or she acts in that capacity, or any person who proposes to appoint him or her as its registered tax practitioner, furnish to that person:

The registered tax practitioner’s full name and business address;

Particulars of the title under which that tax practitioner practices; and

Particulars of the place or places of business in which that tax practitioner is in practice.

DISCIPLINARY MATTERS

COURT AND OFFICIAL TO INFORM BOARD OF PRIMA FACIE PROOF OF IMPROPER CONDUCT

If, in the course of any proceedings before any court of law, it appears to the court that there is prima facie proof of improper conduct on the part of a registered tax practitioner the court must direct a copy of the record of the proceedings to the Board.

Whenever it appears to an official of any body charged with regulation or supervision of any entity or profession that there is prima facie proof of improper conduct on the part of a registered tax practitioner, the official must forthwith send a report of that conduct to the Board.

REFERRAL OF ALLEGATIONS OF IMPROPER CONDUCT

A matter brought against a registered tax practitioner must, if the Board:

On reasonable grounds suspects that a registered tax practitioner has committed an act which may render him or her guilty of improper conduct;

Is of the opinion that a complaint or allegation of improper conduct, whether prescribed or not, which has been made against a registered tax practitioner by any person appears to be justified; or

Receives any record or report under section 35, be referred to the applicable statutory body for investigation or in any other case to the investigating committee.

INVESTIGATION OF ALLEGATION OF IMPROPER CONDUCT

At the request of the Board, the investigating committee must:

Investigate the matter; and

Obtain evidence to determine whether or not in its opinion the registered tax practitioner concerned should be charged and, if so, recommend to the Board the charge or charges that may be brought against that tax practitioner.

The investigating committee may not question the registered tax practitioner concerned unless the investigating committee informs the registered tax practitioner that he or she:

Has the right to be assisted or represented by another person; and

Is not obliged to make any statement and that any statement made may be used in evidence against that tax practitioner.

In investigating a charge of improper conduct the investigating committee may:

Subject to the Promotion of Access to Information Act, 2000 (Act No. 2 of 2000) or any other law, require the registered tax practitioner to whom the charge relates or any other person to produce to the committee any information, including but not limited to any working papers, statements, correspondence, books or other documents, which is in the possession or under the control of that tax practitioner or other person and which relates to the subject matter of the charge, including specifically, but without limitation, any working papers of that tax practitioner;

Inspect and, if the investigating committee considers it appropriate, retain any such information for the purposes of its investigations; and

Make copies of and take extracts from such information.

These provisions apply regardless of whether that registered tax practitioner or that person is of the opinion that such working papers, statements, correspondence, books or other documents contain confidential information about a client.

The investigating committee must, after the conclusion of the investigation, submit a report stating its recommendations to the Board.

DISCIPLINARY HEARING

A disciplinary hearing must be conducted by the disciplinary committee.

The disciplinary committee must appoint a person to present the charge to the disciplinary committee, which person may be a member of the investigating committee.

A hearing before the disciplinary committee is held in camera except where, in the opinion of the chairperson of the disciplinary committee, any part of the hearing should be open to the public.

Where during the hearing of the disciplinary committee details of the tax affairs of a taxpayer will be disclosed, the hearing may only be attended by persons whose attendance, in the view of the chairperson of the disciplinary committee, is necessary for the proper consideration of the complaint.

The disciplinary committee may, for the purposes of a hearing, subpoena any person:

Who may be able to give material information; or

Who it suspects or believes has in his or her possession or custody or under such person's control any information, including but not limited to any working papers, statements, correspondence, books or other documents, which has any bearing on the subject of the hearing, to appear before the disciplinary committee at the time and place specified in the subpoena, to be questioned or to produce any information, including but not limited to any working papers, statements, correspondence, books or other documents.

A subpoena issued must:

Be in the prescribed form;

Be signed by the chairperson of the disciplinary committee or, in that person's absence, by any member of the disciplinary committee; and

Be served on the person concerned personally or by sending it by registered mail.

The disciplinary committee may retain any information, including but not limited to any working papers, statements, correspondence, books or other documents for the duration of the hearing.

The chairperson of the disciplinary committee may call upon and administer an oath to, or take an affirmation from, any witness at the hearing who was subpoenaed.

At a hearing the registered tax practitioner charged:

May be assisted or represented by another person in conducting the proceedings;

Has the right to be heard;

May call witnesses;

May cross-examine any person called as a witness in support of the charge;

May have access to documents produced in evidence; and

May admit at any time before the conclusion of the disciplinary hearing that he or she is guilty of the charge, despite the fact that he or she denied the charge or failed to react.

The person charged may during a hearing:

Lead evidence and advance arguments in support of the charge and cross-examine witnesses;

Question any person who was subpoenaed; or

Call anyone to give evidence or to produce any information, including but not limited to any working papers, statements, correspondence, books or other documents in his or her possession or custody or under his or her control, which such person suspects or believes to have a bearing on the subject of the hearing.

A witness who has been subpoenaed may not:

Without sufficient cause, fail to attend the hearing at the time and place specified in the subpoena;

Refuse to be sworn in or to be affirmed as a witness;

Without sufficient cause, fail to answer fully and satisfactorily to the best of his or her knowledge to all questions lawfully put to him or her; or

Fail to produce any information, including but not limited to any working papers, statements, correspondence, books or other documents in his or her possession or custody or under his or her control, which he or she has been required to produce.

A witness who has been subpoenaed must remain in attendance until excused by the chairperson of the disciplinary committee from further attendance.

A witness who has been subpoenaed may request that the names of the members of the disciplinary committee be made available to him or her.

The law relating to privilege, as applicable to a witness subpoenaed to give evidence or to produce a book, document or object in a civil trial before a court of law may apply in relation to the examination of any information, including but not limited to any working papers, statements, correspondence, books or other documents, or to the production of such information to the disciplinary committee by any person called in as a witness.

A witness may not, after having been sworn in or having been affirmed as a witness, give a false statement on any matter, knowing that answer or statement to be false.

A person may not prevent another person from complying with a subpoena or from giving evidence or producing any information, including but not limited to any working papers, statements, correspondence, books or other documents, which he or she is in terms of this section required to give or produce.

The record of evidence which has a bearing on the charge before the disciplinary committee, and which was presented before any committee which investigated an event or conduct, is admissible without further evidence being led if:

The record is accompanied by a certificate from the chairperson; and

The certificate certifies that the investigation was lawful, reasonable and procedurally fair.

If the improper conduct with which the registered tax practitioner is charged amounts to an offence of which he or she has been convicted by a court of law, a certified copy of the record of his or her trial and conviction by that court is, on the identification of the registered tax practitioner as the person referred to in the record, sufficient proof of the commission by him or her of that offence, unless the conviction has been set aside by a superior court.

PROCEEDINGS AFTER HEARING

After the conclusion of a hearing the disciplinary committee must, within 30 days decide whether or not the registered tax practitioner is guilty as charged of improper conduct.

If the disciplinary committee finds that the registered tax practitioner charged is guilty of improper conduct, the disciplinary committee must take cognisance of any aggravating or mitigating circumstances and inform the registered tax practitioner charged and the Board of the finding.

A registered tax practitioner found guilty of improper conduct may:

Address the disciplinary committee in mitigation of the sentence; and

Call witnesses to give evidence on his or her behalf in mitigation of the sentence.

If the registered tax practitioner charged is found guilty of improper conduct, or if the registered tax practitioner admits to the charge, the disciplinary committee must either:

Caution or reprimand the registered tax practitioner;

Suspend the right to practice as a registered tax practitioner for a specific period; or

Cancel the registration of the registered tax practitioner concerned and remove his or her name from the register.

A disciplinary committee may order any person who admitted guilt and was found guilty to pay such reasonable costs as have been incurred by an investigation.

The Board may publish the finding and the sanction imposed.

DISCIPLINARY ACTION BY PROFESSIONAL BODIES

Nothing in this Act affects the right of any professional body to take disciplinary or other action against any of its members.

FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT PURPOSE OF THE ACT

The Act creates a formal system of regulating financial advisors and intermediaries.

Aggrieved consumers will be able to seek redress when they have been misled or misrepresented to by a representative or financial services provider.

The FAIS Act was introduced to regulate the business of all Financial Service Providers who give advice or provide intermediary services to clients, regarding a wide range of financial products.

In terms of the Act, such Financial Services Providers need to be licensed, and professional conduct is controlled through Codes of Conduct and enforcement measures.

DEFINITION OF ADVICE

Advice means any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients:

In respect of the purchase of any financial product; or

In respect of the investment in any financial product; or

On the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in respect of any financial product; or

On the variation of any term or condition applying to a financial product, on the replacement of any such product, or on the termination of any purchase of or investment in any such product, and irrespective of whether or not such advice:

○ is furnished in the course of or incidental to financial planning in connection with the affairs of the client; or

○ results in any such purchase, investment, transaction, variation, replacement or termination, as the case may be, being affected.

For the purposes of FAIS, advice does NOT include factual advice given:

On the procedure for entering into any transaction relating to a financial product;

In relation to the description of a financial product;

In response to a routine administrative query;

In the form of objective information about a specific financial product;

By the display or distribution of promotional material.

In terms of FAIS, advice also excludes:

An analysis or report on a financial product without any express or implied recommendation as to its suitability for a client.

Advice given by a board member or management, of a pension fund organisation or friendly society, or trustees, or board member of a medical scheme to its members, on the benefits enjoyed or to be enjoyed by such members.

INTERMEDIARY SERVICES

An intermediary service occurs when a person performs any act, other than giving advice, for or on behalf of a client or product supplier. For example:

Doing something other than giving advice as a result of which the client will enter into a financial product with a product supplier;

Keeping a financial product in safe custody;

Processing the claims of a client against a product supplier;

Collecting or accounting for premium payments.

In practice intermediary service means the facilitation of a financial transaction, where the service is not a recommendation, guidance or proposal regarding financial products.

The difference between intermediary services and advisory services may be described simply as follows:

Intermediary services may facilitate the administration of the product;

Advisory services facilitate the client’s decision in relation to a financial product.

AUTHORISATION OF FINANCIAL SERVICES PROVIDERS

A person may not act or offer to act as a financial services provider unless such person has been issued with a license.

APPLICATION FOR AUTHORISATION

An application for an authorisation, must be submitted to the registrar, and be accompanied by information to satisfy the registrar that the applicant complies with the requirements for fit and proper financial services providers or categories of providers, in respect of:

Personal character qualities of honesty and integrity;

The competence and operational ability; and

The applicant's financial soundness.

Where an application is granted, the registrar must issue a license authorising the applicant to act as a financial services provider.

A licensee must:

Display a certified copy of the license in a prominent and durable manner within every business premises of the licensee;

Ensure that a reference to the fact that such a license is held is contained in all business documentation, advertisements and other promotional material;

Ensure that the license is available immediately and at all times, or within a reasonable time available for production to any person requesting proof of license.

LAPSING OF LICENCE

A license lapses:

Where the licensee, being a natural person:

○ becomes permanently incapable of carrying on any business due to physical or mental disease or serious injury;

○ is finally sequestrated; or

○ dies;

○ where the licensee, being any other person, is finally liquidated or dissolved;

○ where the business of the licensee has become dormant; and

○ in any other case, where the licensee voluntarily and finally surrenders the license to the registrar.

QUALIFICATIONS OF REPRESENTATIVES AND DUTIES OF AUTHORISED FINANCIAL SERVICES PROVIDERS

An authorised financial services provider must at all times be satisfied that the provider's representatives, and key individuals of such representatives, are, when rendering a financial service on behalf of the provider, competent to act.

The authorised financial services provider must maintain a register of representatives, and key individuals of such representatives, which must be regularly updated and be available to the registrar for reference or inspection purposes.

Such register must:

Contain every representative's or key individual's name and business address, and state whether the representative acts for the provider as employee or as mandatory; and

Specify the categories in which such representatives are competent to render financial services.

DEBARMENT PROCESS OF REPRESENTATIVES

Procedures to be followed by all financial services providers in order to notify the Registrar of financial services providers regarding debarment of representatives:

The provider should debar any representative who does not comply with the fit and proper requirements;

Debarred representative(s) must be removed from the register of representatives that the provider must maintain.

The provider should inform the Registrar of Financial Services Providers in writing of the debarment of representatives or key individuals of the representative within 15 days.

There was an extension to the deadline for removal to end April 2010.

COMPLIANCE OFFICERS AND COMPLIANCE ARRANGEMENTS

Any authorised financial services provider with more than one key individual or one or more representatives must, appoint one or more compliance officers to monitor compliance with this Act, and to take responsibility for liaison with the registrar.

Such person may be any person with suitable qualifications and experience determined by the registrar.

A compliance officer must be approved by the registrar.

ACCOUNTING AND AUDIT REQUIREMENTS

An authorised financial services provider must:

Maintain full and proper accounting records on a continual basis, brought up to date monthly; and

Annually prepare financial statements reflecting:

○ the financial position of the entity at its financial year end;

○ the results of operations, the receipt and payment of cash and cash equivalent balances;

○ all changes in equity for the period then ended; and

○ a summary of significant accounting policies and explanatory notes.

An authorised financial services provider must cause the statements to be audited and reported on by an external auditor approved by the registrar.

The financial statements must be submitted by the FSP to the registrar not later than four months after the end of the provider's financial year, or such longer period as may be allowed by the registrar.

The FSP must maintain records in respect of money and financial products held on behalf of clients, and must, in addition to and simultaneously with the financial statements submit to the registrar a report, by the auditor who performed the audit, which confirms for different categories of financial services providers:

The amount of money and financial products at year end held by the provider on behalf of clients;

That such money and financial products were throughout the financial year kept separate from those of the business of the authorised financial services provider and, report any instance of non-compliance identified in the course of the audit and the extent thereof.

Despite anything to the contrary contained in any law, the auditor of an authorised FSP must report to and inform the registrar in writing of any irregularity or suspected irregularity in the conduct or the affairs of the FSP concerned of which the auditor became aware in performing functions as auditor and which, in the opinion of the auditor, is material.

If the appointment of an auditor of an authorised FSP is terminated:

The auditor must submit to the registrar a statement of what the auditor believes to be the reasons for that termination; and

If the auditor would, but for that termination, had reason to submit to the registrar a report regarding a material irregularity, the auditor must submit such a report to the registrar.

A financial services provider may not change a financial year end without the approval of the Registrar.

NEW SUBMISSION DATES FOR FINANCIAL STATEMENTS

In the past Section 19 of the FAIS Act required that all FSPs submit their financial statements to the Registrar no later than six (6) months after the end of their financial year end. With the publication of the Financial Services Laws General Laws Amendment Act, 2008, the submission dates for financial statements in terms of the FAIS Act have changed. Basically what this means is that FSPs now have four (4) months to submit their annual financial statements to the Registrar. The change in the timeframe for the submission of the financial statements comes into effect on 1 May 2009 which means that: anyone with a financial year end on or before 30 April 2009 still has 6 months to submit their financial statements for 2009; anyone with a financial year end on or after 1 May 2009 has 4 months to submit their 2009 financial statements to the Registrar; and everyone will need to submit their 2010 financial statements to the Registrar within 4 months from their financial year end.

DETERMINATION OF FIT AND PROPER REQUIREMENTS FOR FINANCIAL SERVICES PROVIDERS

Personal Character Qualities of Honesty and IntegrityAn applicant must be a person who is honest and has integrity.

Any of the following factors constitutes prima facie evidence that the applicant does not qualify:

Has within a period of five years preceding the date of application:

○ been found guilty in any civil or criminal proceedings by a court of law (whether in the Republic or elsewhere) of having acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach of a fiduciary duty;

○ been found guilty by any professional or financial services industry body (whether in the Republic or elsewhere) recognised by the Board, of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the applicant;

○ been denied membership of any body on account of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the applicant;

○ been found guilty by any regulatory or supervisory body (whether in the Republic or elsewhere), recognised by the Board; or

○ had its authorisation to carry on business refused, suspended or withdrawn by any such body, on account of an act of dishonesty, negligence, incompetence or mismanagement sufficiently serious to impugn the honesty and integrity of the applicant;

○ had any licence granted to the applicant by any regulatory or supervisory body suspended or withdrawn by such body on account of an act of dishonesty, negligence, incompetence or mismanagement, sufficiently serious to impugn the honesty and integrity of the applicant; or

Has at any time prior to the date of application been disqualified or prohibited by any court of law (whether in the Republic or elsewhere) from taking part in the management of any company or other statutorily created, recognised or regulated body, irrespective whether such disqualification has since been lifted or not.

Competency

A key individual must have at least one year’s experience in managing or overseeing the financial services of an organisation, and the experience period must relate to the period required for the category or subcategory he / she is approved for.

A representative must have the relevant product related experience.

The qualification requirements must also be met before the Registrar will approve the application. There is a list of recognised qualifications that can be consulted.

If a specific qualification does not appear on the list, application can be made to the Registrar to approve the qualification.

All key individuals are required to write regulatory examinations. There are two levels of regulatory examinations. The first level regulatory examination deals with the legislation, such as FAIS and FICA, and the subordinate legislation such as the regulations and codes of conduct. The second level regulatory examinations deals with product specific information.

Key individuals are only required to write the second level regulatory exams if they give advice or render intermediary services (act as representatives).

CPD refers to continuous professional development. This occurs after the key individual has met the requirements regarding the regulatory examinations. The purpose of CPD is to help the key individual to keep their knowledge and understanding of the legislation and industry up to date, without you having to obtain more qualifications or examinations. Depending on the

category or subcategory the key individual is authorised for, needs to complete between 15 and 60 hours of CPD activities over a 3 year cycle.

Any employer, conference organizer, industry body or professional association may apply to the FSB to have activities registered as CPD activities for FAIS purposes. Application forms are available from the FSB, as part of Board Notice 106 of 2008.

These activities can include:

Courses, conferences, seminars;

Studies leading to formal assessment; can include distance learning, additional qualifications, or attendance at formal courses;

Workshops;

Structured self study programmes including web and computer based programmes that assess knowledge.

It is essential to obtain evidence of attendance at these programmes and that the compliance officer, of the company, keeps record of CPD hours to report back to the FSB.

When do the new requirements apply?

Approved between 2004 – 2007:

Qualification achieved by 31/12/2009

First level examination 31/12/2011

Second level examination by 31/12/2013

Approved in 2008:

Qualification achieved by 31/12/2011 or 2012, depending on choice;



Approved in 2009:




Approved in 2010:




Operational ability

An applicant must have and be able to maintain the operational ability to fulfil the responsibilities, including at least the following:

A fixed business address;

Adequate access to communication facilities including at least a full-time telephone or cell phone service, and typing and document duplication facilities;

Adequate storage and filing systems for the safe-keeping of records, business communications and correspondence; and

An account with a registered bank including, where required by the Act, a separate bank account for client funds.

An applicant must have in place, the appropriate money laundering control systems and provision for training of staff, including identification, record-keeping and reporting procedures, where required under the Financial Intelligence Centre Act, 2001.

Financial Soundness

An applicant must not be an unrehabilitated insolvent or under liquidation or provisional liquidation.

The assets of an applicant (excluding goodwill and other intangible assets) must exceed the applicant’s liabilities (excluding loans validly subordinated in favour of all other creditors), subject to any exemptions granted.

THE 2010 COMPLIANCE REPORT

The 2010 compliance reports were published on 31 May 2009. For the 2010 reporting year there will be 10 different reports as indicated in Table A below. Financial Services Providers must submit the compliance reports by the submission date.

Table A

Type of FSP Reporting Date Submission Date

Category I FSP without Compliance Officer 31 December 2010 28 February 2011

Category I FSP with Compliance Of-ficer 31 May 2010 15 August 2010

Category II and Forex Authorised FSPs 31 August 2010 31 October 2010

Category IIA FSP(Annual) 31 May 2010 30 June 2010

Interim compliance report for Cat-egory IIA FSPs

31 August 2010 30 November 2010 28 February 2011

30 September 2010 31 December 2010

30 March 2011

Category III FSPs (Annual) 30 June 2010 31 July 2010

Category III FSPs (Interim report) 31 December 2010 31 January 2011

Category IV FSPs 31 August 2010 31 October 2010

Foreign FSPs 31 August 2010 31 October 2010

Handover report One month after the FSP was in-formed of resignation

REQUIREMENTS FOR PROFESSIONAL INDEMNITY AND FIDELITY INSURANCE COVER FOR PROVIDERS

A person who is a Category I provider on the date of commencement must, with effect from a date 12 months after that date, maintain:

Professional indemnity of a minimum of R1 million; or

Guarantees of a minimum of R1 million.

A person who is a Category I or IV provider and who receives or holds clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date 12 months after that date, maintain:

Guarantees of a minimum R1 million; or

Suitable fidelity insurance cover of a minimum of R1 million.

A person who is a Category II or IIA and who receives or hold clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date six months after that date, maintain:

Guarantees of a minimum amount of R5 million, or

Suitable professional indemnity or fidelity insurance cover of a minimum of R5 million, respectively.

A person who is a Category III provider and who receives or hold clients financial products or funds of or on behalf of a client on the date of commencement must, with effect from a date six months after that date, maintain:

Guarantees or of a minimum amount of R5 million; or

Professional indemnity and fidelity insurance cover of a minimum amount of R5 million, respectively.

FINANCIAL INTEREST AND CONFLICT OF INTEREST MANAGEMENT POLICY

BACKGROUND The Registrar of Financial Services Providers has amended the General Code of Conduct for authorised financial services providers and representatives, to make provision for new requirements relating to:

Conflict of interest; and

Prohibition on the giving and receiving of certain types of financial interest.

Conflict of interest is defined as any situation in which a provider or representative has an actual or potential interest that may, in rendering financial service to a client:

Influence the objective exercise of his, her or its obligations to a client; or

Prevent a provider or representative from rendering an unbiased and fair financial service, or from acting in the interests of a client, including, but not limited to:

○ a financial interest;

○ an ownership interest; or

○ any relationship with a third party.

AVOID OR MITIGATE A CONFLICT OF INTERESTS The FSP must take steps to avoid or mitigate a conflict of interest and must disclose the full nature of such conflict in writing to the client, together with the measures taken to avoid or mitigate the conflict. The amendments take effect 3 months after the date of the Notice, i.e. 19 July 2010. Note that until the newly introduced section 3A(2) takes effect, on 19 April 2011, reference need not be made by the FSP, in its written disclosure of the conflict of interest to the client, of the conflict of interest management policy of the provider.

FINANCIAL INTEREST WHICH A FSP MAY RECEIVE FROM OR PAY TO A THIRD PARTY A new section is introduced into the Code, section 3A, entitled Financial interest and conflict of interest management policy. Section 3A(1)(a), which takes effect on 19 October 2010, sets out the financial interest which a FSP may receive from or pay to a third party, restricting it principally to commissions and fees authorized under the Long Term Insurance Act, the Short Term Insurance Act and the Medical Schemes Act. Provision is made for fees earned or paid in terms of any other legislation.

NO FINANCIAL INTEREST TO A REPRESENTATIVE FOR GIVING PREFERENCE Section 3A(1)(b), which takes effect on 19 April 2011, prohibits a FSP from offering a financial interest to a representative for giving preference to the quantity of business secured to the exclusion of quality, or for giving preference to a specific product supplier, where the client has a choice of more than one product provider, or for giving preference to a specific product of a supplier, where more than one product from the same provider is available to the client. Section 3A(1)(c), which takes effect on 19 October 2010, applies to entities which are both product providers and financial services providers.

CONFLICT OF INTEREST MANAGEMENT POLICY Section 3A(2), which takes effect on 19 April 2011, requires all FSP’s to adopt, maintain and implement a conflict of interest management policy. Section 3A(2)(b) details the contents of such a policy, whilst section 3A(2)(c) to (f) provide for measures of adoption, employee and representative education on the policy, monitoring procedures and the appropriate

http://www.gazette.co.za/newsletters/iod/copy83_of_the-contemporary-gazette-vol-1-issue-19/resolveuid/faa593888f26c3c2f2b58c2eaebbd1f6



http://www.gazette.co.za/newsletters/iod/copy83_of_the-contemporary-gazette-vol-1-issue-19/resolveuid/e948b807ad6108116ef96b4e90c95acf

http://www.gazette.co.za/newsletters/iod/copy83_of_the-contemporary-gazette-vol-1-issue-19/resolveuid/e948b807ad6108116ef96b4e90c95acf

publishing of such a policy. The stated aim is to have it accessible for public inspection at all reasonable times.

ANTI-AVOIDANCE Section 3A(3), which takes effect on 19 October 2010, prohibits any FSP or representative from attempting to collude with any associate in an attempt to avoid, limit or circumvent compliance with Section 3 of the Code.

REPORTING DUTY Section 3A(4), which takes effect on 19 July 2010, requires the compliance officer of a FSP (or the FSP, if a compliance officer is not required by law) to report on the provider’s conflict of interest management policy, to the Registrar. The aspects which should be reported on include implementation, monitoring, compliance with and accessibility of the conflict of interest management policy.



THE NATIONAL CREDIT ACT NO.34 OF 2005 PURPOSE OF THE ACT

The Act was passed into law by Parliament and signed by the President in March 2006. This aims to protect consumers taking credit or entering into consumer credit transactions.

In addition, the Act makes provision for the control and regulation of all credit transactions, including mortgages, credit cards, overdrafts, micro-loans and pawn broking transactions.

The Act also regulates all institutions that provide consumer credit, including banks, furniture companies, clothing and other retailers, micro-lenders and pawnbrokers.

Provision is made in the Act for the registration of debt counsellors and debt restructuring for over-indebted consumers. The Act also regulates credit bureaux and consumer credit information, providing for free access to this

information, kept by credit bureaux, and for a process by which any errors on the credit records can be corrected.

OVERVIEW OF THE ACT

Chapter 1 – Interpretation, Purpose and Application

Chapter 2 – Consumer Credit Institutions

Chapter 3 – Consumer Credit Industry Regulation

Chapter 4 – Consumer Credit Policy

Chapter 5 – Consumer Credit Agreements

Chapter 6 – Collection, repayment, surrender and debt enforcement

Chapter 7 – Dispute settlement other than debt enforcement

Chapter 8 – Enforcement of Act

Chapter 9 – General Provisions

Schedule 1 – Rules concerning conflicting legislation

Schedule 2 – Amendment of Laws

Schedule 3 – Transitional Provisions

CHAPTER 1 – INTERPRETATION, PURPOSE AND APPLICATION

DEFINITIONS

Consumer

The party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment

agreement;

The party to whom money is paid, or credit granted, under a pawn transaction;

The party to whom credit is granted under a credit facility;

The mortgagor under a mortgage agreement;

The borrower under a secured loan;

The lessee under a lease;

The guarantor under a credit guarantee; or

The party to whom or at whose direction money is advanced or credit granted under any other credit agreement.

Credit provider

The party who supplies goods or services under a discount transaction, incidental credit agreement or instalment

agreement;

The party who advances money or credit under a pawn transaction;

The party who extends credit under a credit facility;

The mortgagee under a mortgage agreement;

The lender under a secured loan;

The lessor under a lease;

The party to whom an assurance or promise is made under a credit guarantee;

The party who advances money or credit to another under any other credit agreement; or

Any other person who acquires the rights of a credit provider under a credit agreement.

Educational loan

A student loan;

A school loan; or

Another credit agreement entered into by a consumer for purposes related to the consumer’s adult education,

training or skill’s development.

Incidental credit agreements

Incidental credit agreement: means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:

A fee, charge or interest became payable when payment of an amount charged in terms of that account was not

made on or before a determined period or date; or

Two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or

before a determined date, and the higher price being applicable due to the account not having been paid by that

date.

Installment agreement

Installment agreement means a sale of movable property in terms of which:

All or part of the price is deferred and is to be paid by periodic payments;

Possession and use of the property is transferred to the consumer;

Ownership of the property either:

○ Passes to the consumer only when the agreement is fully complied with; or

○ Passes to the consumer immediately subject to a right of the credit provider to re-possess the property if the

consumer fails to satisfy all of the consumer’s financial obligations under the agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has

been deferred.

Discount transaction

Goods or services are to be provided to a consumer over a period of time; and

More than one price is quoted for the goods or service, the lower price being applicable if the account is paid on or before a determined date, and a higher price or prices being applicable if the price is paid after that date, or is paid periodically during the period.

Lease

Temporary possession of any movable property is delivered to or at the direction of the consumer, or the right to use

any such property is granted to or at the direction of the consumer;

Payment for the possession or use of that property is:

○ Made on an agreed or determined periodic basis during the life of the agreement; or

○ Deferred in whole or in part for any period during the life of the agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has

been deferred; and

At the end of the term of the agreement, ownership of that property either:

○ Passes to the consumer absolutely; or

○ Passes to the consumer upon satisfaction of specific conditions set out in the agreement.

Large credit agreement

A credit agreement which is greater that R 250,000; or

A mortgage.

Intermediate agreement

A credit agreement of between R 15,001 and R 250,000;

Except a pawn transaction and a mortgage.

Small agreement

Any pawn transaction;

A credit agreement of up to R 15 000, excluding a mortgage.


This Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except a credit agreement in terms of which the consumer is:

A juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds R 1 000 000;

The State; or

An organ of State;

A large agreement in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below R 1 000 000;

A credit agreement in terms of which the credit provider is the Reserve Bank of South Africa; or

A credit agreement in respect of which the credit provider is located outside the Republic.

The asset value or annual turnover of a juristic person at the time a credit agreement is made is the value stated as such by that juristic person at the time it applies for or enters into that agreement.

In any of the following arrangements, the parties are not dealing at arm’s length:

A shareholder loan or other credit agreement between a juristic person, as consumer, and a person who has a controlling interest in that juristic person, as credit provider;

A loan to a shareholder or other credit agreement between a juristic person, as credit provider, and a person who has a controlling interest in that juristic person, as consumer;

A credit agreement between natural persons who are in a familial relationship and:

○ Are co-dependent on each other; or

○ One is dependent upon the other; and

Any other arrangement in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or

That is of a type that has been held in law to be between parties who are not dealing at arm’s length:

○ This Act applies to a credit guarantee only to the extent that this Act applies to a credit facility or credit transaction in respect of which the credit guarantee is granted; and

○ A juristic person is related to another juristic person if:

― One of them has direct or indirect control over the whole or part of the business of the other; or

― A person has direct or indirect control over both of them.

The Act has limited application to so-called ‘incidental’ credit agreements. These are defined as goods or services provided to the consumer whereby interest becomes payable only when payment is not made on or before a predetermined period. The providers of such types of credit do not have to register in terms of the Act. An incidental credit agreement is distinguished from a trade account. A trade account is one where a credit limit is set for a customer. This is not the same thing as a credit facility. Provided interest is not charged on any overdue amount, the agreement to provide credit does not fall within the ambit of the Act.

CHAPTER 2 – CONSUMER CREDIT INSTITUTIONS

THE NATIONAL CREDIT REGULATOR

The National Credit Regulator (NCR) was established as the regulator under the National Credit Act 34 of 2005 (the Act) and is responsible for the regulation of the South African credit industry. It is tasked with carrying out education, research, policy development, registration of industry participants, investigation of complaints, and ensuring enforcement of the Act.

The Act requires the Regulator to promote the development of an accessible credit market, particularly to address the needs of historically disadvantaged persons, low income persons, and remote, isolated or low density communities.

The NCR is also tasked with the registration of credit providers, credit bureaux and debt counsellors; and enforcement of compliance with the Act.

THE NATIONAL CONSUMER TRIBUNAL

The Tribunal is an independent body provided for under the Act. It is tasked with the hearing of cases arising from non-compliance with the Act as well as issuing of fines for contraventions thereof. Consumers and Credit providers may appeal to the Tribunal against the decisions of the NCR.

CHAPTER 3 – CONSUMER CREDIT INDUSTRY REGULATION

REGISTRATION REQUIREMENTS

The Act requires the registration of credit providers, credit bureaux and debt counsellors. Credit providers must register if they have at least 100 credit agreements (excluding incidental credit agreements); or total principal debt of more than R 500,000.

REGISTRATION AND RENEWAL FEES

The Minister may prescribe application fees to be paid as follows:

An initial registration fee upon registration;

An annual renewal fee.

CERTIFICATE, VALIDITY AND PUBLIC NOTICE OF REGISTRATION Upon registering an applicant, the NCR must:

Issue a certificate of registration;

Enter the registration in the register;

Assign a unique registration number.

NATIONAL RECORD OF REGISTRATIONS

The NCR must establish and maintain a register of all persons who have been registered.

CHAPTER 4 – CONSUMER CREDIT POLICY

RIGHT TO APPLY FOR CREDIT

The NCA provides that every person, whether an individual, a group of people or a company, has the right to apply for credit from any credit provider. This right, however, does not prevent the credit provider from refusing to grant the credit, provided the reason for refusing to grant the credit is based on business grounds that are in line with their normal credit risk evaluation processes (section 60).

THE RIGHT NOT TO BE DISCRIMINATED AGAINST WHEN APPLYING FOR CREDIT Consumers who are applying for credit are further protected against unfair discrimination by a credit provider. The Act forbids credit providers from discriminating against consumers on the basis of colour, race, age, political affiliation, sexual orientation, religious belief, or affiliation to any particular trade union. A consumer who is of the opinion that he / she has been discriminated against for these reasons may act against the credit provider through the Equality Court, or may complain to the National Credit Regulator which will refer the matter to the Equality Court (section 61).

THE RIGHT TO BE GIVEN REASONS FOR CREDIT BEING DECLINED The NCA gives a consumer, whose credit application has been declined by a credit provider, the right to request written reasons explaining why his / her application for credit has been declined. If the decision to decline the consumer's request is based on an unfavourable report received from a credit bureau, the Act stipulates that the credit provider must supply the consumer in writing with the name, address and other contact details of the credit bureau from which the credit provider received the information (section 62).

THE RIGHT TO BE GIVEN DOCUMENTS IN AN OFFICIAL LANGUAGE THAT THE CONSUMER UNDERSTANDS A consumer has the right to receive documents from a credit provider in an official language that he / she understands. Documents that a credit provider must give to a consumer include the credit agreement, quotations and statements. This requirement is, however, subject to reasonability and factors such as usage, practicality, expenses, region and the needs of the consumers served by the credit provider. The credit provider must make a proposal to the NCR on the languages in which it intends making its documents available and the NCR will approve these proposals (section 63).

THE RIGHT TO BE GIVEN DOCUMENTS IN PLAIN AND UNDERSTANDABLE LANGUAGE A consumer has the right to receive information and documents in plain language. This means that the contents, meaning and importance of the document must be easy to understand. In this regard the NCR may issue guidelines to indicate what would be regarded as “plain language” (section 64).

THE RIGHT TO BE GIVEN DOCUMENTS RELATED TO THE CREDIT TRANSACTION The NCA gives the consumer the right to receive documents relating to the credit agreement in a manner that the consumer chooses. A consumer may choose to receive documents either in person at the credit provider's place of business, or by fax, email, or by a printable web page.

A consumer has the right to receive one replacement copy of documents from the credit provider, free of charge, but only if the consumer requests the replacement copy within a year of the delivery of the original documents. For any additional replacement documents, the consumer will be expected to pay the credit provider (section 65).

THE RIGHT TO CONFIDENTIAL TREATMENT The consumer's right to confidentiality is protected by the provision that any person or organisation that receives or compiles confidential information on a consumer must use the information for the sole purpose for which the consumer has given his / her consent, unless the usage or release of such information is a requirement in terms of the NCA. The NCA further

stipulates that the person or organisation holding the consumer's confidential information may only release it as specifically instructed by the consumer or by a court of law (section 68).

THE RIGHT TO ACCESS AND CHALLENGE INFORMATION HELD BY A CREDIT BUREAU The NCA gives the consumer the right to:

Access information that a credit bureau has in relation to him / her. The information must be given to the consumer free of charge every twelve months or for a fee if the consumer requests the information more than once within twelve months. Such a fee may not exceed R 20.

Challenge and request proof of the accuracy of information held by a credit bureau. Should a credit bureau fail to provide the consumer with proof of accuracy of information that the consumer disputes, it is compelled to remove the disputed information from its records.

Be advised by a credit provider before certain adverse information about that consumer is passed on to a credit bureau. The consumer is also entitled to receive a copy of that information on request (section 72).

NEGATIVE OPTION MARKETING Negative option marketing occurs when a credit provider offers a consumer credit, for which the consumer did not apply, and the offer states that the agreement will automatically come into existence unless the consumer rejects the offer. The Act prohibits this type of marketing. Any credit agreement that a consumer enters into on this basis is unlawful and will be dealt with as discussed above.

The Act further requires that at the time of signing a credit agreement the consumer must be given an opportunity to decide on the following:

To have the consumer's credit limit under a credit facility automatically increased every twelve months.

To receive any marketing communication or to be included in any customer or marketing list of the credit provider that is to be sold or distributed (section 74).

PROHIBITION OF MARKETING AND SALES OF CREDIT AT HOME AND AT WORK A credit provider may not harass a prospective consumer with the aim of entering into a credit agreement with the consumer. To ensure that consumers are not pestered into entering into credit agreements, the Act prohibits the marketing and sale of credit at a consumer's home or place of employment. There are, however, certain instances / exceptions, where credit can be legally marketed or sold at a consumer's home or work place:

If the credit provider is invited by the consumer to market or sell the credit at the consumer's home,

If the credit provider visits the consumer to sell goods or services, and in the process incidentally offers to give or arrange credit to finance the goods or services that the credit provider is selling;

If the credit provider sells developmental credit he can do so at the consumer's home or place of work without having been invited there by the consumer;

If the prospective consumer is an employer;

If the consumer has arranged with the credit provider to be visited at work for the purpose of marketing or selling credit;

If the credit provider arranges with the employer as well as a representative of a trade union and / or employee for the credit provider to market or sell credit at work (section 75).

RECKLESS CREDIT AND OVER-INDEBTEDNESS

A consumer is over-indebted when, according to available information, the consumer will be unable to satisfy in a timely manner all the agreements to which the consumer is a party.

Credit is reckless when:

No assessment was made of the consumer’s ability to pay;

The consumer did not understand his obligations;

The specific agreement caused the consumer to become over-indebted.

The Act requires credit providers to do an assessment before entering into any credit agreement. The consumer must disclose information fully and truthfully at the time the agreement is made.

If reckless credit has been extended, a debt counselor may recommend that the debt be cancelled or restructured.

A court may suspend or reduce obligations. A lender has no recourse against another lender who extends credit recklessly, with the result that responsible lenders then suffer (section 78, 79, 80, 81, 82, 83).

DEBT COUNSELLING

If a consumer is in default of a credit agreement, the credit provider must advise the consumer in writing and propose that the consumer refers the credit agreement to a debt counsellor. No legal proceeding may be instated against a consumer before the proper counselling procedures have been observed.

The debt counsellor will assess whether the consumer is over-indebted or not, and if so, will propose a debt re-arrangement.

The debt counsellor cannot write off the debt. The full debt must be repaid, but according to terms agreed to by all parties.

Once consent has been reached between the parties, a member of the Tribunal may confirm the order. If no consent is reached, the matter must be taken to court. Until the debt is paid off the consumer may not take on more debt.

CHAPTER 5 – CONSUMER CREDIT AGREEMENTS

UNLAWFUL AGREEMENTS The Act declares the following credit agreements as unlawful:

Agreements where the consumer is a minor and was not assisted by a guardian at the time the agreement was signed by the consumer. If the consumer misleads the credit provider into believing that he / she is no longer a minor then the agreement will be enforceable;

Agreements entered into with a consumer who has been declared mentally unfit;

Agreements entered into with a consumer who is subject to an administration order where the administrator did not consent to the agreement being entered into;

Agreements which are a result of negative option marketing;

Agreements where the credit provider is not registered with the NCR, despite being legally required to do so. A registered credit provider is required to display a registration certificate as well as a decal issued by the NCR. (Section 89)(Regulation 32).

If a credit agreement is declared unlawful by a court, the credit provider cannot sue the consumer for any monies owing under that agreement. The Act provides that the credit provider must refund the consumer any monies paid, together with interest at the rate quoted in the agreement. Where it is found that the consumer will be unfairly enriched if all the monies paid to the credit provider are refunded to him / her, such monies will be forfeited by the credit provider to the State (Section 89).

The Act does not allow certain provisions / clauses to be included in credit agreements. The prohibition of these terms and conditions serves to protect the consumer against certain practices by credit providers. Among the provisions / clauses that are prohibited are:

Provisions / clauses which mislead the consumer or subject the consumer to potential fraud;

Provisions / clauses which determine that the consumer has waived certain of his / her rights that may apply to credit agreements. The rights that cannot be waived include a consumer's right to have their debt restructured, the right to have repossessed goods sold at a fair, market-related price, and the right to dispute any debits that pass through a consumer's account;

Provisions / clauses which require the consumer to acknowledge that he / she has received goods or any information from the credit provider, before the goods or information have actually been received by the consumer;

Provisions / clauses which require the consumer to agree to forfeit monies paid to the credit provider in the event of the consumer terminating the agreement;

Provisions / clauses which require the consumer to leave items such as identity document, bank cards or PIN numbers of bank cards with the credit provider;

Provisions / clauses that authorise the credit provider to set-off a consumer's debt against an asset or account of the consumer held by the credit provider, except where the consumer has given the credit provider specific instructions specifying which assets may be set-off against which credit agreement.

The following common law rights or remedies that are available to the consumer may not be waived in a credit agreement:

Exceptio errore calculi refers to a defence based on an error in calculation;

Exceptio non numerate pecuniae refers to a defence by a party who was sued on a promise to repay money that was never received;

Exceptio non causa debiti refers to a defence that the debt claimed has no basis or ground.

The exceptions referred to above have the effect that the credit provider need not prove the substance of the relevant exceptions in detail when a credit agreement is being enforced (section 90 & 121) (regulation 32).

A consumer cannot be sued or forced to comply with a provision in a credit agreement which is found to be unlawful. Unlawful provisions affect credit agreements in two ways:

An unlawful provision may cause the entire credit agreement to be unlawful and the consumer cannot be forced to pay the credit provider under that agreement, or

An unlawful provision can be amended by the court or deleted to ensure the agreement remains lawful in which case the consumer will still be bound by the credit agreement and the amended provision. (Section 90).

PRE-AGREEMENT STATEMENTS AND QUOTES The NCA requires that a consumer must be given a pre-agreement statement and a quotation before entering into a credit agreement with a credit provider. A pre-agreement statement is a document which details the terms and conditions of the credit agreement that the credit provider intends entering into with the consumer. In addition, the consumer must be given a quotation disclosing the costs of the credit required. This quotation must include the principal debt, the interest rate, the total amount payable under the agreement, the instalments and all fees, charges and interest. The pre-agreement statement and the quotation can either be written in one document or in separate documents. The quotation that the consumer receives is valid for five business days. If the credit provider enters into the credit agreement with the consumer within these five days, he / she is obliged to do so at the same rate or costs as noted in the quotation. (Sections 92 and 93)

COST OF CREDIT

Interest and initiation fees

The NCA regulates interest rates and initiation fees by specifying maximum rates and fees that credit providers may charge consumers for various credit agreements:

Type of credit agreement Maximum interest rate Maximum initiation fee

Mortgages / Bonds (REPO rate x 2.2) + 5%

R1,000 + 10% of any amount greater than R10,000

(Maximum fee R5,000)

Credit facilities (e.g. credit cards, store cards, etc.)

(REPO rate x 2.2) + 10%

R150 + 10% of any amount greater than R1,000


Unsecured credit facilities (e.g. personal loans)

(REPO rate x 2.2) + 20%



Credit facilities (e.g. credit cards, store cards, etc.)

(REPO rate x 2.2) + 5%

R1,000 + 10% of any amount greater than R10,000


Incidental credit agreements (e.g. overdue bills from doctors, Eskom,

etc.)2% per month N/A

Small & Medium Business Loans (REPO rate x 2.2) + 20%



Low income housing loans (REPO rate x 2.2) + 5%



Short term loans (i.e. loans of up to 6 months of no more than R8,000)

5% per month



Any other type of loans not covered above

(REPO rate x 2.2) + 10%



Service Fees

A service fee is a fee that a credit provider charges a consumer for servicing a credit agreement between them. The fee is for administering or maintaining the credit agreement. The credit provider can charge this fee on a monthly or annual basis.

It can also be charged per transaction. The NCA regulates service fees in a number of ways including by specifying the maximum fees that credit providers are allowed to charge and how often the fees can be recovered. The current maximum service fee that a credit provider can charge a consumer is R50 a month. If the consumer pays an annual service fee, the maximum that the consumer can be charged is R600 per year. If the credit agreement is settled sooner than originally agreed by the consumer and within the year to which the annual service fee relates, the credit provider must refund the unused portion of the service fee to the consumer (section 101)(regulation 44)

Credit insurance

The NCA also regulates credit insurance. This is insurance which can be required by a credit provider when a consumer takes up a specific product such as a home loan or credit card. The insurance would then cover the debt due to the credit provider in certain cases such as the death of the consumer.

The NCA stipulates that the insurance cover taken by the consumer may not exceed the outstanding obligation to the credit provider and the cover must reduce as the outstanding balance due the credit provider reduces. In the case of a home loan, the insurance may not exceed the value of the property.

In certain instances a consumer may be offered “optional” insurance which will be to the benefit of the consumer. For example in the case of vehicle financing, it might be in the consumer's best interest to ensure that the full market value of the vehicle is covered and not only the balance due to the credit provider, failing which in the case of the vehicle being written off, only the outstanding balance to the credit provider will be covered and the consumer will receive nothing for the value of the vehicle.

The Act provides that the consumer may not be forced to take the insurance offered by the credit provider and can in fact select to replace the insurance offered by the credit provider with a policy of the consumer's choice. When the consumer chooses to use his / her own insurance, the credit provider can request that the premiums are paid by the credit provider to the insurance company and that the consumer is billed monthly.

All insurance premiums payable to the credit provider must be by way of monthly premiums except in the case of a large agreement where an annual premium may be recovered. The annual premium has to be recovered at the beginning of the twelve month period that the agreement will be in place. In the event that the large agreement is settled early, the consumer must be refunded premiums equal to the number of the remaining months (sections 101 & 106).

Default administration charges

This is a charge that a credit provider may charge a consumer who is in arrears with repayments on his / her credit agreement. These charges relate to costs that the credit provider has incurred in attempting to advise the consumer that he / she is in arrears with his / her account. These costs are limited to a letter sent by the credit provider to the consumer, informing him / her that he / she is in default in terms of the agreement. These default administration charges do not include any telephone calls made to the consumer. The Act specifies that a credit provider may not charge a consumer more than the cost actually incurred by the credit provider. The Act specifies that the charge for the letter must be equal to the tariff allowed by the court, plus the actual costs incurred for sending the registered letter.

Collection costs

Collection costs are costs that the credit provider incurs when attempting to collect an outstanding, overdue debt from the consumer. The Act specifies that a credit provider is not allowed to charge a consumer collection costs which are more than the court tariff allows.

THE RIGHT TO RECEIVE PERIODIC STATEMENTS The Act stipulates that a credit provider must provide a consumer with a statement once a month or once every two months if the agreement is an instalment sale agreement, lease or secured loan. A longer interval may be allowed with the consent of the consumer. This interval may, however, not exceed three months.

With regards to a mortgage agreement the consumer is entitled to receive a statement every six months.

CHANGES TO CREDIT AGREEMENTS AND INCREASES / DECREASES OF CREDIT LIMITS The NCA states that any change that is made to a credit agreement, which a consumer has already signed will have no effect, unless

The change reduces the consumer's debt under the agreement, or

The consumer signs his / her initials in the margins next to the change made, or

The change is recorded in writing and signed by both the consumer and the credit provider, or

If the change is agreed upon orally it must be recorded and thereafter provided in writing.

In terms of the NCA, a consumer is entitled to instruct a credit provider, in writing, to reduce his / her credit limit under a credit facility. The credit provider must confirm with the consumer that the limit was reduced in accordance with the consumer's request and must indicate the date when the reduced limit becomes effective.

A consumer is allowed to request a credit provider to increase his / her credit limit under a credit facility either temporarily or permanently. A consumer has to agree, in writing, to an automatic limit increase to his / her credit facility, but even where the credit provider obtains such agreement from the consumer, the limit may only increase once a year. However, a consumer may at anytime request an increase of the credit limit (sections 116 -119).

TERMINATION OF CREDIT AGREEMENTS

The Act specifies that a consumer can at any time terminate a credit agreement by paying the settlement amount. A settlement amount is the amount that is arrived at by adding the following amounts:

The outstanding principal debt as at the date of termination;

The outstanding interest on the principal debt as at the date of termination;

Any outstanding fees and charges as at the date of termination;

An early termination charge in the case of large agreements as explained below.

No penalty fee is payable for the early settlement of a small or intermediate agreement. If the consumer wants to terminate a large credit agreement i.e. a credit agreement which is greater than R 250 000, or a mortgage agreement, the settlement amount may include an early settlement charge which is not allowed to be more than three months interest, and less if the consumer provides notice of his / her intention to settle early. In the case of a notice given by the consumer it will reduce the three month interest early settlement charge by the notice period.

The Act allows the credit provider to terminate a credit agreement early if the consumer is in default.

CHAPTER 6 – COLLECTION, REPAYMENT, SURRENDER AND DEBT ENFORCEMENT

EARLY PAYMENTS AND CREDITING OF PAYMENTS A consumer can pay an instalment owing under a credit agreement in advance. The credit provider may not refuse to accept an advance payment from a consumer or penalise the consumer for paying in advance.

When a consumer makes payments that are not yet due to the credit provider, the Act stipulates that the credit provider has to distribute the payments in the following sequence:

Firstly, to pay the interest due in terms of the credit agreement;

Secondly, to pay any fees and charges that are due;

Thirdly, to reduce the principal debt. (Section 126)

THE CONSUMER'S RIGHT TO SETTLE THE AGREEMENT EARLY The NCA also gives the consumer the right to settle an agreement at any time before the date specified in the agreement. The consumer is not obligated to give the credit provider notice that he / she intends to settle the credit agreement early.

In the case of a large agreement, when a consumer exercises this right, he / she will be charged an early settlement amount, as noted above. This right is also available to a guarantor. A guarantor is a person who agrees to pay a debt, which is due to a credit provider by another consumer should the consumer fail to pay the credit provider (section 125).

SURRENDER OR RETURN OF GOODS The Act specifies that a consumer can withdraw from an instalment sale, secured loan or lease agreement at any time by returning the goods to the credit provider. When the consumer returns the goods to the credit provider, the credit provider is expected to sell them and credit the consumer's account with the proceeds of the sale. If the proceeds from the sale are more than the consumer's debt, the credit provider must refund any surplus to the consumer. If the proceeds are less than the consumer's debt, the consumer is obliged to pay the outstanding amount the credit provider within ten days (section 127).

COLLECTION AND DEBT ENFORCEMENT When a consumer is unable to pay, the credit provider will take steps to collect monies that are due to him / her. This is called debt enforcement. The Act prohibits certain practices that credit providers may use to collect overdue monies from consumers. A credit provider is not allowed to retain the following documents for purposes of collection and debt enforcement:

An identity document;

A debit or credit card;

An ATM card;

A PIN number (sections 90 & 133).

When a consumer has defaulted, the credit provider must first notify the consumer in writing of the status of the account. The consumer is in default if his account is twenty business days in arrears. In the notice the credit provider must propose that the consumer refer the credit agreement to a debt counsellor or a consumer court or an Ombudsman with the authority to handle any possible disputes. The purpose of such a referral is to enable the consumer and the credit provider to resolve the matter or agree to a plan to bring the repayments up to date. A credit provider cannot take legal action against a consumer before first notifying the consumer of the default and to draw his / her attention to his / her rights in this regard. Should the consumer fail to approach the credit provider or an Ombudsman within ten days to resolve the matter, the credit provider can take further steps to enforce the debt.

A credit provider can approach the Magistrates' Court to enforce a credit agreement, which is in arrears when the following has happened:

The consumer did not respond to the written notice from the credit provider to bring repayments under a credit agreement up to date,

The consumer refused to agree to a proposal made by the credit provider in the written notice, suggesting ways in which to resolve any dispute or to bring repayments up to date or,

The consumer did not approach a debt counsellor within the allowed ten business days.

A consumer can terminate a credit agreement by returning the goods to the credit provider. The credit provider will have to sell the goods. The consumer will have to pay for any shortfall should the goods be sold at a price less than the outstanding balance. The Act specifies that the credit provider may approach the court to recover the shortfall if not paid within ten business days.

The court will only consider the credit provider's request for a judgment if the credit agreement is not subject to debt review. Where a consumer and a credit provider have agreed on a plan to bring repayments up to date on an agreement that is in arrears, and the consumer has adhered to this arrangement the credit provider cannot approach the court for a judgement on this agreement.

COMPLIANCE AND REPORTING – CHAPTER 8 OF THE REGULATIONS

STATUTORY REPORTING

A credit provider must submit the following to the NCR:

Compliance report;

Statistical returns;

Annual financial and operational returns;

Assurance report.

If requested by the NCR, any analysis of any item contained in the forms prescribed must be furnished to the NCR within 20 business days after such request.

COMPLIANCE REPORT

A credit provider must complete and submit a compliance report to the NCR on an annual basis within six months after the financial year end of the credit provider.

STATISTICAL RETURNS

A credit provider whose annual disbursements exceed R 15 million must complete and submit the statistical return to the NCR in respect of the quarters and by the dates set out below:

Quarter 1 15 May

Quarter 2 15 August

Quarter 3 15 November

Quarter 4 15 February

All other credit providers must complete and submit the statistical return by the 15th of February each year for the period 1 January to 31 December.

ANNUAL FINANCIAL STATEMENTS A credit provider must submit its annual financial statements including the auditor or accounting officer’s report to the NCR within six months after the provider’s financial year end.

ANNUAL FINANCIAL AND OPERATIONAL RETURN

A credit provider must submit an annual financial and operational return to the NCR, within six months after the credit provider’s year-end.

RESPONSIBILITY FOR ASSURANCE ENGAGEMENT

A credit provider must require an accounting officer or auditor to conduct an assurance engagement and issue a report to the NCR on the basis of that person’s finding with regard to that engagement.

A credit provider must submit the report to the NCR within six months after the credit provider’s year-end.

DEBT COUNSELLING

If a Debt Counsellor is of the view that a consumer is over-indebted he can propose a restructuring to all credit providers of the consumer. However, should any of the credit providers refuse to consent to such a restructuring, the debt counsellor will have to make one or more of the following recommendations to the Magistrates’ Court, concerning the obligations of the consumer:

That the period of the consumer agreement should be extended and the monthly payments be reduced;

That certain payments be postponed;

The recalculation of the consumer’s obligations in cases of the charging of unlawful fees;

Suspension of obligations under any reckless agreement

There are four points of entry for a consumer to enter the debt review process, namely:

A referral by court

A referral by the National Credit Regulator

A referral by a credit provider or

A voluntary application by a consumer;

Section 129 of the Act prescribes if a consumer is in default of payment, the credit provider can bring the default to the attention of the consumer and advise him that he can refer the matter to a debt counsellor.

A credit provider is allowed to proceed with legal action if:

The consumer fails to respond to the notice of the creditor; or

The consumer refuses the advice of the creditor and does not refer the matter to a debt counsellor.

All credit agreements are subject to the debt review process. The only exception is if the credit provider has proceeded with legal action against the consumer in terms of section 129 of the Act.

CONSUMER PROTECTION ACT PURPOSE OF THE ACT

The primary purpose of the Act is to protect consumers against exploitation and unfair practices by unscrupulous businesses, and to empower consumers to make wise purchasing decisions. The Preamble to the Act briefly summarises the ambit of the Act to have the following desired results:

To promote a fair, accessible and sustainable marketplace for consumer products and services by setting national norms and standards relating to consumer protection.

To provide for the improved standards of consumer information.

To prohibit certain unfair marketing and business practices.

To promote responsible consumer behaviour.

To harmonise laws relating to consumer protection.

To provide a consistent enforcement framework.

To establish a National Consumer Commission.

BACKGROUND

Parts of the CPA have already come into effect. These sections are, for the most part, administrative in nature and do not really convey any rights, the bulk of the CPA is only due to come into effect on 24 October 2010. When the remainder of the CPA comes into effect it will give consumers a huge amount of rights as well as several avenues to hold suppliers accountable.

The relevant provisions of the CPA that are now in force, relate to the following issues:

The definitions used in the Act;

The purpose, policy and application of the Act; an

The establishment and functions of the National Consumer Commission.


The Act applies to every transaction involving the supply of goods and / or services in the ordinary course of business within the Republic of South Africa, to the promotion of such goods and services that could lead to such transactions and to the goods and services themselves after the transaction is completed.

The following arrangements are also regarded as transactions between the supplier and consumer:

Memberships of associations for example a club membership; and

Any franchise arrangement between the franchisor and a franchisee (regardless of whether the franchisee is above or below the threshold). The Act will apply to the relationship in all respects for the protection of the franchisee.

In addition, the Act extends to a transaction irrespective of whether the supplier:

Resides or has its principal office within or outside the Republic;

Operates on a "for profit" basis or otherwise;

Is an individual, juristic person, partnership, trust, organ of state, an entity owned or directed by an organ of state, a person contracted or licensed by an organ of state to offer or supply any goods or services, or is a public–private partnership; or

Is required or licensed in terms of any public regulation to make the supply of the particular goods or services available to all or part of the Republic.

Meaning of transaction and consumer

The following are the elements of a consumer transaction:

It is an interaction or agreement to interact between a consumer and supplier in the ordinary course of the supplier’s business, including in terms of any public regulation;

There is an exchange of consideration; or

The interaction concerns the supply or potential supply of goods or services to or at the direction of the consumer.

The definition of a consumer is extended to the actual users of goods or services, regardless of who actually may have conducted a transaction or paid for the goods or services.

A consumer means:

A person to whom goods or services are marketed in the ordinary course of business;

A person who has entered into an agreement or transaction with a supplier;

A user of the goods or a recipient or beneficiary of the services; or

A franchisee in terms of a franchise agreement.

Goods:

Anything marketed for human consumption;

Any tangible or intangible product (e.g. music, photograph, literature, information, software code, licenses);

Legal interest in land or any other immovable property (this would include usufructs / bare dominiums); and

Gas, water and electricity services.

Services:

Any work or undertaking performed by one person for the direct or indirect benefit of another;

The provision of any education, information, advice or consultation (excluding FAIS);

Any banking services or related financial services;

The transportation of any individual or any goods;

The provision of any accommodation (e.g. restaurants and hotels);

The provision of any entertainment or similar intangible products (e.g. sale of tickets to a concert);

The provision or access to any electronic communications infrastructure (e.g. cell phones, 3G, hotspots);

The provision of access to an event;

The provision of access to any premises, activity or facility;

The provision of access to any premises or other property in terms of a lease;

The provision of a right of occupancy in connection with land or other immovable property; and

The rights of a franchisee in terms of a Franchise Agreement.

Supplier / service provider

Any person including a juristic person who markets, promotes or supplies goods or services, is a supplier, as well as any person who promotes, supplies or offers to supply any service.

EXEMPTIONS

The following transactions are exempted from the provisions of the Act:

Transactions where goods or services are promoted to the State or are supplied to or at the direction of the State;

Transactions where the consumer is a juristic person whose asset value or annual turnover at the time the transaction is entered into, equals to or exceeds a certain threshold (regulations to be gazetted);

A transaction which constitutes a credit agreement for the purposes of the National Credit Act 34 of 2005. (The goods and services that are the subject of the agreement will remain subject to the provisions of the Act);

Transactions pertaining to services to be supplied under an employment contract;

Transactions which give effect to a collective bargaining agreement within the meaning of section 23 of the Constitution, or the Labour Relations Act 66 of 1995 (LRA), or those transactions giving effect to a collective agreement as defined in the LRA;

Transactions that fall within an industry wide environment:

○ Regulators apply for an industry wide exemption for example where the service constitutes advice that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act 37 of 2003 FAIS) or insurers subject to the Short-Term Insurance Act 53 of 1998 or the Long-Term Insurance Act 52 of 1998.

FUNDAMENTAL CONSUMER RIGHTS

RIGHT OF EQUALITY IN THE CONSUMER MARKET

Discriminatory marketing is when a supplier unfairly excludes a consumer from accessing goods or services despite the fact that the consumer meets the necessary basic requirements.

The Act protects consumers against a range of discriminatory marketing practices. It also specifies when a consumer can fairly be excluded from receiving a product or service. (A child may not be sold alcohol or view an age-restricted movie).

Discriminatory marketing also applies if the supplier grants exclusive access, a different quality or price of goods or services to a particular person, community or market segment.

A consumer that has been discriminated against can:

Institute proceedings before an equality court;

File a complaint with the Commission, which must refer the complaint to the equality court if the complaint is valid.

RIGHT TO RESTRICT UNWANTED DIRECT MARKETING

Definition of direct marketing

Direct marketing is to approach a person either in person, by mail or by electronic communication (for example, using telephone, fax, SMS or email) for the direct or indirect purpose of promoting or offering to supply, in the ordinary course of business, any goods or services, or requesting the person to make a donation of any kind.

The consumer's right to restrict unwanted direct marketing

Every person has the right to require a marketer to discontinue any approach or communication that is primarily for the purpose of direct marketing. This is done by demanding during the communication, or within a reasonable time afterwards, that the marketer stop initiating communication.

Where the approach is not in person, the consumer will have the option to register a "pre-emptive block" on a registry to be set up. This block can be applicable to all direct marketing or only for specific purposes.

The Act requires a person who authorises, directs or conducts any direct marketing to implement appropriate procedures to facilitate the receipt of a demand to the effect that direct marketing to a consumer be discontinued.

Such a person must not deliver any communication for the purpose of direct marketing to a consumer who has made such a demand or registered a relevant pre-emptive block.

Consumers may not be charged a fee for making a demand or registering a pre-emptive block.

Prohibited time period for contacting consumers

The Minister of Trade and Industry will issue regulations prescribing specific days, dates, public holidays or times of day which are "prohibited periods".

No direct marketing during the prohibited periods will be allowed if the direct marketing is:

Directed to a consumer at home; and

For any promotional purpose except to the extent that the consumer has expressly or implicitly requested or agreed otherwise.

Identification

Whenever a person is engaged in direct marketing, in person, at the premises of a consumer, that person must:

Visibly wear or display a badge or similar identification device that satisfies any prescribed standards; or

Provide suitable identification on request by the consumer.

CONSUMER’S RIGHT TO CHOOSE

In order to enhance consumer choice the Act introduces a number of provisions that are aimed at assisting consumers to select goods or services on the basis of having examined the goods and compared prices.

Consumer’s right to select suppliers

Suppliers are prohibited from requiring consumers to purchase bundled goods or services unless it can be proven that the bundling results in economic benefit for consumers.

Expiry and renewal of fixed-term agreements

The Act provides that where a fixed term arrangement is contemplated:

The supplier may not require the conclusion of the agreement for a period longer than the maximum period prescribed for that particular consumer agreement (not yet prescribed by the Minister);

The supplier must allow the consumer to:

○ Cancel the agreement upon the expiry of its fixed term, without penalty or charge; or

○ Cancel the agreement at any other time by giving the supplier 20 business days notice in writing; or

○ Rectify any material failure to comply with the agreement on 20 business day’s written notice prior to cancellation thereof by the supplier.

Where a fixed term agreement exists the supplier is required, not more than 80 nor less than 40 business days before the expiry date of the fixed term of the consumer agreement, to notify the consumer in writing or other recordable form of the impending expiry, including notice of any material changes if the agreement is to be renewed or continued beyond the expiry date, and the options available to the consumer;

The Act allows the consumer the option of expressly directing the supplier to terminate the agreement on the expiry date, or agreeing to renew the agreement for a further fixed term;

Should the consumer refrain from electing any of those options, the Act provides that on expiry of the fixed term of the consumer agreement, it will automatically continue on a month to month basis, subject to any material changes of which notice has been given by the supplier to the consumer;

Unless the consumer terminates the agreement or agrees to renewal for a further fixed term, a fixed term agreement will continue on a month to month basis indefinitely.

The consumer’s rights on expiry and renewal of fixed term agreements excludes all transactions between juristic persons (in other words, entities other than individuals like companies, trusts, close corporations, partnerships etc.), regardless of thresholds set by the Act.

Franchise agreements are also exempt from these provisions.

Pre-authorisation of repair or maintenance services

This right will only apply to:

A transaction or agreement;

Where the price value is above an amount that will be prescribed;

Where the service provider supplies a repair or maintenance service to property belonging to or in the control of the consumer or supplies or installs any replacement parts or components; and

The service provider has possession, or takes possession, of that property to repair or for maintenance.

A service provider may only charge a consumer, for the supply of any goods or services if the consumer:

Received an estimate and then authorised the work;

In writing or other recorded form declined the offer of an estimate and authorised the work; or

In writing or other recorded form pre-authorised any charges up to a specified maximum, and the amount charged does not exceed that maximum.

A service provider may only charge for preparing an estimate if the price for preparing that estimate was disclosed before-hand and the consumer accepted the estimated cost.

Charges for preparing an estimate would include:

Diagnostic work, disassembly or re-assembly required to prepare an estimate; and

Damage to or loss of material or parts in the course of preparing an estimate.

Authorisation is needed for costs that exceed the estimate

A price for goods and services may only exceed an estimate provided to the consumer if the consumer has:

Been informed of the additional estimated charges (preferably in writing); and

Authorised the work to continue.

This right will not apply to pre-existing agreements.

Consumer’s right to cooling-off period after direct marketing

Consumers who are approached by direct marketers often feel psychologically pressured to agree to a transaction.

The consumer has the right to cancel such an agreement without penalty during a brief ‘‘cooling-off period’’ of five business days (i.e. one calendar week).

Consumer’s right to cancel advance reservations, bookings or orders

A consumer may cancel any advance booking, reservation or order for any goods or services to be supplied.

A supplier who makes a commitment or accepts a reservation to supply goods or services on a later date may require payment of a reasonable deposit in advance and a reasonable charge for cancellation of the order or reservation.

The charge must not exceed a fair amount in the circumstances, having regard to:

The nature of the goods or services that were reserved or booked;

The length of notice of cancellation provided by the consumer;

The reasonable potential for the service provider, acting diligently, to find an alternative consumer between the time of receiving the cancellation notice and the time of the canceled reservation; and

The general practice of the relevant industry.

No cancellation fee may be charged if the consumer is unable to honour the booking, reservation or order due to the death or hospitalisation of the person for whom it was made, or for whose benefit it was made.

Consumer’s right to choose or examine goods

Loss or damage to displayed goods.

A consumer will only be responsible for any loss or damage to goods displayed by a supplier, if the loss or damage results from action by the consumer amounting to gross negligence or recklessness, malicious behaviour or criminal conduct.

Choosing from open stock

A consumer may select or reject any particular item from goods displayed in open stock, or sold from open stock, before completing the transaction.

Delivered goods must correspond with sample or described goods

A supply of goods made by sample and description must correspond with the sample and the description.

Limitation of right

This right will not apply to the supply of goods or services to a franchisee in terms of a franchise agreement.

Implied delivery conditions

It is an implied condition of every transaction for the supply of goods or services that the supplier must deliver the goods or perform the services:

○ On the agreed date and at the agreed time, or otherwise within a reasonable time after concluding the transaction or agreement;

○ At the place of business of the supplier or else residence of the supplier (if the supplier does not have a place of business);

○ At the cost of the supplier, in the case of delivery of goods; and

○ At the risk of the supplier (until the consumer has accepted delivery of the goods).

Acceptance of delivery

A supplier may not require a consumer to accept delivery or performance of services at an unreasonable time, if an agreement does not provide a specific date or time.

Examination of goods

A supplier must, when tendering delivery of any goods, on request, allow the consumer a reasonable opportunity to examine those goods to determine whether the consumer is satisfied that the goods are:

○ Of a type and quality reasonably contemplated in the agreement;

○ In all material respects and characteristics correspond to that which an ordinary alert consumer would have expected based on the description or on a reasonable examination of the sample, if the consumer agreed to purchase goods solely on the basis of a description and / or sample; and

○ Corresponding with the sample and description if the supply of goods is by sample as well as description.

Delivery at a different time or date then agreed

If the supplier tenders the delivery of goods or the performance of any services at a location, on a date or at a time other than as agreed with the consumer, the consumer may either:

○ Accept the delivery or performance at that location, date and time;

○ Require the delivery or performance at the agreed location, date and time, if that date and time have not yet passed; or

○ Cancel the agreement without penalty, treating any delivered goods or performed services as unsolicited goods or services.

Right to reject incorrectly delivered goods or treat them as unsolicited goods

A consumer that receives delivery of a larger quantity of goods, than the consumer agreed to buy, may:

○ Reject all of the delivered goods; or

○ Accept delivery of the goods, pay for the agreed quantity at the agreed rate and treat the excess quantity as unsolicited goods.

RIGHT TO DISCLOSURE AND INFORMATION

Right to information in plain and understandable language

A notice, document or visual representation is in plain language if it is reasonable to conclude that an ordinary consumer of the class or persons for whom the notice, document or visual representation is intended, with average literacy skills and minimal experience as a consumer of the relevant goods or services, could be expected to understand the content, significance, and import of the notice, document or visual representation without undue effort, having regard to:

The context, comprehensiveness and consistency of the notice, document or visual representation;

The organisation, form and style of the notice, document or visual representation;

The vocabulary, usage and sentence structure of the notice, document or visual representation; and

The use of any illustrations, examples, headings, or other aids to reading and understanding.

Disclosure of price of goods or services

The right to disclosure aims to ensure that consumers understand the terms and conditions of the transactions or agreements they enter into and are able to make informed choices about the products and services they consume. The Act seeks to advance that right with the following provisions:

It is compulsory to display prices for any goods that are displayed for sale;

If two prices are displayed for the same goods, the lowest has to be charged;

If an advertisement or notice states that prices are subject to a reduction or sale price, clause 23(11) provides for a consistent application of such notices, so that consumers can better compare the price in a consistent fashion.

Product labeling and trade descriptions

Trade descriptions applied to any goods must not be misleading, and must not be tampered with. The Minister may prescribe categories of goods to which a trade description must be applied.

Disclosure of reconditioned or grey market goods

If goods are reconditioned, that has to be disclosed, and if they have been imported without the benefit of the manufacturer’s warranty (so called ‘‘grey market goods’’), that fact must be disclosed.

Sales records

Clause 26 makes it compulsory for sales records of every transaction to be provided to the consumer. The record must include the following information:

The supplier’s full name, or registered business name, and VAT registration number;

The address of the premises at which, or from which, the goods or services were supplied;

The date on which the transaction occurred;

The name or description of any goods or services;

The unit price;

The quantity;

The total price of the transaction before any applicable taxes;

The amount of any applicable taxes;

Total price of the transaction after including any applicable taxes.

Disclosure by intermediaries

Clause 27 sets out disclosure requirements that intermediaries who are not regulated under another law have to comply with. This includes commissions earned, and entities that they represent. The Minister may prescribe the information or records that intermediaries or categories of intermediaries must keep.

Identification of deliverers, installers and others

Persons who attend at a consumer’s place of business or residence to deliver or install any goods, or perform any services, must wear satisfactory identification.

RIGHT TO FAIR AND RESPONSIBLE MARKETING

General standards for marketing of goods or services

The Act sets out standards for fair and responsible marketing and provides a general prohibition against marketing that is misleading, fraudulent or deceptive.

Bait marketing, Negative option marketing, Referral selling

A number of specific marketing and selling practices are prohibited:

Bait marketing – where non-existent special offers lure customers into the shop.

Negative options – where customers have to ask NOT to be sold something.

Referral selling – when customers are encouraged to buy products or services based on potential future rebates or commissions.

Direct marketing

Clause 32 outlines standards to be adhered to when suppliers engage in direct marketing. Consumers have to be informed and provided with the identity of the agent(s) or person(s) and informed of their right to rescind the agreement during the cooling-off period.

Catalogue marketing, Trade coupons, Work from home schemes

Clause 33 establishes standards for the conduct of catalogue sales, clause 34 regulates the use of trade coupons, and clause 37 regulates the marketing of work from home schemes.

Customer loyalty programs

The Act regulates loyalty programs by requiring sponsors of loyalty programs to meet their obligations when loyalty credits are tendered, prohibits offering inferior quality products or requiring the bundling of ‘‘reward’’ goods or services with ‘‘revenue’’ products, requires a supplier to accept the tender of sufficient loyalty credits as adequate consideration for goods and services at any time, subject to limited black-out periods. If the sponsor of a loyalty program keeps a register of members, the sponsor may increase the price of ‘‘rewards’’ only after notifying the members.

Promotional competitions

Clause 36 prohibits offering prizes with the intention of not providing them.

It also prohibits informing consumers that they have won a prize when no competition has been conducted, or they have never entered a competition, or making the prize subject to a previously undisclosed condition payment of any consideration, whether for participating in the competition or for the prize itself.

RIGHT TO HONEST AND FAIR DEALING

Unconscionable conduct

Unconscionable conduct, force, coercion, undue influence, pressure or harassment, unfair tactics or conduct is prohibited in connection with any marketing, supply, negotiation, collection or recovery of goods from consumers.

False, misleading or deceptive representations

A supplier or a person acting on his or her behalf is prohibited from making false, misleading or deceptive representations in respect of any goods and services under the circumstances listed in clause 41.

Consumer’s right to assume that the supplier is entitled to sell goods

The consumer has the right to assume, and it is an implied term of every transaction, that the supplier or lessor has legal right to sell or lease the goods for full title of the goods to pass to the consumer.

If a third party has a legal claim over the goods, the supplier is liable to that third party, unless it can be shown that the supplier and consumer colluded to defraud the third party.

This does not apply to used goods or immovable property.

Auctions

New provisions in clause 45 aim to ensure fairness in auctions by regulating the participation of owners or their agents as bidders, and requiring notice of any reserve bid or upset price.

Over-selling and over-booking

There is a prohibition against overselling and overbooking, which requires a supplier not to accept consideration for any goods or services unless they reasonably expect to have capacity to supply them or intend to provide goods or services that are materially different.

Consumers have to be refunded in full with interest and consumers can also claim contractual and consequential damages, including economic losses.

RIGHT TO FAIR, JUST AND REASONABLE TERMS AND CONDITIONS

Unfair, unreasonable or unjust contract terms

A supplier must not offer to supply, or enter into an agreement to supply or market, any goods or services at a price or terms that are unfair, unreasonable or unjust.

A supplier may not require a consumer to waive any rights, assume any obligation or waive any liability on terms that are unfair, unreasonable or unjust.

Notice required for certain terms and conditions

Any notice to consumers or a provision in an agreement that purports to:

Limit the risk or liability of the supplier;

Constitute an assumption of risk or liability by the consumer;

Impose an obligation on the consumer to indemnify the supplier for any cause; or

Be an acknowledgement of any fact by the consumer

must be written in plain language.

RIGHT TO FAIR VALUE, GOOD QUALITY AND SAFETY

Consumer’s rights to safe, good quality goods

The Act provides for a general right for consumers to receive goods that are of good quality and free from defects.

An exception is allowed where the consumer has been expressly informed of the condition of the goods and has expressly agreed to buy them in that particular state.

It provides that consumers have a right to receive goods that are reasonably suitable for the purpose for which they are intended, of good quality, in good working order, free of defects, and useable and durable for a reasonable period of time.

If the consumer had informed the supplier of the use he / she wants to put the goods to, the consumer has the right to expect that it will be suitable for that particular purpose.

Implied warranty of quality

There is an implied warranty of quality (six months on repair, replace or refund requirement, and a further three month replacement or refund requirement after repair), which is additional to any other implied or expressed warranty provided.

Warning concerning the fact and nature of risks

There is an obligation on the supplier to issue alerts of any activity or facility that is subject to any hazard that could result in serious injury or death to consumers; notice or instructions of safe handling of goods; notice on how to inhibit any risk associated with the use of goods, and to remedy or mitigate the effects, and provide for the safe disposal of the goods.

Safe disposal of goods

Suppliers are obligated to accept the return of waste goods that may not be accepted in the common waste collection system.

Safety monitoring and recall

Clause 60 creates a framework for industry codes to be developed, establishing schemes of product safety monitoring and, if needed, product recall.

The Commission would have authority to order an investigation and recall of any dangerous or defective products covered by any such industry code.

Liability for damage caused by goods

The producer or importer, distributor or retailer of any goods is liable for any harm caused wholly or partly as a consequence of the following:

Supplying any unsafe goods, a product failure, defect or hazard in any goods; or

Inadequate instructions or warnings provided to a consumer pertaining to any hazard arising from or associated with the use of any goods - irrespective of whether the harm resulted from any negligence on the part of the producer, importer, distributer or retailer.

Even if a transaction is exempt from the Act, the strict liability provision applies to the goods themselves.

SUPPLIER’S ACCOUNTABILITY TO CONSUMERS

Lay-bys

In respect of lay-bys the Act provides that suppliers are accountable for amounts paid by consumers for lay-bys, and that the goods remain at the risk of the supplier.

The Act further requires the supplier to compensate the consumer if the supplier is unable to produce the goods once the full price has been paid by the consumer.

Prepaid certificates, credits and vouchers

The Act provides that prepaid certificates, credits and vouchers remain negotiable for up to five years, and that the supplier is obligated to honour them when presented.

The minimum period is three years.

During this time, until redeemed, it will be shown as prepaid income.

PROTECTION OF CONSUMER RIGHTS AND THE CONSUMER VOICE

RIGHT TO BE HEARD AND OBTAIN REDRESS

The Act aims to make redress accessible, and to protect consumers from being victimised if they act to enforce their rights.

Clause 69 outlines the available avenues of redress, including the courts, alternative dispute resolution, and complaint to the Commission.

If a complaint arises in an industry in which a statutory ombud scheme is in place, the consumer must pursue a resolution through that scheme before making a complaint to the Commission.

An ombud, consumer court or provincial authority that has resolved a complaint may record the agreement as an order, which must then be confirmed as a consent order by the courts.

If a complaint is made to the Commission, it will investigate, and may make a referral to the Tribunal, which may resolve the matter by making certain orders as contemplated in clause 75.

In addition to their jurisdiction to hear a matter initiated directly by a consumer, the courts have jurisdiction to hear appeals against Tribunal decisions, and may order suppliers to alter or discontinue certain practices, award damages against suppliers for collective injury to all or a class of consumers, to be paid to any person on any terms that the court might decide.

ROLE OF CIVIL SOCIETY

The Act recognises the role of civil society in consumer protection by providing for the support of any juristic person or association of persons that meet the set criteria as consumer protection groups.

The Act allows class actions in the form of accredited consumer protection groups, which groups may act to protect the interests of a consumer individually or of consumers collectively.

BUSINESS NAMES AND INDUSTRY CODES OF CONDUCT

REGISTRATION OF BUSINESS NAMES

The practice whereby companies or close corporations trade under names other than their registered names will cease with the implementation of the Consumer Protection Act, 2008 (CPA).

Section 79 of the Act prohibits any person from carrying on business except under the person’s full name as recorded in an identity document, or officially recognised, or in the case of a juristic person (for example, a company), a business name registered with the Registrar of Companies.

This means that a trading name must be the registered name of the entity. Section 80 does, however, allow a person to register any number of business names that are used or will be used in carrying on business.

The present custom whereby a company or CC carries on business as “XYZ Bank, trading as XYZ Loans” will no longer be allowed once section 70 comes into force.

A business name may not be the same as, or confusingly similar to an entity already registered under the Companies Act, the Close Corporations Act or the Co-operatives Act.

The name may also not be the same as or similar to a registered trade mark belonging to another person.

If an entity conducts business under a trading name that is not its registered name, the National Consumer Commission may require it to cease trading under that name.

The possible proliferation of new registered business names will require vigilance on the part of businesses and trade mark proprietors to protect their intellectual property rights in respect of their registered names.

DEVELOPMENT OF INDUSTRY CODES

Clause 82 establishes a scheme for the development through consultation of industry codes of conduct, relating to consumer matters, and provides for them to receive the force of law by being prescribed by the Minister.

PROTECTION OF PERSONAL INFORMATION BILL PURPOSE OF THE ACT

POPI is to promote the protection of personal information:

Processed by public and private bodies;

To introduce information protection principles so as to establish minimum requirements for the processing of personal information;

Establish an Information Protection Regulator;

To provide for the issuing of codes of conduct;

To provide for the rights of persons regarding unsolicited electronic communications and automated decision making;

To regulate the flow of personal information across the borders of the Republic; and

To provide for matters connected therewith.


The Bill applies to any public or private body or any other person who (alone or in conjunction with others) determines the purpose of, and means for, processing Personal Information (called a "Responsible Party").

The Bill regulates the processing of "Personal Information", being information relating to an identifiable, living, individual, and where applicable, an identifiable, existing juristic person such as a company or close corporation (the "Data Subject").

WHAT INFORMATION IS PROTECTED?

Personal Information includes, but is not limited to:

Information relating to the race, gender, sex, pregnancy, marital status, national, ethnic or social origin, colour, sexual orientation, age, physical or mental health, well-being, disability, religion, conscience, belief, culture, language and birth of the person;

Information relating to the education or the medical, financial, criminal or employment history of the person;

Any identifying number, symbol, e-mail address, physical address, telephone number or other particular assignment to the person;

The blood type or any other biometric information of the person;

The personal opinions, views or preferences of the person;

Correspondence sent by the person that is implicitly or explicitly of a private or confidential nature, or further correspondence that would reveal the contents of the original correspondence;

The views or opinions of another individual about the person; and

The name of the person if it appears with other personal information relating to the person, or if the disclosure of the name itself would reveal information about the person.

EXCLUSIONS

The Act does not apply to the processing of the following personal information:

Purely personal or household activity;

De-identified info that cannot be re-identified again;

Processing by or on behalf of the State:

○ National security, defence or public safety;

○ Criminal offences, prosecution, execution of criminal sentences and security measures.

Processing for exclusively journalistic purposes;

By the Cabinet and its committees;

Judicial functions of a court;

Exempted in terms of sec 34.

CONDITIONS FOR LAWFUL PROCESSING OF PERSONAL INFORMATION

The Bill regulates the "Processing" of Personal Information. This is very widely defined and covers any activity or operation involving personal information, whether automated or not. It includes the collection, recording, organisation, storage, updating or modification, retrieval, consultation, use, dissemination by means of transmission, distribution or making available in any other form, merging, linking, as well as blocking, erasure or destruction of information.

The Processing of Personal Information must comply with certain requirements which are framed as the eight "information protection principles" ("Principles") in the Bill.

The Information Protection Principles are as follows:

Accountability

The responsible party must ensure that all principles are complied with.

Processing limitation

Lawfulness of processing.

○ Lawfully and in a reasonable manner.

Minimality of information.

○ For a specific purpose, adequate, relevant and not excessive.

Consent & other grounds of justification.

○ Objection allowed in specific instances.

○ If data subject has objected, the responsible party may no longer process the personal information.

Collection directly from data subject.

○ Exceptions allowed: public record; necessary for the enforcement of laws or national security, not reasonably practicable etc.

Purpose specification

Specifying a purpose specific, explicitly defined, lawful, related to a function or activity of the responsible party.

Informing data subject of purpose.

Retaining data for no longer than needed.

Further processing limitation

Compatible with original purpose.

Exceptions e.g. statistical, historical or research purposes.

Quality of information

Reasonably practicable steps, given purpose, to ensure complete, up to date, accurate and not misleading.

Openness

Notification to the Regulator and the data subject of planned processing.

Security safeguards

Companies will have to implement appropriate, reasonable technical and organisational measures to prevent the loss or unauthorised use of personal information. Companies will have to identify all internal and external risks to personal information and establish and maintain appropriate security safeguards. In addition to a well drafted privacy and data protection policy, companies will have to invest in technologies like encryption and access control.

Processing by an operator

○ Only with knowledge of the responsible party.

○ Duty of confidentiality.

Notification of security compromises

○ Notification to the Regulator and the data subject when personal information has been accessed or acquired by any unauthorised person.

Data subject participation

Right to access.

○ The data subject has the right to request, free of charge, whether or not the responsible party holds personal information and to whom such data was disclosed.

○ Request a description of the personal information.

Correction of personal information

○ The data subject has the right to request the responsible party to correct or delete personal information that is inaccurate, irrelevant, excessive, out of date, incomplete, misleading or obtained unlawfully.

Manner of access is in terms of the Promotion to Access of Information Act.

PROCESSING OF SPECIAL PERSONAL INFORMATION

Subject to certain exclusions, the processing of Special Personal Information is generally prohibited by the Bill.

Special Personal Information is information concerning:

A child who is subject to parental control in terms of the law; or

A data subject's religious or philosophical beliefs, race or ethnic origin, trade union membership, political opinions, health, sexual life, or criminal behaviour.

INFORMATION PROTECTION REGULATOR

The Information Protection Regulator will have wide-ranging investigative and enforcement powers.

Establishment of Information Protection Regulator

Independent juristic person.

Receive notification of processing.

○ Failure to notify is an offence.

Keep a register of processing activities.

Powers and duties.

○ Education and research

○ Monitor and enforce compliance

― Audits

― Prior investigations

― Information notices

― Enforcement notices

― Issue codes of conduct

INFORMATION PROTECTION OFFICER

Duties and Responsibilities of the Information Protection Officer include:

To encourage compliance, by the body, with the information protection principles;

Deal with requests made to the body pursuant to this Act by the data subjects;

Work with the Regulator in relation to investigations conducted; and

Ensuring compliance by the body with the provisions of this Act.

Every organisation must have an Information Protection Officer. Officers may only take up their duties in terms of the POPI Act after the responsible party (information protection officer) has been registered with the Regulator.

NOTIFICATION OF PROCESSING

Personal Information that is processed in a fully or partly automated manner may only be processed if the Responsible Party has notified the Regulator in the prescribed manner, in advance. Failure to notify is an offence.

RIGHTS OF DATA SUBJECTS REGARDING UNSOLICITED ELECTRONIC COMMUNICATIONS AND AUTOMATED DECISION MAKING

The processing of Personal Information for the purpose of direct marketing by means of automatic calling machines, facsimile machines, SMSs or electronic mail is prohibited unless the Data Subject has given consent to the processing, or the Data Subject is a customer of the responsible party (subject to conditions).

Any communication for the purpose of direct marketing (such as spam mail) must contain details of the identity of the sender or the person on whose behalf the communication has been sent, and an address or other contact details to which the recipient may send a request that such communications cease.

Marketing communications may be sent to customers only if their details were obtained in the context of the sale of goods or services. Only the goods or services of the same company may be advertised in this manner – in other words, marketers may not forward personal details to associated companies or sell such databases.

Any marketing communication must clearly indicate the identity of the sender and give an “unsubscribe” address.

Prior to the publication or use of directories, all those included in the directory should be informed of their inclusion and the intended purpose and use of the directory. Individuals must also be given a reasonable opportunity to object to their inclusion in the directory and request the withdrawal of their information.

ENFORCEMENT

POPI contains a complaints procedure whereby any person may lodge a complaint with the regulator against any company or organisation relating to unsolicited communications, directories and automated decision-making. The regulator will have extensive powers of investigation including:

The right to apply to a court for a warrant to enter and search premises;

The right to bring a claim for damages;

The right to issue enforcement notices.

OFFENCES AND PENALTIES

Contravention of any of the Principles is not, in itself a criminal offence. However the Regulator has the power to issue enforcement notices for certain breaches of the Bill and failure to comply with an enforcement notice is a criminal offence.

On conviction of an offence under the Bill, a person is liable to a fine and / or up to 12 months imprisonment, except if the offence relates to obstructing the Regulator, in which case the person is liable to a fine and / or up to 10 years imprisonment.

IMPLEMENTATION TIMELINE

Companies must, within one year from the date that the Bill comes into force, ensure that their Processing of Personal Information complies with the legislation and is notified to the Regulator. This one year grace period may be extended by the Minister to a maximum of three years.

THE COMPANIES ACT, 71 OF 2008 OBJECTIVES

The Department of Trade and Industry has throughout the corporate law reform process emphasised the need for simplification, flexibility, corporate efficiency, transparency and predictable regulation. In addition, a need for legislation to be appropriate to the legal, economic and social context of South Africa was identified.

CATEGORIES OF COMPANIES

Two types of companies may be formed and incorporated, namely profit companies and non-profit companies.

A profit company is:

A state-owned company;

A private company if:

○ it is not a state-owned company; and

○ its Memorandum of Incorporation prohibits it from offering any of its securities to the public; and restricts the transferability of its securities.

A personal liability company if:

○ it meets the criteria for a private company; and

○ its MOI states that it is a personal liability company.

A public company, in any other case.

CRITERIA FOR NAMES OF COMPANIES (SECTION 11)

A company name may comprise words in any language, irrespective of whether or not the words are commonly used or contrived for the purpose, together with:

Any letters, numbers or punctuation marks;

Any of the following symbols: +, &, #, , %, =;

Any other symbol permitted by the regulations; or

Round brackets used in pairs to isolate any other part of the name, alone or in any combination.

In the case of a profit company the name may be the registration number of the company.

The name of a company must not be the same as, or confusingly similar to:

The name of another company, registered external company, close corporation or co-operative unless the company forms part of a group of companies using similar names;

A name registered for the use of a person as a business name;

A registered trade mark belonging to a person other than the company, or a mark in respect of which an application has been filed in the Republic for registration as a trade mark or a well-known trade mark;

A mark, word or expression the use of which is restricted, or protected, in terms of the Merchandise Marks Act;

Not falsely imply, suggest, or mislead a person to believe, that the company:

○ is part of, or associated with, any other person or entity;

○ is an organ of state or a court, or is operated, sponsored, supported or endorsed by the State or by any organ of state or a court;

○ is owned, managed or conducted by a person or persons having any particular educational designation or who is a regulated person or entity;

○ is owned, operated, sponsored, supported or endorsed by, or enjoys the patronage of any:

― foreign state, head of state, head of government, government ,administration or any department of such a government or administration; or

― international organisation.

Not include any word, expression or symbol that may reasonably be considered to constitute:

○ propaganda for war;

○ incitement of imminent violence; or

○ advocacy of hatred based on race, ethnicity, gender or religion, or incitement to cause harm.

If the name of a profit company is the company’s registration number, that number must be immediately followed by the expression ‘‘(South Africa)’’.

If the MOI includes any important provisions, the name must be immediately followed by the expression ‘‘(RF)’’.

A company name, irrespective of its form or language, must end with one of the following expressions;

The word ‘‘Incorporated’’ or its abbreviation ‘‘Inc.’’, in the case of a personal liability company;

The expression ‘‘Proprietary Limited’’ or its abbreviation, ‘‘(Pty) Ltd.’’, in the case of a private company;

The word ‘‘Limited’’ or its abbreviation, ‘‘Ltd.’’, in the case of a public company;

The expression ‘‘SOC Ltd.’’ in the case of a state-owned company;

The expression ‘‘NPC’’, in the case of a non-profit company.

RESERVATION OF NAME AND DEFENSIVE NAMES (SECTION 12)

A person may reserve one or more names to be used at a later time, either for a newly incorporated company, or as an amendment to the name of an existing company, by filing an application together with the prescribed fee.

A name reservation continues for a period of six months from the date of the application, and may be extended by the Commission, for a period of 60 business days at a time.

Any person may apply to the Commission to:

Register any name as a defensive name for a period of two years; or

Renew, for a period of two years, the registration of a name as a defensive name, in respect of which he or she has a direct and material interest.

RIGHT TO INCORPORATE COMPANY (SECTION 13)

One or more persons may incorporate a profit company, or three or more persons may incorporate a non-profit company, by:

Completing, and each signing in person or by proxy, a MOI; and

Filing a Notice of Incorporation accompanied by a copy of the MOI.

If the MOI includes any special provisions, the Notice of Incorporation must include a prominent statement drawing attention to each such provision, and its location in the MOI.

The Commission may reject a Notice of Incorporation if the notice:

Is incomplete, or improperly completed; and

The initial directors of the company are fewer than required or are disqualified to serve as a director.

REGISTRATION OF COMPANY (SECTION 14)

The Commission must:

Assign to the company a unique registration number;

Enter the prescribed information in the companies register;

Issue and deliver to the company a registration certificate.

MEMORANDUM OF INCORPORATION, SHAREHOLDER AGREEMENTS AND RULES OF COMPANY (SECTION 15)

Each provision of the MOI:

Must be consistent with this Act; and

Is void to the extent that it contravenes, or is inconsistent with, this Act.

The MOI of any company may:

Include any provision dealing with a matter that this Act does not address;

Altering the effect of any alterable provision of this Act;

Contain any special conditions applicable to the company, and any requirement for the amendment of any such condition;

Prohibit the amendment of any particular provision of the MOI.

The board may make, amend or repeal any necessary or incidental rules relating to the governance of the company in respect of matters that are not addressed in this Act or the MOI by publishing and filing a copy of the rules.

The rules take effect on a date that is the later of:

20 business days after the rule is published; or

The date specified in the rule; and

Is binding:

○ on an interim basis from the time it takes effect until it is put to a vote at the next general shareholders meeting; and

○ on a permanent basis only if it has been ratified by an ordinary resolution.

If a rule that has been published is not subsequently ratified, the company’s board may not make a substantially similar rule within the ensuing 12 months, unless it has been approved in advance by ordinary resolution at a shareholders meeting.

The MOI, and any rules of the company, are binding:

Between the company and each shareholder;

Between or among the shareholders of the company; and

Between the company and;

○ Each director or prescribed officer of the company; or

○ Any other person serving the company as a member of the audit committee or as a member of a committee of the board, in the exercise of their respective functions within the company.

AMENDING MEMORANDUM OF INCORPORATION (SECTION 16)

The MOI may be amended:

In compliance with a court order;

If a special resolution to amend it is proposed by:

○ the board; or

○ shareholders entitled to exercise at least 10% of the voting rights; and

It is adopted at a shareholders meeting.

LEGAL STATUS OF COMPANIES (SECTION 19)

A person is not, solely by reason of being an incorporator, shareholder or director, liable for any liabilities or obligations of the company, except to the extent that this Act or the MOI provides otherwise.

If a company is a personal liability company the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office.

A person must not be regarded as having received notice or knowledge of the contents of any document relating to a company merely because the document:

Has been filed; or

Is accessible for inspection at an office of the company.

A person must be regarded as having received notice and knowledge of any provision of a MOI, if the company’s Notice of Incorporation or a Notice of Amendment has drawn attention to the provision.

VALIDITY OF COMPANY ACTIONS (SECTION 20)

If a MOI limits, restricts or qualifies the purposes, powers or activities of that company no action of the company is void by reason only that:

The action was prohibited by that limitation, restriction or qualification; or

As a consequence of that limitation, restriction or qualification, the directors had no authority to authorise the action by the company; and

○ in any legal proceeding, other than proceedings between:

― the company and its shareholders, directors or prescribed officers; or

― the shareholders and directors or prescribed officers of the company;

○ no person may rely on such limitation, restriction or qualification to assert that an action is void.

If the MOI limits, restricts or qualifies the purposes, powers or activities of that company, or limits the authority of the directors to perform an act on behalf of the company, the shareholders, by special resolution, may ratify any action by the company or the directors that is inconsistent with any such limit, restriction or qualification.

An action may not be ratified if it is in contravention of this Act.

One or more shareholders, directors or prescribed officers of a company, or a trade union representing employees of the company, may take proceedings to restrain the company from doing anything inconsistent with this Act.

Each shareholder of a company has a claim for damages against any person who fraudulently or due to gross negligence causes the company to do anything inconsistent with this Act, or a limitation, restriction or qualification unless that action has been ratified by the shareholders.

A person dealing with a company in good faith, other than a director, prescribed officer or shareholder of the company, is entitled to presume that the company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural requirements in terms of this Act, its MOI and any rules of the company unless, the person knew or reasonably ought to have known of any failure by the company to comply with any such requirement.

RECKLESS TRADING PROHIBITED (SECTION 22)

A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose, or trade under insolvent circumstances.

FORM AND STANDARDS FOR COMPANY RECORDS (SECTION 24)

Any documents, accounts, books, writing, records or other information that a company is required to keep must be kept for a period of seven years.

Every company must maintain a copy of its MOI, and any amendments or alterations to it, and any rules.

The following documents must also be kept for seven years:

A record of its directors, including details of any person who has served as a director of the company;

Copies of all reports presented at an AGM of the company;

Annual financial statements;

Accounting records, for the current financial year and for the previous seven completed financial years of the company;

Notice and minutes of all shareholders meetings, including:

○ all resolutions adopted by them;

○ any document that was made available by the company to the holders of securities in relation to each such resolution;

○ copies of any written communications sent generally by the company to all holders of any class of the company’s securities; and

○ minutes of all meetings and resolutions of directors, or directors’ committees, or the audit committee.

Every profit company must maintain:

A securities register or its equivalent;

Maintain a record of its company secretaries and auditors, including:

○ the name, including any former name, of each such person; and

○ the date of every such appointment.

A company’s record of directors must include, in respect of each director, that person’s:

Full name, and any former names;

Identity number or, if the person does not have an identity number, the person’s date of birth;

Nationality and passport number, if the person is not a South African citizen;

Occupation;

Date of their most recent election or appointment as director of the company;

Name and registration number of every other company or foreign company of which the person is a director, and in the case of a foreign company, the nationality of that company; and

Any other prescribed information.

Regulation

A company must retain the following records indefinitely:

Its MOI, as amended from time to time;

Its registration certificate;

Its register of directors;

Its securities register.

A company must notify the Commission of a change in the location of any company records that are no longer located at its registered office.

A company's record of directors must include, with respect to each director of the company:

The name and registration number of any company of which a person related to that director, is a director or prescribed officer;

The address for service for that director; and

In the case of a company that is required to have an audit committee, the professional qualifications, if any, and previous experience of the director.

LOCATION OF COMPANY RECORDS (SECTION 25)The records must be accessible at, or from the company’s registered office, or another location, or other locations, within the Republic.

ACCESS TO COMPANY RECORDS (SECTION 26)A person who holds, or has a beneficial interest in any securities:

Has a right to inspect and copy the information contained in the records of the company;

Has a right to any other information to the extent granted by the MOI in accordance with the Promotion of Access to Information Act.

The register of members and register of directors, must, during business hours for reasonable periods be open to inspection by any member, free of charge and by any other person, upon payment for each inspection of an amount not more than R 100,00.

It is an offence for a company to:

Fail to accommodate any reasonable request for access, or to unreasonably refuse access; or

Otherwise impede, interfere with, or attempt to frustrate, the reasonable exercise by any person.

Regulation

Any right of access of any person to any information may be exercised only in accordance with the Promotion of Access to Information Act, 2000.

A person seeking to exercise a right of access to any record held by a company, must make a written request, by delivering to the company a completed Request for Access to Information in Form CoR 26.

A perfected right of access to any information may be exercised only during the company's normal business hours.

A company may not charge a fee to a shareholder or, in the case of non-profit company, a member of the company to inspect or copy a record.

FINANCIAL YEAR OF COMPANY (SECTION 27)

A company must have a financial year, ending on a date set out in the company’s Notice of Incorporation.

The board may change its financial year end at any time, by filing a notice of that change, but:

It may not do so more than once during any financial year;

The date as changed may not result in a financial year ending more than 15 months after the end of the preceding financial year.

The financial year of the company is its annual accounting period.

ACCOUNTING RECORDS (SECTION 28)

A company must keep accurate and complete accounting records in one of the official languages of the Republic.

A company’s accounting records must be kept at, or be accessible from, the registered office of the company.

It is an offence for a company with an intention to deceive or mislead any person:

To fail to keep accurate or complete accounting records;

To keep records other than in the prescribed manner and form; or

To falsify any of its accounting records, or permit any person to do so.

RegulationThe accounting records of a company must include:

A register of the company's assets and liabilities including;

A register of the company's non-current assets showing for each such asset:

○ the date the company acquired it, and the acquisition cost;

○ the date the company revalued it, and the amount of the revaluation and, if it was revalued after the Act took effect, the basis of, and reason for, the revaluation;

○ the date the company disposed of it, once it has been disposed, and the value of the consideration received for it, and, if it was disposed of after the Act took effect, the name of the person to whom it was transferred; and

○ a register of any loan by the company to a shareholder, director, prescribed officer or employee of the company, or to a person related to any of them, including the amount borrowed, the interest rate, and the terms of re-payment; and

A record of any property held by the company in a fiduciary capacity;

A record of all liabilities and obligations including:

○ a register of any loan to the company from a shareholder, director, prescribed officer or employee of the company, or from a person related to any of them, including the amount borrowed, the interest rate, and the

terms of re-payment;

○ a register of any guarantee granted by the company in respect of an obligation to a third party incurred by a shareholder, director, prescribed officer or employee of the company, or by a person related to any of them, including the amount guaranteed, the interest rate, the terms of re-payment, and the circumstances in which the company may be called upon to honour the guarantee;

○ a register of contractual obligations due to be performed in the future, recording for each such obligation the date on which it was undertaken, the person to whom the obligation is owed, the estimated cost of discharging the obligation and the date on which it is due to be discharged.

If the company trades in goods, a record of inventory and stock in trade, statements of the annual stocktaking, and records to enable the value of stock at the end of the financial year to be determined; and

A record of the company's revenue and expenditures, including:

○ daily records of all money received and paid out, in sufficient detail to enable the nature of the transactions and, except in the case of cash transactions, the names of the parties to the transactions to be identified;

○ daily records of all goods purchased and sold on credit, and services received and rendered on credit, in sufficient detail to enable the nature of those goods or services and the parties to the transactions to be identified; and

○ statements of every account maintained in the name of the company, or in any name under which the company carries on its activities, together with vouchers or other supporting documentation for all transactions recorded on any such statement.

A non profit company must maintain a register of revenue received from donations, grants, and member's fees, or in terms of any funding contracts or arrangements with any party.

FINANCIAL STATEMENTS (SECTION 29)

If a company provides any financial statements, including any annual financial statements, to any person for any reason, those statements must:

Satisfy the financial reporting standards;

Present fairly the state of affairs and business of the company, and explain the transactions and financial position of the business of the company;

Show the company’s assets, liabilities and equity, as well as its income and expenses, and any other prescribed information;

Set out the date on which the statements were produced, and the accounting period to which the statements apply; and

Bear, on the first page of the statements whether the statements:

○ have been audited;

○ if not audited, have been independently reviewed; or

○ have not been audited or independently reviewed.

The name and professional designation of the individual who prepared, or supervised the preparation of the statements.

Any financial statements and annual financial statements must not be:

False or misleading in any material respect; or

Incomplete in any material particular.

A person is guilty of an offence if the person is a party to the preparation, approval, dissemination or publication of any financial statements, including any annual financial statements, knowing that those statements:

Do not comply with the above requirements; or

Are materially false or misleading.

ANNUAL FINANCIAL STATEMENTS (SECTION 30)Each year, a company must prepare annual financial statements within six months after the end of its financial year, or such shorter period as may be appropriate to provide the required notice of an annual general meeting.

The annual financial statements must:

Be audited, in the case of a public company; or

In the case of any other company:

○ be audited, if so required by the regulations;

○ audited voluntarily at the option of the company; or

○ independently reviewed, unless exempted if it is a private company and:

― one person holds, or has all of the beneficial interest in, all of the securities issued by the company; or

― every person who is a holder of, or has a beneficial interest in, any securities issued by the company is also a director of the company unless the company has only one director.

The annual financial statements of a company must:

Include an auditor’s report, if the statements are audited;

Include a report by the directors with respect to the state of affairs, the business and profit or loss of the company, or of the group of companies, if the company is part of a group;

Be approved by the board and signed by an authorised director; and

Be presented to the first shareholders meeting after the statements have been approved by the board.

The annual financial statements of each company that is required to have its annual financial statements audited, must include particulars showing:

The remuneration and benefits received by each director, or individual holding any prescribed office in the company;

The amount of:

○ any pensions paid by the company to or receivable by current or past directors or individuals who hold or have held any prescribed office in the company;

○ any amount paid or payable by the company to a pension scheme with respect to current or past directors or individuals who hold or have held any prescribed office in the company;

○ the amount of any compensation paid in respect of loss of office to current or past directors or individuals who hold or have held any prescribed office in the company;

○ the number and class of any securities issued to a director or person holding any prescribed office in the company, or to any person related to any of them, and the consideration received by the company for those securities; and

○ details of service contracts of current directors and individuals who hold any prescribed office in the company.

Regulation

"lFRS" means the International Financial Reporting Standards as adopted from time to time by the International Accounting Standards Board or its successor body and approved for use in South Africa from time to time by the Council; and

"lFRS for SMEs" means the International Financial Reporting Standards for Small and Medium Enterprises, as adopted from time to time by the International Accounting Standards Board or its successor body and approved for use in South Africa from time to time by the Council.

Any financial statements must comply with the applicable standards as follows:

Category of Companies Applicable Financial Reporting Standard

State owned companies IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, The Public Audit Act, or other applicable national legislation, the latter prevails

Public companies listed on an exchange IFRS

Public companies not listed on an exchange IFRS

Profit companies, other than public companies that are required to have their annual financial statements audited

IFRS

Profit companies that are required to have their annual financial statements independently reviewed

IFRS for SME’s

Profit companies that are required to have their annual financial statements independently complied and reported, or exempted from having their annual financial statements audited or reviewed.

There is no prescribed Financial Reporting Standard

Non-profit companies that are required to have their annual financial statements audited

IFRS, but in the case of any conflict with any requirements in terms of the Public Finance Management Act, The Public Audit Act, or other applicable national legislation, the latter prevails

Non-profit companies that are required to have their annual financial statements independently reviewed.

IFRS for SME’s

Non-Profit companies that are required to have their annual financial statements independently compiled and reported

There is no prescribed Financial Reporting Standard

Summary of regulations relating to audit and review:

Companies to be audited Companies to be Independently Reviewed

Public companies

State owned companies

Private companies holding assets in a fiduciary capacity for a broad group of 3rd parties

Non-profit company that is an organ of the State or a subsidiary of an international entity or, that solicits donations from the general public andits assets exceeds R 60 million or its current expenditure as reported in its annual financial statements for the proceeding year exceeds R 120 million.

Any company issued with a compliance notice requiring an audit.

Companies that are not required to be audited

Companies that are not voluntarily audited

Companies that are not exempt by virtue of being “ owner managed”

Please note: Personal liability companies would fall within the definition of owner managed companies as in most instances the holders of securities would also be directors

Private companies and non profit companies that do not take donations:

Type Assets / Turnover Standards to be used

Independent review Assets > R 100 mil or turnover > R 200 mil per annum (three immediately preceding financial years)

ISRE 2400 – Engagement to review financial statements

Agreed upon procedures Assets between R 5 mil and R 100 mil and turnover between R 20 mil and R 200 mil

ISRS 4400 – Engagement to perform agreed upon procedures regarding financial information

Independent compilation Assets less than R 5 mil and turnover less than R 20 mil

No set standard

Independent Accounting Professional

The regulations propose that only an "Independent Accounting Professional" be allowed to issue an independent review report.

Independent accounting professionals:

Should be a member of professional body that is a member of IFAC;

Should have no personal financial interest in the company or a related or interrelated company; and

Should not be involved in day to day management for the previous three years, or a prescribed officer, or a material supplier or customer of the company.

ANNUAL RETURN (SECTION 33)

Every company must file an annual return in the prescribed form with the prescribed fee, and within the prescribed period after the end of the anniversary of the date of its incorporation, including a copy of its annual financial statements.

Any company that requires an audit must file its financial statements with the annual return.

Companies that are voluntarily audited can choose to file its financial statements or file a financial accountability supplement with its annual return.

A company that is not audited must file a financial accountability supplement with its annual return.

An external company must file an annual return.

SHAREHOLDER RIGHT TO BE REPRESENTED BY PROXY (SECTION 58)A shareholder may appoint any individual, including an individual who is not a shareholder, as a proxy to:

Participate, speak and vote at a shareholders meeting on behalf of the shareholder; or

Give or withhold written consent on behalf of the shareholder to a decision.

A shareholder may appoint more than one proxy to exercise voting rights attached to different shares held by the shareholder.

A proxy appointment:

Must be in writing, dated and signed by the shareholder; and

Remains valid for one year after the date on which it was signed.

A copy of the instrument appointing a proxy must be delivered to the company, before the proxy exercises any rights of the shareholder at a shareholders meeting.

SHAREHOLDERS ACTING OTHER THAN AT A MEETING (SECTION 60)

A resolution that could be voted on at a shareholders meeting may instead be submitted for consideration to the shareholders and voted on in writing within 20 business days after the resolution was submitted to them.

A resolution if so adopted, has the same effect as if it had been approved by voting at a meeting.

An election of a director that could be conducted at a shareholders meeting may instead be conducted by written polling.

Within 10 business days after adopting a resolution the company must deliver a statement describing the results of the vote, consent process, or election to every shareholder who was entitled to vote on or consent to the resolution, or vote.

http://www.sacir.org/independent-review/ifac

http://www.sacir.org/independent-review/professional-bodies/professional-bodies

http://www.sacir.org/resources

SHAREHOLDERS MEETINGS (SECTION 61)The board must call a shareholders’ meeting if one or more written and signed demands are delivered to the company, and:

Such demand describes the specific purpose for which the meeting is proposed; and

In aggregate, demands for substantially the same purpose are made and signed by the holders, of at least 10% of the voting rights entitled to be exercised in relation to the matter proposed to be considered at the meeting.

The MOI may specify a lower percentage.

A company, or any shareholder of the company, may apply to a court for an order setting aside a demand on the grounds that the demand is frivolous, calls for a meeting for no other purpose than to reconsider a matter that has already been decided by the shareholders, or is otherwise vexatious.

A public company must convene an AGM:

Initially, no more than 18 months after the date of incorporation; and

Thereafter, once in every calendar year, but no more than 15 months after the date of the previous annual general meeting.

A meeting must, at a minimum, provide for the following business to be transacted:

Presentation of:

○ the directors’ report;

○ audited financial statements for the immediately preceding financial year;

○ an audit committee report;

○ election of directors,

○ appointment of an auditor for the ensuing financial year and an audit committee; and

○ any matters raised by shareholders, with or without advance notice to the company.

Every shareholders meeting of a public company must be reasonably accessible within the Republic for electronic participation by shareholders

NOTICE OF MEETINGS (SECTION 62)The company must deliver a notice to all of the shareholders at least:

15 business days before the meeting, in the case of a public company or a non-profit company that has voting members; or

10 business days before the meeting is to begin, in any other case.

The MOI may provide for longer minimum notice periods.

A notice of a shareholders meeting must be in writing, and must include:

The date, time and place;

The general purpose, and any other specific purpose;

A copy of any proposed resolution, and a notice of the percentage of voting rights that will be required for that resolution to be adopted.

In the case of an AGM:

A summarised form of the financial statements;

Directions for obtaining a copy of the complete annual financial statements;

A statement that a shareholder is entitled to appoint a proxy to attend.

CONDUCT OF MEETINGS (SECTION 63)

Before any person may attend or participate in a shareholders meeting:

That person must present reasonably satisfactory identification; and

The person presiding at the meeting must be satisfied that the right of that person to participate and vote, has been reasonably verified.

Unless prohibited by its MOI, a company may provide for a shareholders meeting to be conducted entirely by electronic communication.

Voting rights must on a show of hands have only one vote, irrespective of the number of shares.

On a poll any member must be entitled to exercise all the voting rights attached to the shares.

MEETING QUORUM AND ADJOURNMENT (SECTION 64)

A shareholders meeting may not begin until sufficient persons are present at the meeting to exercise 25% of all of the voting rights.

A matter to be decided at the meeting may not begin to be considered unless sufficient persons are present to exercise 25% of all of the voting rights.

The MOI may specify a lower or higher percentage.

If a company has more than two shareholders, a meeting may not begin, or a matter begins to be debated, unless at least three shareholders are present.

If, within one hour after the appointed time for a meeting to begin, the quorum requirements have not been satisfied, the meeting is postponed without motion, vote or further notice, for one week.

If, at the time appointed for a postponed meeting to begin, or for an adjourned meeting to resume, the quorum requirements have not been satisfied, the members of the company present in person or by proxy will be deemed to constitute a quorum.

SHAREHOLDER RESOLUTIONS (SECTION 65)

Every resolution of shareholders is either an ordinary resolution or a special resolution.

For an ordinary resolution to be approved, it must be supported by more than 50% of the voting rights.

Except for an ordinary resolution for the removal of a director, the MOI may require a higher percentage of voting rights to approve an ordinary resolution, provided that there must at all times be a margin of at least 10 percentage points between the approval of an ordinary resolution, and a special resolution.

For a special resolution to be approved, it must be supported by at least 75% of the voting rights.

The MOI may permit a lower percentage of voting rights to approve any special resolution provided that there must at all times be a margin of at least 10 percentage points between the approval of an ordinary resolution, and a special resolution.

A special resolution is required to:

Amend the MOI;

Approve the voluntary winding-up of the company;

Approve any proposed fundamental transaction.

BOARD, DIRECTORS AND PRESCRIBED OFFICERS (SECTION 66)

The board must comprise:

In the case of a private company, or a company, of at least one director; or

In the case of a public company, or a non-profit company, of at least three directors.

The MOI may specify a higher number.

The MOI in the case of a profit company other than a state-owned company, must provide for the election by shareholders of at least 50% of the directors, and 50% of any alternate directors.

A person may not serve or continue to serve as an ex officio director of a company, despite holding the relevant office, title, designation or similar status, if that person is or becomes ineligible or disqualified.

The election or appointment of a person as a director is a nullity if, at the time of the election or appointment, that person is ineligible or disqualified.

Except to the extent that the MOI provides otherwise, the company may pay remuneration to its directors for their service as directors.

Remuneration may be paid only in accordance with a special resolution approved by the shareholders within the previous two years.

ELECTION OF DIRECTORS (SECTION 68)

Each director of a company, other than the first directors, must be elected by the persons entitled to exercise voting rights in such an election, to serve for an indefinite term, or for a term as set out in MOI.

Unless the MOI provides otherwise the election is to be conducted as a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy, with the series of votes continuing until all vacancies on the board at that time have been filled.

INELIGIBILITY AND DISQUALIFICATION OF PERSONS TO BE DIRECTOR OR PRESCRIBED OFFICER (SECTION 69)

In this section, ‘‘director’’ includes an alternate director, and:

A prescribed officer; or

A person who is a member of a committee of a board, or of the audit committee, irrespective of whether or not the person is also a member of the company’s board.

A person who is ineligible or disqualified must not:

Be appointed or elected as a director, or consent to being appointed or elected as a director; or

Act as a director of a company.

A person who becomes ineligible or disqualified while serving as a director of a company ceases to be a director immediately.

A person, who has been placed under probation by a court, must not serve as a director except to the extent permitted by the order of probation.

A person is ineligible to be a director if the person:

Is a juristic person;

Is an unemancipated minor, or is under a similar legal disability; or

Does not satisfy any qualification set out in the MOI.

A person is disqualified to be a director if:

A court has prohibited that person to be a director, or declared the person to be delinquent;

Is an unrehabilitated insolvent;

Is prohibited in terms of any public regulation to be a director;

Has been removed from an office of trust, on the grounds of misconduct involving dishonesty; or

Has been convicted, in the Republic or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount, for theft, fraud, forgery, perjury or an offence:

○ involving fraud, misrepresentation or dishonesty;

○ in connection with the promotion, formation or management of a company;

○ under this Act, the Insolvency Act, the Close Corporations Act, the Competition Act, the Financial Intelligence Centre Act, the Securities Services Act, or Chapter 2 of the Prevention and Combating of Corruption Activities Act.

A disqualification ends at the later of 5 years after the date of removal from office, or the completion of the sentence imposed for the relevant offence.

Despite being disqualified a person may act as a director of a private company if all of the shares of that company are held by that disqualified person alone, or by persons related to that disqualified person, and each such person has consented in writing to that person being a director of the company.

The Commission must establish and maintain a public register of persons who are disqualified from serving as a director, or who are subject to an order of probation as a director.

BOARD COMMITTEES (SECTION 72)

Except to the extent that the MOI provides otherwise, the board may:

Appoint any number of committees of directors; and

Delegate to any committee any of the authority of the board.

Except to the extent that the MOI, or a resolution establishing a committee, provides otherwise, the committee:

May include persons who are not directors of the company, but:

○ any such person must not be ineligible or disqualified to be a director; and

○ no such person has a vote on a matter to be decided by the committee;

○ may consult with or receive advice from any person; and

○ has the full authority of the board in respect of a matter referred to it.

BOARD MEETINGS (SECTION 73)

A director may call a meeting of the board at any time and must call such a meeting if required to do so by at least 25% of the directors, in the case of a board that has at least 12 members or two directors, in any other case.

The MOI may specify a higher or lower percentage or number.

Except to the extent that this Act or the MOI provides otherwise a meeting of the board may be conducted by electronic communication.

No meeting of a board may be convened without notice to all of the directors.

Except to the extent that the MOI provides otherwise if all of the directors of the company:

Acknowledge actual receipt of the notice;

Are present at a meeting; or

Waive notice of the meeting, the meeting may proceed even if the company failed to give the required notice of that meeting, or there was a defect in the giving of the notice.

A majority of the directors must be present before a vote may be called at a meeting of the directors.

Each director has one vote on a matter before the board.

A majority of the votes cast on a resolution is sufficient to approve that resolution.

In the case of a tied vote the chair may cast a deciding vote, if the chair did not initially have or cast a vote.

A company must keep minutes of the meetings of the board, and any of its committees.

Resolutions adopted by the board must be dated and sequentially numbered.

DIRECTOR'S PERSONAL FINANCIAL INTERESTS (SECTION 75)

In this section, ‘‘director’’ includes an alternate director, and:

A prescribed officer; or

A person who is a member of a committee of a board, or of the audit committee, irrespective of whether or not the person is also a member of the board.

This section does not apply:

To a director in respect of a decision that may generally affect:

○ all of the directors in their capacity as directors; or

○ a class of persons, despite the fact that the director is one member of that class of persons, unless the only members of the class are the director or persons related or inter-related to the director; or

In respect of a proposal to remove that director from office; or

To a company or its director, if one person:

○ holds all of the beneficial interests of all of the issued securities; and

○ is the only director.

If a person is the only director, but does not hold all of the beneficial interests of all of the issued securities, that person may not:

Approve or enter into any agreement in which the person or a related person has a personal financial interest; or

As a director, determine any other matter in which the person or a related person has a personal financial interest,

unless the agreement or determination is approved by an ordinary resolution of the shareholders after the director has disclosed the nature and extent of that interest to the shareholders.

A director may disclose any personal financial interest in advance, by delivering to the board, or shareholders in, a notice in writing setting out the nature and extent of that interest.

If a director has a personal financial interest in respect of a matter to be considered at a meeting of the board, or knows that a related person has a personal financial interest in the matter, the director must disclose:

The interest and its general nature before the matter is considered at the meeting;

To the meeting any material information relating to the matter, and known to the director.

The director must, if present at the meeting, leave the meeting immediately after making any disclosure and must not take part in the consideration of the matter.

If a director acquires a personal financial interest in an agreement in which the company has a material interest, or knows that a related person has acquired a personal financial interest in the matter, after the agreement or other matter has been approved by the company, the director must promptly disclose to the board, or to the shareholders, the nature and extent of that interest, and the material circumstances relating to the director or related person’s acquisition of that interest.

A decision by the board, or a transaction or agreement approved by the board is valid despite any personal financial interest of a director or person related to the director, if it was approved or has been ratified by an ordinary resolution of the shareholders.

DIRECTORS CONDUCT (SECTION 76) A director of a company must:

Not use the position of director, or any information obtained while acting in the capacity of a director:

○ to gain an advantage for the director, or for another person other than the company or a wholly-owned subsidiary of the company; or

○ to knowingly cause harm to the company or a subsidiary of the company; and

Communicate to the board at the earliest practicable opportunity any information that comes to the director’s attention, unless the director reasonably believes that the information is:

○ immaterial to the company; or

○ generally available to the public, or known to the other directors; or

○ is bound not to disclose that information by a legal or ethical obligation of confidentiality.

A director of a company must exercise the powers and perform the functions of director:

In good faith and for a proper purpose;

In the best interests of the company; and

With the degree of care, skill and diligence that may reasonably be expected of a person:

○ carrying out the same functions in relation to the company as those carried out by that director; and

○ having the general knowledge, skill and experience of that director.

In respect of any particular matter arising in the exercise of the powers or the performance of the functions of director, a particular director of a company will have satisfied the above if:

The director has taken reasonably diligent steps to become informed about the matter;

The director had no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that any related person had a personal financial interest in the matter; or

The director disclosed the interest in advance; and

The director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company.

A director is entitled to rely on:

One or more employees of the company whom the director reasonably believes to be reliable and competent in the functions performed or the information, opinions, reports or statements provided;

Legal counsel, accountants, or other professional persons retained by the company, the board or a committee as to matters involving skills or expertise that the director reasonably believes are matters:

○ within the particular person’s professional or expert competence; or

○ as to which the particular person merits confidence; or

A committee of the board of which the director is not a member, unless the director has reason to believe that the actions of the committee do not merit confidence.

LIABILITY OF DIRECTORS AND PRESCRIBED OFFICERS (SECTION 77)

A director may be held liable in accordance with the principles of the common law relating to:

Breach of a fiduciary duty, for any loss, damages or costs sustained by the company as a consequence of any breach by the director of a duty; or

Delict for any loss, damages or costs sustained by the company as a consequence of any breach by the director of any provision of this Act and the MOI.

A director is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having:

Acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorise the taking of any action by, or on behalf of the company, despite knowing that the director lacked the authority to do so;

Acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by section 22(1);

Been a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose;

Signed, consented to, or authorised, the publication of:

○ any financial statements that were false or misleading in a material respect; or

○ a prospectus, or a written statement, that contained an ‘untrue statement or a statement to the effect that a person had consented to be a director of the company, when no such consent had been given,

Been present at a meeting, or participated in the making of a decision, and failed to vote against:

○ the issuing of any unauthorised shares;

○ the issuing of any unauthorised securities;

○ the granting of unauthorised options to any person;

○ the provision of financial assistance to any person for the acquisition of securities of the company, despite knowing that the provision of financial assistance was inconsistent with the provisions in the MOI;

○ the provision of financial assistance to a director, despite knowing that the provision of financial assistance was inconsistent with the provisions in the MOI;

http://www.acts.co.za/companies_act_2008/22_reckless_trading_prohibited.htm

○ a resolution approving a distribution, despite knowing that the company does not satisfy the solvency and liquidity test; and

○ the acquisition by the company of any of its shares, or the shares of its holding company, despite knowing that the acquisition was contrary to section 46 or 48; or

○ an allotment by the company, despite knowing that the allotment was contrary to any provision of Chapter 4.

The company or any director who has been or may be held liable may apply to a court for an order setting aside the decision of the board.

The liability of a person is joint and several with any other person who is, or may be held liable for the same act.

Proceedings to recover any loss, damages or costs for which a person is, or may be held liable may not be commenced more than three years after the act or omission that gave rise to that liability.

Any person who would be liable is jointly and severally liable with all other such persons to pay the costs of all parties in the court , unless the proceedings are abandoned and to restore to the company any amount improperly paid by the company as a consequence of the impugned act.

In any proceedings against a director, other than for willful misconduct or willful breach of trust, the court may relieve the director, either wholly or partly, from any liability, if it appears that the director has acted honestly and reasonably.

INDEMNIFICATION AND DIRECTORS’ INSURANCE (SECTION 78)

Any provision of an agreement, the MOI, rules of or a resolution is void to the extent that it directly or indirectly purports to relieve a director of a liability or negate, limit or restrict any legal consequences arising from an act or omission that constitutes wilful misconduct or wilful breach of trust on the part of the director.

A company may not directly or indirectly pay any fine that may be imposed on the director who has been convicted of an offence in terms of any national legislation.

Except to the extent that the MOI provides otherwise, the company:

May advance expenses to a director to defend litigation in any proceedings arising out of the director’s service to the company; and

May directly or indirectly indemnify a director for expenses if the proceedings are abandoned or exculpate the director; or arise in respect of any liability for which the company may indemnify the director.

A company may not indemnify a director in respect of any liability arising from wilful misconduct, or wilful breach of trust on the part of the director.

Except to the extent that the MOI of a company provides otherwise, a company may purchase insurance to protect a director against any liability or expenses or the company against any expenses that the company is permitted to advance or for which the company is permitted to indemnify.

FINANCIAL ASSISTANCE FOR SUBSCRIPTION OF SECURITIES (SECTION 44)

To the extent that the MOI provides otherwise, the board may authorise the company to provide financial assistance by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company.

Despite any provision of the MOI, the board may not authorise any financial assistance, unless:

The particular provision of financial assistance is:

○ pursuant to an employee share scheme; or

○ pursuant to a special resolution of the shareholders, adopted within the previous two years, which approved such assistance either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category; and

The board is satisfied that:

○ immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test; and

○ the terms under which the financial assistance is proposed to be given are fair and reasonable to the company.

LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS (SECTION 45)

In this section, ‘‘financial assistance’’:

Includes lending money, guaranteeing a loan, or other obligation, and securing any debt or obligation; but

Does not include:

○ lending money in the ordinary course of business by a company whose primary business is the lending of money;

○ an accountable advance to meet:

― legal expenses in relation to a matter concerning the company; or

― anticipated expenses to be incurred by the person on behalf of the company; or

― an amount to defray the person’s expenses for removal at the company’s request.

Except to the extent that the MOI provides otherwise, the board may authorise the company to provide direct or indirect financial assistance to a director or prescribed officer of the company or of a related or inter-related company.

Despite any provision of the MOI to the contrary, the board may not authorise any financial assistance, unless:

The particular provision of financial assistance is:

○ pursuant to an employee share scheme; or

○ pursuant to a special resolution of the shareholders, adopted within the previous two years, which approved such assistance either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category; and

○ the board is satisfied that immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test.

The board must ensure that any conditions or restrictions respecting the granting of financial assistance set out in the company’s Memorandum of Incorporation have been satisfied.

If the board adopts a resolution, the company must provide written notice of that resolution to all shareholders, unless every shareholder is also a director of the company, and to any trade union representing its employees:

Within 10 business days after the board adopts the resolution, if the total value of all loans, debts, obligations or assistance contemplated in that resolution, together with any previous such resolution during the financial year, exceeds one-tenth of 1% of the company’s net worth at the time of the resolution; or

Within 30 business days after the end of the financial year, in any other case.

DISTRIBUTIONS MUST BE AUTHORISED BY THE BOARD (SECTION 46)A company must not make any proposed distribution unless the distribution:

Is pursuant to an existing legal obligation of the company, or a court order; or

The board of the company, by resolution, has authorised the distribution;

It reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution; and

The board of the company, by resolution, has acknowledged that it has applied the solvency and liquidity test, and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.

Regulation

Application of solvency and liquidity test to groups of companies.

Whenever the "aggregate assets of a company", and the "aggregate liabilities of a company", within a group of companies are required to be evaluated, the evaluation must consider whether:

The assets of the relevant company equal or exceed its liabilities; and

The assets of each subsidiary of the relevant company equal or exceed that subsidiary's liabilities.

MANDATORY APPOINTMENT OF COMPANY SECRETARY (SECTION 86)

A public company or state-owned company must appoint a person knowledgeable or experienced in relevant laws as a company secretary.

Every company secretary must be a permanent resident of the Republic.

Within 60 business days after a vacancy arises in the office of company secretary, the board must fill the vacancy by appointing a person whom the directors consider to have the requisite knowledge and experience.

APPOINTMENT OF AUDITOR (SECTION 90)

Upon its incorporation, and each year at its annual general meeting, a public company or state-owned company must appoint an auditor.

To be appointed as an auditor a person or firm:

Must be a registered auditor;

Must not be a director or prescribed officer of the company;

An employee or consultant of the company who was or has been engaged for more than one year in the maintenance of any of the company’s financial records or the preparation of any of its financial statements;

A director, officer or employee of a person appointed as company secretary;

A person who, alone or with a partner or employees, habitually or regularly performs the duties of accountant or bookkeeper, or performs related secretarial work, for the company;

A person who, at any time during the five financial years immediately preceding the date of appointment, was a person mentioned above, or a person related to a person mentioned above;

Must be acceptable to the company’s audit committee as being independent of the company.

If a company that is required to appoint an auditor does not do so when it registers the incorporation of the company, the directors of the company must appoint the first auditor of the company within 40 business days after the date of incorporation of the company.

The first auditor of a company holds office until the conclusion of the first annual general meeting of the company.

ROTATION OF AUDITORS (SECTION 92)

The same individual may not serve as the auditor or designated auditor of a company for more than five consecutive financial years.

If an individual has served as the auditor or designated auditor of a company for two or more consecutive financial years and then ceases to be the auditor or designated auditor, the individual may not be appointed again as the auditor or designated auditor of that company until after the expiry of at least two further financial years.

RIGHTS AND RESTRICTED FUNCTIONS OF AUDITORS (SECTION 93)

The auditor of a company:

Has the right of access at all times to the accounting records and all books and documents, and is entitled to require from the directors or prescribed officers any information and explanations necessary for the performance of the auditor’s duties;

The auditor of a holding company, has the right of access to all current and former financial statements of any subsidiary of that holding company and is entitled to require from the directors or officers of the holding company or subsidiary any information and explanations in connection with any such statements and in connection with the accounting records, books and documents of the subsidiary as necessary for the performance of the auditor’s duties;

Is entitled to:

○ attend any general shareholders meeting;

○ receive all notices of, and other communications relating to any general shareholders meeting; and

○ be heard at any general shareholders meeting on any part of the business of the meeting that concerns the auditor’s duties or functions.

An auditor may not perform any services that would place the auditor in a conflict of interest.

AUDIT COMMITTEES (SECTION 94)

At each annual general meeting, a public company or state-owned company, or other company that has voluntarily determined to have an audit committee, must elect an audit committee comprising of at least three members, unless:

The company is a subsidiary of another company that has an audit committee; and

The audit committee of that other company will perform the functions on behalf of that subsidiary company.

Each member of an audit committee of a company must:

Be a director of the company;

Not be involved in the day-to-day management of the company’s business, or have been so involved at any time during the previous financial year;

A prescribed officer, or full-time employee, or have been such an officer or employee at any time during the previous three financial years; or

A material supplier or customer of the company, such that a reasonable and informed third party would conclude in the circumstances that the integrity, impartiality or objectivity of that director is compromised by that relationship; and

Not be related to any person who falls within any of the above criteria.

The Minister may prescribe minimum qualification requirements for members of an audit committee as necessary to ensure that any such committee, taken as a whole, comprises persons with adequate relevant knowledge and experience to equip the committee to perform its functions.

An audit committee of a company has the following duties:

To nominate, for appointment as auditor, a registered auditor who, is independent of the company;

To determine the fees to be paid to the auditor and the auditor’s terms of engagement;

To ensure that the appointment of the auditor complies with the provisions of this Act and any other legislation relating to the appointment of auditors;

To determine the nature and extent of any non-audit services that the auditor may provide to the company, or that the auditor must not provide to the company, or a related company;

To pre-approve any proposed agreement with the auditor for the provision of non-audit services to the company;

To prepare a report, to be included in the annual financial statements for that financial year:

○ describing how the audit committee carried out its functions;

○ stating whether the audit committee is satisfied that the auditor was independent of the company; and

○ commenting in any way the committee considers appropriate on the financial statements, the accounting practices and the internal financial control of the company;

To receive and deal appropriately with any concerns or complaints, whether from within or outside the company, or on its own initiative;

To make submissions to the board on any matter concerning the company’s accounting policies, financial control, records and reporting; and

To perform other functions determined by the board, including the development and implementation of a policy and plan for a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes within the company.

CONTINUATION OF PRE-EXISTING COMPANIES (SCHEDULE 5)

As of the general effective date, every pre-existing company that was, immediately before that date incorporated or registered or recognised as an ‘‘existing company’’ in terms of the Companies Act, 1973 (Act No. 61 of 1973), continues to exist as a company, as if it had been incorporated and registered in terms of this Act, with the same name and registration number previously assigned to it.

At any time within two years immediately following the general effective date, a pre-existing company may file, without charge:

An amendment to its MOI to bring it in harmony with this Act; and

A notice of name change and copy of a special resolution contemplated to alter its name to meet the requirements of this Act.

If, before the general effective date, a pre-existing company had adopted any binding provisions, under whatever style or title, those provisions continue to have the same force and effect:

As of the general effective date, for a period of two years, or until changed by the company; and

After the two year period, to the extent that they are consistent with this Act.

BUSINESS RESCUE

Regulation 129 establishes the Business Rescue Practice Regulatory Board, which is a juristic person and will regulate business rescue practitioners.

Regulation 132 designates the functions of the Regulatory Board, which includes:

Advising the minister on the qualifications for admission of persons to the practice of business rescue practitioner;

Accrediting, and suspending or withdrawing the accreditation of, persons who meet the prescribed qualifications for admission to the practice of business rescue practitioner;

Maintaining a register of accredited business rescue practitioners;

Establishing standards and codes of good practice for the conduct of business rescue proceedings;

Receiving and resolving complaints concerning the conduct of business rescue practitioners.

QUALIFICATIONS FOR THE BUSINESS RESCUE PRACTITIONER:Within two years after the effective date, the Board must recommend to the Minister minimum qualifications for accreditation of persons as business rescue practitioners.

Until the promulgation, by regulation, of minimum qualifications, a person may be appointed as the business rescue practitioner of a company if:

The company is a state owned or public company, or a company that is required to have its annual financial statements audited, and the person

○ Is an attorney, who has been admitted to practice as such for at least 10 years, and has engaged predominantly in commercial practice during that time;

○ Is a member in good standing of a professional body that is a member of the International Federation of Accountants, who has been admitted to practice as such for at least 10 years, and has engaged predominantly in commercial practice during that time;

○ Is a practicing liquidator, or business turn-around practitioner, registered as such for at least 10 years; or

○ Has a recognised degree in law, commerce or business management, and has at least 10 years experience in conducting business rescue proceedings; or

○ The company is a company not contemplated above, and the person has at least 5 years standing or experience in respect of any of the qualifications set out in that paragraph.

FEES FOR BUSINESS RESCUE PRACTITIONERS:The basic remuneration of a business rescue practitioner, to be determined at the time of the appointment of the practitioner by the company, or the court, as the case may be, may not exceed:

R 2 000 per hour, to a maximum of R 25 000 per day, in the case of a practitioner of a state owned or public company;

R 1 250 per hour, to a maximum of R 15 625 per day, in the case of a practitioner of another company.

In addition to the remuneration determined, a practitioner is entitled to be reimbursed for the actual cost of any disbursement made by the practitioner, or expenses incurred by the practitioner to the extent reasonably necessary to carry out the practitioner's functions and facilitate the conduct of the company's business rescue proceedings.

COMPANIES AMENDMENT BILL, 2010 OBJECTIVE

Most changes deal with language, grammatical errors and typos. Changes affecting the meaning of the Companies Act, 2008 are as follows:

RIGHT TO INCORPORATE A COMPANY OR TRANSFER THE REGISTRATION OF FOREIGN COMPANY (SECTION 13)

The 2008 Act states that one or more persons may incorporate a profit company. The draft Bill proposes that an organ of state may also incorporate a profit company.

The Bill also proposes that a foreign company may apply in the prescribed manner and form, and with the prescribed application fee, to transfer its registration to the Republic from the foreign jurisdiction in which it is registered, and thereafter exist as a company in terms of this Act as if it had been originally so incorporated and registered.

A foreign company may transfer its registration if:

The law of the jurisdiction in which the company is registered permits such a transfer, and the company has complied with the requirements of that law in relation to the transfer;

The transfer has been approved by the company’s shareholders in accordance with the law of the jurisdiction in which the company is registered, if that law imposes such a requirement; or

By the equivalent of a special resolution in terms of this Act, if the law of the jurisdiction in which the company is registered does not require such shareholder approval;

The whole or greater part of its assets and undertaking are within the Republic, other than the assets and undertaking of any subsidiary that is incorporated outside the Republic;

The majority of its shareholders are resident in the Republic;

The majority of its directors are or will be South African citizens; and

Immediately following the transfer of registration, the company will satisfy the solvency and liquidity test; and will no longer be registered in another jurisdiction.

A foreign company may not transfer its registration to the Republic if the foreign company:

Is permitted, in terms of any law or its Articles or Memorandum of Incorporation, to issue bearer shares; or

Has issued any bearer shares that remain issued;

The foreign company is in liquidation;

A receiver or manager has been appointed, whether by a court or otherwise, in relation to the property of the foreign company;

Is engaged in proceedings comparable to business rescue;

Has entered into a compromise or arrangement with a creditor, and the compromise or arrangement is in force; or

An application has been made to a court in any jurisdiction to put the foreign company into liquidation, to wind it up or to have it declared insolvent.

MEMORANDUM OF INCORPORATION, SHAREHOLDER AGREEMENTS AND RULES OF COMPANY (SECTION 15)

The Bill proposes that the words “special conditions” be replaced by the words restrictive or procedural.

It also proposes that rules must take effect 10 business days after the rule is filed as opposed to the 20 days stated in the Act.

The Bill states that where a rule that has been filed is subsequently ratified, the company must file a notice of ratification within 5 business days, or must file a notice of non-ratification within 5 business days if not ratified, when put to a vote.

Any failure to ratify the rules of a company does not affect the validity of anything done in terms of those rules during the period that they had interim effect.

AMENDING MEMORANDUM OF INCORPORATION (SECTION 16)

The Bill proposes that if an amendment to the MOI of a personal liability company has the effect of transforming that company into any other category of company, the company must give at least 10 business days advance notice of the filing of the notice of amendment to:

Any professional or industry regulatory authority that has jurisdiction over the business activities carried on by the company; and

Any persons who:

○ In their dealings with the company, may reasonably be considered to have acted in reliance upon the joint and several liability of any of the directors for the debts and liabilities of the company; or

○ May be adversely affected, if the joint and several liability of any of the directors for the debts and liabilities of the company is terminated as a consequence of the amendment to the MOI.

A person who receives, or is entitled to receive, a notice may apply to a court in the prescribed manner and form for an order sufficient to protect the interests of that person.

VALIDITY OF COMPANY ACTIONS (SECTION 20)

The bill proposes that if, on application by an interested person, or in any proceedings in which a company is involved, a court finds that the incorporation of the company, any use of the company, or any act by or on behalf of the company, constitutes an unconscionable abuse of the juristic personality of the company as a separate entity, the court may declare that the company is to be deemed not to be a juristic person in respect of any right, obligation or liability of the company, or of a shareholder of the company or, in the case of a non- profit company, a member of the company, or of another person specified in the declaration.

REGISTRATION OF EXTERNAL COMPANIES (SECTION 23)

The Bill proposes to amend the definition of an “external company” and to provide that a foreign company must be regarded as conducting business, or non-profit activities, within the Republic, if that foreign company is:

Party to one or more employment contracts within the Republic; or

Is engaging in a course of conduct, or has engaged in a course or pattern of activities within the Republic over a period of at least six months, such as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within the Republic.

A foreign company must not be regarded as “conducting business activities, or non-profit activities, as the case may be, within the Republic” solely on the ground that the foreign company is, or has engaged, in one or more of the following activities:

Holding a meeting or meetings within the Republic of the shareholders or board of the foreign company, or otherwise conducting any of the company’s internal affairs within the Republic;

Establishing or maintaining any bank or other financial accounts within the Republic;

Establishing or maintaining offices or agencies within the Republic for the transfer, exchange, or registration of the foreign company’s own securities;

Creating or acquiring any debts within the Republic, or any mortgages or security interests in any property within the Republic;

Securing or collecting any debt, or enforcing any mortgage or security interest within the Republic; or

Acquiring any interest in any property within the Republic.

ACCESS TO COMPANY RECORDS (SECTION 26)

The Bill proposes the following amendments to subsection (1) of section 26.

A person who holds or has a beneficial interest in any securities issued by a profit company, or who is a member of a non-profit company, has a right to inspect and copy, without any charge for any such inspection or upon payment of no more than the prescribed maximum charge for any such copy, the information contained in the following records of the company:

The company’s Memorandum of Incorporation and any amendments to it, and any rules;

The records respecting the company’s directors;

The reports to annual meetings, and annual financial statements;

The notices and minutes of annual meetings, and communications to shareholders meetings;

The securities register of a profit company, or the members register of a non-profit company that has members.

A person not contemplated in subsection (1) has a right to inspect the securities register of a profit company, or the members register of a non-profit company that has members, or the register of directors of a company, upon payment of an amount not exceeding the prescribed maximum fee for any such inspection.

ANNUAL FINANCIAL STATEMENTS (SECTION 30)

The Bill proposes that a private company can be:

Audited voluntarily, if the company’s MOI, or a shareholders resolution, so requires, or if the board has so determined.

Independently reviewed in a manner that satisfies the regulations.

Except to the extent required by any other law or agreement, a private company is exempt from the requirements to have its annual financial statements audited or independently reviewed, if every person who is a holder of, or has a beneficial interest in, any securities is also a director of the company.

A new section 8 is also inserted that states that despite section 1 of the Auditing Profession Act, an independent review of a company’s annual financial statements does not constitute an audit within the meaning of the Act.

COMPANY OR SUBSIDIARY ACQUIRING COMPANY'S SHARES (SECTION 48)

The Bill proposes that a special resolution will be required for the repurchase of shares by a company from a director, prescribed officer, or a person related to any such person by the insertion of the following paragraph:

A decision by the board of a company must be approved by a special resolution of the shareholders of the company if any shares are to be acquired by the company from a director or prescribed officer of the company, or a person related to a director or prescribed officer of the company and it involves the acquisition by the company of more than 5% of the issued shares of any particular class of the company's shares.

CONDUCT OF MEETINGS (SECTION 63)

The Bill proposes the following amendments to subsection (4) and (5) and the insertion of a new section (6) and (7).

At a meeting of shareholders, voting may be either by show of hands, or by polling.

If voting is by show of hands, any person present and entitled to exercise voting rights has one vote, irrespective of the number of voting rights that person would otherwise be entitled to exercise.

If voting on a particular matter is by polling, any person who is present at the meeting, whether as a shareholder or as proxy, for a shareholder, has the number of votes determined in accordance with the voting rights associated with the securities held by that shareholder.

Despite any provision of a company’s Memorandum of Incorporation, or agreement to the contrary, a polled vote must be held on any particular matter to be voted on at a meeting if a demand for such a vote is made by:

At least five persons having the right to vote on that matter, either as a shareholder or a proxy representing a shareholder; or

A person who is, or persons who together are, entitled, as a shareholder or proxy representing a shareholder, to exercise at least 10% of the voting rights entitled to be voted on that matter.

SHAREHOLDER RESOLUTIONS (SECTION 65)

The Bill proposes to expand the list of matters that require a special resolution.

A special resolution is required to:

Amend the company’s Memorandum of Incorporation;

Ratify actions by the company or directors in excess of their authority;

Approve an issue of shares or grant of rights;

Authorise the board to grant financial assistance;

Authorise the basis for compensation to directors of a profit company;

Approve the voluntary winding up of the company;

Approve an application to transfer the registration of the company to a foreign jurisdiction;

Approve any proposed fundamental transaction.

The Bill also proposes that a higher percentage than 75% may be stipulated in the MOI.

BOARD COMMITTEES (SECTION 72)

The Bill proposes for the appointment of a social and ethics committee under the following circumstances:

The Minister, by regulation, may prescribe:

A category of companies that must each have a social and ethics committee, if it is desirable in the public interest, having regard to:

○ annual turnover;

○ workforce size; or

○ the nature and extent of the activities of such companies.

The functions to be performed by social and ethics

Rules governing the composition and conduct of social and ethics committees.

A company that falls within a category of companies to appoint a social and ethics committee may apply to the Tribunal in the prescribed manner and form for an exemption from that requirement, and the Tribunal may grant such an exemption if it satisfied that:

The company is required in terms of other legislation to have, and does have, some form of formal mechanism within its structures that substantially performs the function that would otherwise be performed by the social and ethics; or

It is not reasonably necessary in the public interest to require the company to have a social and ethics committee, having regard to the nature and extent of the activities of the company.

An exemption is valid for 5 years, or such shorter period as the Tribunal may determine.

A social and ethics committee of a company is entitled to:

Require from any director or prescribed officer any information or explanation necessary for the performance of the committee’s functions;

Request from any employee any information or explanation necessary for the performance of the committee’s functions;

Attend any general shareholders meeting;

Receive all notices of and other communications relating to any general shareholders meeting; and

Be heard at any general shareholders.

A company must pay all the expenses reasonably incurred by its social and ethics committee including, if the social and ethics committee considers it appropriate, the costs or the fees of any consultant or specialist engaged by the social and ethics committee in the performance of its functions.

DIRECTOR'S PERSONAL FINANCIAL INTERESTS (SECTION 75)

Section 75 is amended by including any member of a committee of the board as a director, irrespective whether the person is also a member of the company’s board.

Related person has the meaning set out in section 1, but also includes a second company of which the director or a related person is also a director, or a close corporation of which the director or a related person is a member.

INDEMNIFICATION AND DIRECTORS’ INSURANCE (SECTION 78)

Subsection (3) of the Act states that a company may not directly or indirectly pay any fine that may be imposed on the director who has been convicted of an offence in terms of national legislation.

The Bill proposes to include a director of a related company.

The Bill also states that the provision does not apply to a private or personal liability company if:

A single individual is the sole shareholder and the sole director of that company; or

Two or more related individuals are the only shareholders of that company, and there are no directors of the company other than one or more of those individuals.

APPOINTMENT OF AUDITOR (SECTION 90)

Section 19 is amended to include any company that is required in terms of its MOI to have its annual financial statements audited to appoint an auditor.

AUDIT COMMITTEES (SECTION 94)

Section 94 is amended to include any company that is required by its MOI to have an audit committee to elect an audit committee comprising of at least three members.

EFFECT OF BUSINESS RESCUE ON EMPLOYEES AND CONTRACTS (SECTION 136)

The Bill proposes that the business rescue practitioner may only entirely, partially or conditionally suspend, for the duration of the business rescue proceedings, an obligation of the company and that the cancellation thereof may only take place upon application to court and if the court is satisfied that the cancellation would be just and reasonable.

CONTINUATION OF PRE-EXISTING COMPANIES (SCHEDULE 5)

The Bill proposes to extend the two year grace period to shareholders agreements as well by the insertion of the following subsection:

If, before the general effective date, the shareholders of a pre-existing company had adopted any agreement between or among themselves, under whatever style or title any such agreement continues to have the same force and effect:

As of the general effective date, for a period of two years, or until changed by the shareholders who are parties to the agreement; and

After the two year period, to the extent that the agreement is consistent with this Act and the company’s MOI.

KING III STRUCTURE OF THE REPORT

King III is divided into nine chapters, in which each of the principles to be contained in the code, are listed as headings and discussed in paragraphs underneath those headings.

Structure of the report:

Chapter 1 – Ethical leadership and corporate citizenship;

Chapter 2 – Board and Directors;

Chapter 3 – Audit committees;

Chapter 4 – The governance of risk;

Chapter 5 – The governance of information technology;

Chapter 6 – Compliance with laws, rules, codes and standards;

Chapter 7 – Internal audit;

Chapter 8 – Governing stakeholder relationships;

Chapter 9 – Integrated reporting and disclosure.

APPLICATION OF THE CODE

The report applies to all entities regardless of the manner and form of incorporation or establishment and whether in the public, private sectors and non-profit sectors.

Each entity should consider the approach that best suits its size and complexity.

It is recommended that all entities disclose which principles and / or practices they have decided not to apply and explain why.

This level of disclosure will allow stakeholders to comment on and challenge the Board to improve the level of governance.

EFFECTIVE DATE

The King III report is effective from 1 March 2010.

CHAPTER 1 – ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

The board should:

Provide effective leadership based on an ethical foundation;

Be responsible for the strategic direction of the company and for the control of the company;

Consider not only the financial performance of the company but also the impact of the company’s operations on society and the environment;

Ensure that it builds and sustains an ethical and corporate culture in the company.

The board and the directors should act in the best interest of the company.

Directors and the board should be permitted to take independent advice in connection with their duties.

Listed companies should have a policy regarding the dealing in securities by directors, officers and selected employees.

The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed.

CHAPTER 2 – BOARD AND DIRECTORS

COMPOSITION

The board must comprise a balance of executive and non-executive directors, with a majority of non-executive directors.

The majority of the non-executive directors should be independent.

Directors must be appointed through a formal process. The Nomination Committee assists with the process of identifying suitable candidates to be proposed to the shareholders.

As a minimum, two executive directors should be appointed to the board, being the chief executive officer (CEO) and the director responsible for the finance function. For listed companies, a financial director must be appointed to the board effective from June 2009.

At least one third of non-executive directors should retire by rotation at the company's AGM or other general meetings. These retiring board members may be re-elected, provided they are eligible.

The memorandum of incorporation of the company should allow the board to remove the CEO as an executive director on the board. Shareholder approval is not deemed necessary for these decisions.

Any independent non-executive directors serving more than 9 years should be subject to a rigorous review of his / her independence.

The board should include a statement in the integrated report regarding the assessment of the independence of the independent non-executive directors.

INDEPENDENT NON-EXECUTIVE DIRECTOR

An independent non-executive director is a non-executive director who:

Is not a representative of a shareholder who has the ability to control or significantly influence management;

Does not have a direct or indirect interest in the company (including any parent or subsidiary in a consolidated group with the company) which is either material to the director or to the company. A holding of five percent or more is considered material;

Has not been employed by the company or the group of which he / she currently forms part in any executive capacity for the preceding three financial years;

Is not a member of the immediate family of an individual who is, or has been in any of the past three financial years, employed by the company, or the group in an executive capacity;

Is not a professional adviser to the company or the group, other than as a director;

Is free from any business or other relationship which could be seen to interfere materially with the individual's capacity to act in an independent manner;

Does not receive remuneration contingent upon the performance of the company.

THE CHAIRMAN

The chairman should be appointed by the board on an annual basis and should be independent.

If the board appoints a chairman who is a non-executive director but is not independent, this should be disclosed in the integrated report, together with the reasons and justifications for it.

The CEO should not become the chairman of the company.

With regards to additional roles of the chairman on committees:

The chairman should not be a member of the audit committee;

The chairman should not chair the remuneration committee, but may be a member of it;

The chairman should be a member of the nomination committee and may also be its chairman; and

The chairman should not chair the risk committee but may be a member of it.

THE CHIEF EXECUTIVE OFFICER

The board should appoint the Chief Executive Officer.

The CEO should not be a member of the remuneration, audit or nomination committees, but should attend by invitation.

CEO’s should recuse themselves when conflicts of interest arise, particularly when their performance and remuneration are discussed.

APPOINTMENT OF BOARD MEMBERS

Directors should be appointed through a formal process.

Shareholders are ultimately responsible for the composition of the board.

Boards should ascertain whether potential directors are competent.

Background and reference checks should be performed before the nomination and appointment of directors.

It is also important to ensure that new directors have not been declared delinquent nor serving probation.

The nomination committee should play a role in this process.

THE COMPANY SECRETARY

The board should be assisted by a competent company secretary.

The appointment of a company secretary in public companies with share capital is mandatory under the Act.

The appointment and removal of a company secretary is a matter for the board.

The secretary should not be a director of the company.

The responsibilities of the company secretary are as follows:

Ensure that the board and board committee charters are kept up to date;

Provide comprehensive practical support and guidance to directors;

Support the non-executive directors and the chairman;

Provide a central source of guidance and advice to the board;

Ensure the proper compilation of board papers;

Ensure that the minutes of board and board committee meetings are circulated to the directors in a timely manner, after the approval of the chairman of the relevant board committee;

Ensure that the procedure for the appointment of directors is properly carried out and he / she should assist in the proper induction, orientation and development of directors.

BOARD COMMITTEES

Public and state-owned companies must appoint an audit committee.

The audit and remuneration committees should be chaired by an independent non-executive director.

The nomination committee should comprise of the board chairman and non-executive directors only, of whom the majority should be independent.

All members of the remuneration committee should be non-executive directors, of which the majority should be independent.

External advisors and executive directors should attend committee meetings by invitation.

Committees should be free to take independent advice at the cost of the company.

TRAINING AND DEVELOPMENT OF DIRECTORS

Training and development of directors should be conducted through formal processes.

The board should establish a formal orientation programme to familiarise incoming directors with the company's operations, senior management and its business environment, and to introduce them to their fiduciary duties and responsibilities.

New directors with no or limited board experience should receive development and education on their duties, responsibilities, powers and potential liabilities.

Inexperienced directors should be developed through mentorship programmes.

Continuing professional development programmes should be implemented.

Directors should receive regular briefings on matters relevant to the business of the company, changes in laws and regulations applicable to the business of the company, including accounting standards and policies, and the environment in which it operates.

PERFORMANCE ASSESSMENT

The performance of the board, its committees and the individual directors should be evaluated annually.

The chairman may lead the overall performance evaluation of the board, its individual members and the company secretary, although independent performance appraisals should be considered.

The board should discuss the board evaluation results at least once a year.

The board should state in the integrated report that the appraisals of the board and its committees have been conducted.

The same principles adopted in the evaluation of the board should be applied to the board committees’, chairman and members.

The nomination of a director at the AGM should only occur after the proper evaluation of the performance and attendance of the director at relevant meetings.

The chairman should not be present when his / her performance is discussed by the board.

REMUNERATION OF DIRECTORS

Companies should remunerate fairly and responsibly.

The remuneration committee should assist the board in its responsibility for setting and administering remuneration policies.

The company’s policy of remuneration should be approved by shareholders in a general meeting. Shareholders should pass a non-binding advisory vote on the company’s yearly remuneration policy.

The board is responsible for determining the remuneration of executive directors.

These decisions need not be approved by shareholders.

Non-executive director fees, including committee fees, should comprise of a retainer, where considered desirable, which may vary according to factors including the level of expertise of each director, as well as an attendance fee per meeting.

Non-executive directors should not receive incentive awards geared to share price or corporate performance.

Non-executive fees should be approved by shareholders in advance.

Annual bonuses should clearly relate to performance against annual objectives consistent with long-term value for shareholders.

Contracts should not commit companies to pay on termination arising from failure.

Shareholders should approve in advance all long-term share-based and other incentive schemes or any substantive changes to existing schemes.

Participation in share incentive schemes should be restricted to genuine employees and executive directors.

Non-executive directors should not receive share options.

The remuneration report should include:

All benefits paid to directors;

The salaries of the three most highly paid employees who are not directors;

The policy on base pay;

Participation in share incentive schemes;

The use of benchmarks;

Incentive schemes to encourage retention;

Material payments that are ex-gratia in nature;

Policies regarding executive employment; and

The maximum expected potential dilution as a result of incentive awards.

MEETINGS

The board must meet at least four times per year.

Additional meetings may be scheduled at the instance of a board member.

The chairman may meet with the CEO and the CFO or the company secretary prior to a board meeting to discuss important issues and agree on the agenda.

All directors should be individuals of integrity and courage, and have the relevant skill and experience to bring judgment to bear on the business of that company.

CHAPTER 3 – AUDIT COMMITTEES

Listed and state-owned companies must establish an audit committee.

All members of the audit committee should be independent non-executive directors.

The audit committee should consist of at least three members.

The chairman of the board should not be the chairman of the audit committee.

The board should elect the chairman of the audit committee.

The chairman of the audit committee should be present at the AGM.

The audit committee should:

Meet at least twice a year;

Meet with internal and external auditors at least once a year without management being present;

Review and comment on the financial statements;

Approve the internal audit plan;

Nominate the external auditor;

Approve the terms of engagement and remuneration for the external audit engagement;

Monitor and report on the independence of the external auditor;

Define a policy for non-audit services provided by the external auditor and must approve the contracts for non-audit services;

Be informed of all reportable irregularities identified and reported by the external auditor.

CHAPTER 4 – THE GOVERNANCE OF RISK

The board should be responsible for the governance of risk.

The board should:

Approve a risk management policy, and the implementation thereof should be reviewed at least once a year;

Set the levels of risk tolerance once a year;

Disclose its view on the effectiveness of the risk management process in the integrated report.

The board should appoint a committee responsible for risk that have as its member’s executive and non-executive directors, members of senior management and independent risk management experts.

The risk committee must:

Have a minimum of three members;

Convene at least twice per year;

Be evaluated once a year by the board.

Undue, unexpected or unusual risks should be disclosed in the integrated report.

CHAPTER 5 – THE GOVERNANCE OF INFORMATION TECHNOLOGY

The board should be responsible for IT governance and place it on the board agenda.

The board should:

Ensure that an IT charter and policies are established and implemented;

Receive independent assurance on the effectiveness of the IT internal controls.

Management should be responsible for the implementation of the structures, processes and mechanisms.

The CEO should appoint a Chief Information Officer responsible for the management of IT.

The board should ensure that the company complies with IT laws and that IT related rules, codes and standards are considered.

CHAPTER 6 – COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS

The board should ensure that the company complies with applicable laws, codes and standards.

Compliance should be a regular item on the agenda of the board.

The board should disclose details in the integrated report on how it discharged its responsibility to establish an effective compliance framework and processes.

The integrated report should include details of material or often repeated instances of non-compliance by either the company or its directors.

An independent, suitable and skilled compliance officer may be appointed.

CHAPTER 7 – INTERNAL AUDIT

The board should ensure that there is an effective risk based internal audit.

Internal audit should be independent from management.

The internal audit function should be skilled and resourced as appropriate for the complexity and volume of risk and assurance needs.

The internal audit plan should be agreed and approved by the audit committee.

Internal audit should provide:

Written assessment of the system of internal controls and risk management to the board;

Written assessment of internal financial controls to the audit committee.

The audit committee should evaluate the performance of the internal audit function.

CHAPTER 8 – GOVERNING STAKEHOLDER RELATIONSHIPS

The gap between stakeholder’s perceptions and the performance of the company should be managed and measured to enhance or protect the company’s reputation.

The board should identify important stakeholder groupings.

Management should develop a strategy and formulate policies for the management of relationships with each stakeholder grouping.

Shareholders should be encouraged to attend the AGM’s.

The board should disclose in its integrated report the nature of the company’s dealings with stakeholders and the outcomes of these dealings.

The board must ensure that minority shareholders are protected.

Communications with stakeholders should be in clear and understandable language.

The board should disclose in the integrated report the number and reasons for refusals of requests of information that were lodged with the company in terms of the Protection of Access to Information Act, 2000.

The board should adopt formal dispute resolution processes for internal and external disputes.

CHAPTER 9 – INTEGRATED REPORTING AND DISCLOSURE

The board should ensure the integrity of the company’s integrated report.

The integrated report should:

Be prepared every year;

Convey adequate information regarding the company’s financial and sustainability performance; and

Focus on substance over form.

The board should include commentary on the company’s financial results.

The board must disclose if the company is a going concern.

The integrated report should describe how the company has made its money.

The Integrated Report should contain:

The reason for any directors ceasing to be in office;

The names of directors and their attendance at meetings;

The age and length of service of each director;

Each director’s list of other directorships.

INTERNATIONAL STANDARDS ON AUDITING BACKGROUND

New International Standards on Auditing were issued in October 2009 and apply to audits of financial statements for periods ending on or after 15 December 2010.

The new ISAs incorporate the clarified ISAs issued by the International Auditing and Assurance Standards Board (IAASB).

The IAASB’s “Clarity Project” was designed to improve the overall readability and understandability of ISAs through structural and drafting improvements, including:

Describing an objective for each ISA;

Separating the requirements in each ISA from the application material;

Clarifying the obligations imposed on auditors by the requirements of the ISAs, including eliminating possible ambiguity about the requirements an auditor needs to fulfil arising from the use of the present tense in the guidance to the extant ISAs;

Improving the overall readability and understandability of the ISAs through structural and drafting improvements; and

Reducing the complexity of the existing ISAs.

There is an increase in the number of requirements in the clarified standards as some of the material that was previously included as ‘present tense guidance’ is now elevated to requirements.

Auditors should not assume that their current approaches will necessarily be compliant with the standards that have been clarified but not revised. It is important to have an understanding of all the clarified ISAs and to consider whether changes to the audit approach are needed.

STANDARDS THAT HAVE BEEN REVISED In addition to clarifying all of the ISAs, 12 ISAs have also been revised and two new ISAs introduced (ISA 265 which addresses communicating deficiencies in internal control, and ISA 450 which addresses the evaluation of misstatements).

ISA 200: OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON AUDITING

The IAASB Clarity Project introduced significant structural changes to the ISAs and these are reflected in the ISAs, including:

Describing an objective for each ISA; and

Separating the requirements in each ISA from the application material.

ISA 200 has been revised to set out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives. It also explains the scope, authority and structure of the ISAs, and includes requirements establishing the general responsibilities of the independent auditor applicable in all audits, including the obligation to comply with the ISAs.

New requirements in ISA 200 explain the purpose of the objectives that are now included in each of the other ISAs. These are that the auditor uses the objectives in planning and performing the audit, having regard to the interrelationships among the ISAs, to:

Determine whether any audit procedures in addition to those required by the ISAs are necessary in pursuance of the objectives stated in the ISAs; and

Evaluate whether sufficient, appropriate audit evidence has been obtained.

ISA 200 also includes material explaining important concepts related to an audit of financial statements. These include the premise on which an audit is conducted (including management’s responsibilities), professional scepticism, professional judgment, and the inherent limitations of an audit, an understanding of which is necessary for a proper understanding of the conduct of an audit.

ISA 210: AGREEING THE TERMS OF AUDIT ENGAGEMENTS

ISA 210 was not subject to a revision project in its own right but has been significantly revised as a result of conforming changes stemming from the revision of other ISAs. In particular the auditor is required to perform specific procedures in order to establish whether the preconditions for an audit are present. These procedures include:

Determining whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable;

Obtaining the agreement of management that it acknowledges and understands its responsibility:

○ For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation;

○ For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and

○ To provide the auditor with:

― Access to all information, of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;

― Additional information that the auditor may request from management for the purpose of the audit; and

― Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.

The revised ISA 580, Written Representations, requires the auditor to obtain written representations from management concerning the fulfilment of these responsibilities.

ISA 260: COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE

The revision of ISA 260 is intended to reflect significant regulatory and auditing standards developments in several jurisdictions, and shifts in the expectations of those charged with governance and other stakeholders.

There are new explicit communication requirements for the auditor, including:

Significant difficulties, if any, encountered during the audit;

Significant matters, if any, arising from the audit that were discussed, or subject to correspondence with management (unless all those charged with governance are involved in managing the entity).

ISA 265: COMMUNICATING DEFICIENCIES IN INTERNAL CONTROL TO THOSE CHARGED WITH GOVERNANCE AND MANAGEMENT

This is a new standard which is intended to enhance the quality of the auditor’s communication of deficiencies in internal control identified by the auditor.

The original aim of defining “material weakness” was shifted to a focus on a clear definition of the threshold of significance at which a “deficiency in internal control,” including controls that are “missing,” should be communicated to those charged with governance.

A “deficiency in internal control” exists when:

A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis; or

A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing.

The standard includes requirements for the auditor to:

Determine, on the basis of the audit work performed, whether, individually or in combination, identified deficiencies in internal control constitute ‘significant deficiencies’. A significant deficiency is a deficiency or combination of deficiencies in internal control that, in the auditor’s professional judgment, is of sufficient importance to merit the attention of those charged with governance;

Communicate in writing all significant deficiencies to those charged with governance, including a description of the deficiencies and an explanation of their potential effects;

Communicate to management in writing:

○ Significant deficiencies that the auditor has, or intends, to communicate to those charged with governance; and

○ Other deficiencies that have not been communicated by other parties, that in the auditor’s professional judgment is of sufficient importance to merit management’s attention.

ISA 320: MATERIALITY IN PLANNING AND PERFORMING AN AUDIT

Key areas the IAASB sought to address in the revision were:

Updating the definition of materiality to make it clearer that materiality depends on the size and nature of an item judged in the surrounding circumstances;

Introducing guidance on the use of benchmarks for the initial determination of materiality;

Indicating that during the audit the auditor is alert for possible bias in management’s judgments. When evaluating whether the financial statements as a whole are free of material misstatement, the auditor is required to consider both the uncorrected misstatements and the qualitative aspects of the entity’s accounting practices.

The revision has introduced more requirements relating to the determination of materiality and related amounts, but does not specify a methodology (e.g. percentages) that should be applied.

The definition of materiality is replaced by a description of the common characteristics of materiality covered in financial reporting frameworks. It is made clearer that materiality depends on the nature of an item as well as its size.

The new requirements include:

Determining a lower amount, ‘performance materiality,’ for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. Performance materiality is the amount, or amounts, set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances or disclosures. How much less performance materiality is than materiality for the financial statements as a whole is a matter of judgment, affected by the auditor’s understanding of the entity and the nature

and extent of misstatements identified in previous audits and thereby the auditor’s expectations in relation to misstatements in the current period;

Determining whether a materiality amount lower than the materiality level for the financial statements as a whole is applicable for particular classes of transactions, account balances or disclosures;

Revising materiality in the event of becoming aware of information that would have caused the auditor to determine a different amount initially. If the auditor concludes that a lower materiality for the financial statements as a whole than that initially determined is appropriate, the auditor is also required to determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the planned procedures remain appropriate.

ISA 450: EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT

ISA 450 is a new standard that has been derived from the revision of ISA 320 on audit materiality. There are a number of new requirements. These include:

Accumulating all misstatements identified other than those that are clearly trivial;

Prior to evaluating the effect of uncorrected misstatements, reassessing materiality determined to confirm whether it remains appropriate in the context of the entity’s actual financial results;

Determining whether uncorrected misstatements are material, with consideration given to the nature of the misstatements as well as their size and to the effect of uncorrected misstatements related to prior periods.

Specific documentation requirements:

The amount below which misstatements would be regarded as clearly trivial;

All misstatements accumulated during the audit and whether they have been corrected; and

The auditor’s conclusion as to whether uncorrected misstatements are material, individually or in aggregate and the basis for that conclusion.

ISA 540: AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES

Due to changes in accounting frameworks, financial statements contain more estimated amounts than when the ISAs were originally issued. The revision of ISA 540 was undertaken to improve the rigor of the auditing of estimates. Management may also be motivated to choose accounting estimates that affect the carrying amount of assets or liabilities as a means of managing earnings. Such motivation may result in financial statements that lack neutrality, or freedom from bias.

The principles and techniques for auditing estimates also apply to auditing fair values.

The revised standard:

Introduces requirements for greater rigor and scepticism into the audit of accounting estimates, including the auditor’s consideration of indicators of possible management bias. It also conforms the approach taken to the audit of accounting estimates with the audit risk and fraud standards;

Provides standards and guidance on the auditor’s determination and documentation of misstatements and indicators of possible management bias relating to individual accounting estimates;

Focuses the requirements and guidance on auditing estimates on areas of estimation uncertainty and risk.

New requirements include:

More specification regarding matters the auditor obtains an understanding of for the purpose assessing risks, including how management identifies those transactions, events and conditions that may give rise to the need for accounting estimates, and how management makes the accounting estimates;

Reviewing the outcome of accounting estimates included in prior period financial statements or, where applicable, their subsequent re-estimation for the purpose of the current period;

Evaluating estimation uncertainty and determining whether estimates with high levels of uncertainty give rise to significant risks;

Requiring substantive procedures to respond to significant risks, including:

○ Evaluating how management has considered alternative assumptions or outcomes and why it has rejected them, or how it has otherwise addressed estimation uncertainty;

○ Obtaining sufficient appropriate audit evidence about whether management’s decisions to recognise, or not recognise, the estimates in the financial statements, and the selected measurement basis, are in accordance with the applicable financial reporting framework;

○ Evaluating the adequacy of the disclosure of estimation uncertainty in the context of the applicable financial reporting framework;

○ Reviewing management’s judgments and decisions to identify whether there are indicators of possible management bias.

ISA 550: RELATED PARTIES

The revised ISA places greater emphasis on a risk based approach to the consideration of related parties. It also seeks to improve auditor performance with the difficult task of identifying related party relationships and transactions not disclosed to them by management.

New requirements include:

Specifying that the audit team discussion required by ISA 315 shall include consideration of the susceptibility of the financial statements to material misstatement due to fraud or error that could result from the entity’s related party relationships and transactions;

Obtaining an understanding of the controls, if any, that management has established, including to:

○ Identify, account for, and disclose related party relationships and transactions in accordance with the applicable financial reporting framework;

○ Authorize and approve significant transactions and arrangements outside the normal course of business;

○ Treating identified significant related party transactions outside the entity’s normal course of business as giving rise to ‘significant risks.

Specifying procedures to be performed if the auditor identifies related parties or significant related party transactions that management has not previously disclosed to the auditor;

Specifying procedures to be performed for identified significant related party transactions outside the entity’s normal course of business, including:

○ Inspecting the underlying contracts or agreements, if any, and evaluating whether the business rationale, or lack thereof, of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets or that the terms of the transactions are consistent with management’s explanations; and

○ They have been appropriately accounted for and disclosed in accordance with the applicable financial reporting framework;

○ Obtaining audit evidence that the transactions have been appropriately authorised and approved.

If management has made an assertion in the financial statements to the effect that a related party transaction was conducted on terms equivalent to those prevailing in an arm’s length transaction, the auditor shall obtain sufficient appropriate audit evidence about the assertion;

Communicating with those charged with governance about significant matters identified arising during the audit in connection with the entity’s related parties;

Documenting the names of identified related parties and the nature of related party relationships.

FINANCIAL REPORTING FRAMEWORK FOR NON-PUBLIC ENTITIES A South African working group was formed to draft a proposed "Financial Reporting Framework for Non Public Entities" so as to address the concerns that were raised with regards to the complexity and costs of applying GAAP and GAAP for SME. The "FRF-NPE" is to provide a less complex and onerous reporting framework than the current IFRS / GAAP and IFRS for SME / GAAP for SME.

The Framework's scope includes the development of a high quality framework for entities that are not required by law to apply any other framework (such as IFRS or Statement of GAAP for SMEs). The primary users of these financial statements were identified as the owners of the entities, financial institutions and SARS.

PURPOSE

The purpose of this Framework is to:

Provide guidance on the accounting treatments suitable for entities that do not require general purpose financial statements;

Reduce the reporting burden on entities, by considering whether the benefits derived from information exceed the cost of providing it;

Enable entities to prepare financial statements that enable the primary users to evaluate or assess the reporting entity‘s profitability, liquidity, solvency, resources and cash flows, as well as other risks; and

Ensure that transactions are recognised with integrity to enable the primary users to place reliance thereon. The primary users are deemed to be the owners, financial institutions and the local tax authority.

OBJECTIVES

The objectives of this Framework are to:

Address the majority of transactions and events that most reporting entities may encounter;

Ensure this Framework is a standalone document, which is succinct, easy to understand and easy to implement; and

Ensure minimal deviation from management accounts, with few adjustments as possible required, and reflect the economic reality of the business activities by reflecting the intentions of management;

Allow for fair presentation of the financial position, financial performance and cash flows of an entity, to be achieved through adherence to this Framework with additional disclosures where necessary.

SCOPE

The framework may be applied by entities that are not required by any other law to apply any other statement of Generally Accepted Accounting Practice (GAAP), or any entity that is required by law to apply this framework, and which do not have public accountability.

An entity has public accountability if:

Its debt or equity instruments are publically traded or it is in the process of issuing such instruments for public trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);

It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers / dealers, mutual funds and investment banks; or

Its activities and nature of the business is deemed to be in the public interest.

Financial statements prepared in accordance with this Framework will result in special purpose financial statements. The use of such financial statements will not be deemed general purpose, and the use and dissemination of such financial statements shall be restricted to owners, managers, credit providers and the relevant tax authority.

TRANSITIONAL PROVISIONS AND EFFECTIVE DATE

The transition to this Framework is accounted for as a change in accounting policy.

If an entity has previously reported under another Statement of Generally Accepted Accounting Practice (GAAP), it is not required to, but may if it wishes to, restate its comparative financial information to comply with this Framework.

An entity whose previous accounting framework was not another Statement of Generally Accepted Accounting Practice (GAAP), shall restate its comparative financial information to comply with this Framework.

An entity shall disclose under which framework it reported previously and whether the comparative information was restated.

PRINCIPLES, RECOGNITIONS AND MEASUREMENT

GOING CONCERN The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

Ii such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.

SUBSTANCE OVER FORM The substance of a transaction or contract (arrangement), rather than its legal form, governs its accounting treatment in the entity‘s financial statements.

The accounting shall reflect the substance of the arrangement. All aspects and implications of an arrangement shall be evaluated to determine its substance, with weight given to those aspects and implications that have an economic effect.

HISTORICAL COST Assets are initially recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount received in exchange for the obligation, or in some circumstances (for example, income taxes and provisions), at the amounts expected to be paid to satisfy the liability in the normal course of business. However inventories shall be carried at the lower of cost or net realisable value and impaired assets shall be carried at fair value less costs to sell.

ACCRUAL BASIS OF ACCOUNTING An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

When the accrual basis of accounting is used, an entity recognises assets, liabilities, equity, income and expenses (elements of the financial statements) when they satisfy the definitions and recognition criteria.

RECOGNITION An item that meets the definition of an element should be recognised if:

It is probable that any future economic benefit associated with the item will flow to or from the entity; and

The item has a cost or value that can be measured with reliability.

MEASUREMENT The general measurement principle at initial recognition is that items are measured at the documented amount. This document can be an invoice, contract or similar document.

DISCLOSURE At the discretion of the preparer, an entity may disclose any other deemed value of an asset. This could be the net realisable value, market value, insured value, attributed value or any value the directors believe is a reasonable value. The basis of determining this deemed value shall be disclosed, including, but not limited to the basis in arriving at the value, the valuer, the method of valuation and significant assumptions made.

SELECTION OF ACCOUNTING POLICIES Management shall select and apply the entity‘s accounting policies so that the financial statements comply with all the requirements of this Framework.

Management shall use its judgement in developing an accounting policy that results in information that is relevant to the needs of users of the financial statements and is reliable in nature.

An entity shall select and apply its accounting policies for a period consistently for similar transactions, other events and conditions, unless this Framework specifically requires or permits categorisation of items for which different policies may be appropriate.

When a requirement in this Framework specifically applies to a transaction, event or condition, the accounting policy or policies applied to that item shall be determined by applying the requirements in this Framework.

In the absence of a requirement or guidance in this Framework that specifically applies to a transaction, other event or condition, management shall develop an accounting policy that results in information that is relevant to the needs of users of the financial statements and is reliable in nature.

CHANGES IN ACCOUNTING POLICIES An entity shall change an accounting policy only if the change:

Is required by this Framework; or

Results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity‘s financial position or financial performance.

An entity shall report the effects of a change in accounting policy in the Statement of Income and Expenditure as an abnormal item in the current period.

An entity may present additional pro forma comparative information, often as separate columns, in order to show the Statement of Income and Expenditure and the Statement of Assets and Liabilities, as if the new accounting policy had always been applied. The additional comparative information shall be clearly identified as being only for information, and that it does not form an integral part of the financial statements.

When a change in accounting policy has a material effect on the current period or any prior period presented, or may have a material effect in subsequent periods, an entity shall disclose the following:

The reasons for the change, including, for changes other than those required by this Framework, the reasons that applying the new accounting policy provides reliable and more relevant information;

The amount of the adjustment included in the Statement of Income and Expenditure;

The amount of the adjustment included in each period for which pro forma information is presented and the amount of the adjustment relating to periods prior to those included in the financial statements, if any.

CORRECTIONS OF PRIOR PERIOD ERRORS The amount of the correction of a material prior period error shall be included in the Statement of Income and Expenditure as an abnormal item in the current period.

An entity may present additional pro forma comparative information, often as separate columns, in order to show the Statement of Income and Expenditure and the Statement of Assets and Liabilities, as if the new accounting policy had always been applied. The additional comparative information shall be clearly identified as being only for information, and that it does not form an integral part of the financial statements.

An entity shall disclose the following:

The nature of the material prior period error;

The amount of the correction included in the Statement of Income and Expenditure; and

The amount of the correction included in each period for which pro forma information is presented and the amount of the correction relating to periods prior to those included in the pro forma information, if any.

CHANGES IN ACCOUNTING ESTIMATES The effect of a change in an accounting estimate shall be included in the determination of profit or loss in the current period, and presented as an abnormal item. No adjustments to comparative amounts are allowed.

To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the current period.

If the effect of a change in accounting policy is material, the amount and nature of the change shall be disclosed.

PRESENTATION OF FINANCIAL STATEMENTS A complete set of financial statements comprises:

Statement of assets and liabilities;

Statement of Income and expenditure;

Reconciliation of opening and closing equity either on the face or the notes of the financial statements;

Statement of cash flows; and

Notes to the financial statements to the financial statements, comprising a summary of significant accounting policies, information required by this Framework and other explanatory notes.

An entity may use titles for the financial statements other than those used in this Framework as long as they are not misleading.

OVERALL CONSIDERATIONS For an entity that applies this Framework, the appropriate application thereof, with additional disclosures where necessary, will result in financial statements that achieve fair presentation. Where an entity believes application of this framework does not achieve fair presentation, the entity may deviate from the Framework to achieve fair presentation, subject to explicit disclosure of the facts and circumstances of the deviation.

An entity whose financial statements comply with this Framework shall make an explicit and unreserved statement of such compliance in the notes to the financial statements.

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.

CONSISTENCY OF PRESENTATION The presentation and classification of items in the financial statements shall be retained from one period to the next.

MATERIALITY AND AGGREGATION Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.

OFFSETTING Assets and liabilities, and income and expenses, shall not be offset unless required or permitted by this Framework.

COMPARATIVE INFORMATION Except when this Framework permits or requires otherwise, comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, as well as all required disclosure items. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period‘s financial statements.

When the presentation or classification of items in the financial statements is amended, comparative amounts shall be reclassified unless the reclassification is not readily determinable without undue cost or effort. When comparative amounts are reclassified, an entity shall disclose:

The nature of the reclassification;

The amount of each item or class of items that is reclassified; and

The reason for the reclassification.

STRUCTURE AND CONTENT Each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented:

The name of the reporting entity or other means of identification, and any change in that information from the preceding Reporting date;

The Reporting date or the period covered by the financial statements, whichever is appropriate to that component of the financial statements;

The presentation currency; and

The level of rounding used in presenting amounts in the financial statements.

An entity may present an additional column with deemed values for assets as allowed by the respective sections of this Framework. The deemed values shall be clearly identified as being only for information, the basis of determining the deemed values disclosed, and the fact that that they do not form an integral part of the financial statements.

REPORTING PERIOD Financial statements shall be presented at least annually. When an entity‘s reporting date changes and the annual financial statements are presented for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:

The reason for using a longer or shorter period; and

The fact that comparative amounts for the Statement of Income and Expenditure, Statement of Cash Flows and related notes are not entirely comparable.

SPECIFIC LINE ITEMS ON THE FINANCIAL STATEMENTS

LAND AND BUILDINGS

Land and buildings is carried at cost less accumulated depreciation and any accumulated impairment losses and no depreciation of land is required. Subsequent expenditure on land and buildings shall either be expensed or capitalised, depending on whether it is day to day maintenance expenditure or increasing the value or output of the property. Land and buildings should be separated, where possible, except when to do so would involve undue cost or effort.

PLANT AND EQUIPMENT The cost of an asset shall be allocated to plant and equipment if it is a directly attributable cost. The cost of an item of plant and equipment shall be allocated on a straight-line basis over its economic useful life or by applying the units of production method. Subsequent expenditure on plant and equipment shall either be recognised in profit and loss or capitalised depending on the type of cost.

Residual values for plant and equipment do not need to be estimated and all plant and equipment will be depreciated to zero.

INTANGIBLE ASSETS AND GOODWILL All internally generated goodwill and intangible assets shall be expensed as incurred. Intangible assets are to be amortised at the option of the entity over their useful lives on a straight-line basis.

Residual values for intangible assets and goodwill need not be estimated and all intangible assets and goodwill will be depreciated to zero.

LEASES Leases should be classified as either operating or finance leases. It distinguishes between instalment sales and leases. Operating lease payments are to be recognised as income or expense by the lessor and lessee respectively. Finance leases shall be recognised as assets and liabilities equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments.

INSTALLMENT SALES For installment sales, the purchaser shall recognise an asset and an installment sale payable (the seller recognises an installment sale receivable) in its Balance Sheet at amounts equal to the cost of the asset to be purchased (sales

price), excluding interest charges, i.e. principal debt plus any deposits paid. The purchaser and seller will recognise interest expense and income respectively, while the purchaser will recognise depreciation charges.

INVENTORIES Rebates and trade discounts indicated on the invoice must be deducted in determining the cost of inventory. This excludes early settlement discounts and other discounts and rebates received by the entity subsequent to the original invoice.

The method to measure the cost of inventories shall be first-in, first-out (FIFO) or weighted average cost formula.

IMPAIRMENT OF ASSETS An entity shall tests goodwill and other assets for impairment only if there is an indication of impairment.

This Framework only allows the fair value less costs to sell as the basis for impairment, thereby disallowing the value-in-use basis.

INVESTMENTS The initial measurement basis for all investments is at cost, and subsequent measurement also at cost.

For investments with control, joint control or significant influence, the alternative allowed method is to prepare consolidated financial statements. This election for an alternative treatment may be undertaken on an investment-by-investment basis.

The Framework does not allow for any investments to be carried at fair value. The attributed value may, however, be disclosed.

REVENUE

Revenue should be measured at the net invoiced value. Only rebates and discounts included on the invoice will be taken into account. Pre-invoiced amounts are specifically not allowed to be recognised as revenue.

DISCOUNTS An entity shall disclose discounts allowed and received, which are not indicated on sales ‘invoices issued and invoices for goods and services received respectively, separately on the face of the Statement of Income and Retained Income.

TAXATION Taxes should be treated as part of the income tax charge in the Statement of Income and Expenditure of the period in which the event that gave rise to the tax occurred or immediately if the event took place in a previous period.

RELATED PARTY DISCLOSURES This Framework requires the disclosure of the total compensation of the Board of Directors or equivalent management body.

This Framework requires detailed disclosure if there have been transactions between related parties on terms not equivalent to those that prevail in arm‘s length transactions, as well as any encumbrances.

EVENTS AFTER THE BALANCE SHEET DATE Dividends should be recognised when the dividends are declared. Dividends declared after Balance Sheet date, but before the AFS are finalised, should only be disclosed and not recognised as a liability.

ENVIRONMENTAL TAXES In the Budget 2010/11, announced on 17 February 2010, reference was made to environmental taxes. A carbon tax on new passenger vehicles was announced, and a broad statement was made that "further research is being done to expand environmental taxes and levies".

It is believed that government will implement a comprehensive carbon mitigation and adaptation strategy, supported by appropriate economic instruments like a carbon tax, in the 2011/12 fiscal year.

The following are extracts from the Budget 2010/11 papers.

CARBON DIOXIDE VEHICLE EMISSIONS TAX

The proposed carbon dioxide (CO2) vehicle emissions tax, which will come into effect on September 1, would now be implemented as a specific tax and not as an ad valorem tax.

New passenger vehicles will be taxed based on their certified CO2 emissions at R75 per g/km for each g/km above 120 g/km.

The CO2 emissions tax was expected to encourage South Africans to move towards more energy-efficient and environmentally friendly vehicles.

This tax could add between R 5 000 and R 10 000 to the price tag of the average new passenger vehicle.

ENVIRONMENTAL FISCAL REFORM AND THE PRICING OF CARBON The electricity levy announced in 2008 was the first step towards a carbon tax in South Africa. Various lobbying efforts are underway to expand the carbon market to include the developing world. Although government's preference is for a carbon tax, a discussion document on the possible scope and administrative feasibility of emissions trading in South Africa will also be released for public comment towards the end of 2010.

The following environmental taxes and charges will also be investigated:

A waste water discharge levy in terms of the Water Act

Pollution charges in terms of the new Air Quality Act

Levies on the waste streams of various products

A landfill tax at municipal level

Traffic congestion charges.

The following 'green' deductions / allowances are among those currently in the Income Tax Act:

Section 12B Deduction in respect of certain machinery, plant, implements, utensils and articles used in framing or production of renewable energy

Section 37B Deductions in respect of environmental expenditure

Section 37C Deductions in respect of environmental conservation and maintenance

Section 11D Deduction for research and development costs

EXEMPTIONS FOR CERTIFIED EMISSION REDUCTIONS

The Kyoto Protocol, the main environmental instrument of the United Nations Framework Convention on Climate Change (UNFCCC), has been ratified by 189 countries including South Africa. The Kyoto Protocol provides mechanisms to ensure

that developed countries (as listed in Annexure 1 of the UNFCCC)) can meet their emission reduction targets. At the same time, the Clean Development Mechanism (CDM) ensures participation of developing countries in a global carbon reduction market. The Kyoto Protocol financing and technology transfer is accomplished through CDM projects which are available only within developing countries. These CDM projects focus on development in renewable energy, energy efficiency and other related fields designed to achieve emission reductions.

A key feature of CDM projects is the demonstration of additionality, which means that the project participants must demonstrate that the envisaged project would not have been viable without Kyoto Protocol support:

Emissions (environmental) additionality: This element ensures any emissions reduction is additional to what would occur without the proposed project;

Financial additionality: This element ensures that any public funding from Annexure 1 countries for the CDM project is additional and not a diversion of pre-existing official development assistance;

Investment additionality: This element ensures that the investment project would not take place without a CDM project;

Legal additionality: This element ensures that the project is additional to what is already mandated by laws or regulations; and

Technical additionality: This element ensures that superior technology is used that would not have been possible to transfer to the developing country without the CDM project.

If these elements are satisfied, the Kyoto Protocol allows for these CDM projects to yield GHG reduction credits (commonly known as carbon emission reduction credits) in the form of certified emission reductions (CERs). These CERs are technically saleable to and usable only by developed countries for the purpose of meeting legally binding Kyoto Protocol emissions reductions obligations. CERs effectively operate as a concomitant revenue source for CDM projects, thereby seeking to make otherwise marginal projects viable.

EXEMPTION OF CERTIFIED EMISSION REDUCTIONS (SECTION 12K)There must be exempt from normal tax any amount received by or accrued to or in favour of any person in respect of the disposal by that person of any certified emission reduction derived by that person in the furtherance of a qualifying CDM project carried on by that person.

However, expenditure incurred in the production of CERs sold will not be deductible for tax purposes, as it was incurred in the production of exempt income. It will therefore be imperative that adequate records are kept to distinguish between expenses incurred in the production of this exempt income and expenditure incurred in the production of taxable income.

ALLOWANCE FOR ENERGY EFFICIENCY SAVINGS (SECTION 12 L)

The primary energy sources in South Africa are fossil-fuel based. Energy derived from fossil fuel has a negative effect on the environment and current electricity prices do not reflect the environmental costs. Given the need to address the challenges relating to climate change and to improve energy use, it has become necessary to find ways improve energy efficiency. Energy efficiency can indeed be viewed as one of the low-hanging fruits to help address the concerns relating to climate change and energy security.

Energy efficiency savings, expressed in kilowatt hours (kWh), is the favourable energy use measured against a baseline, set as a threshold by a Measurement and Verification agent. These agents are internationally recognised professionals. SANEDI will make the energy efficiency saving and determinations. SANEDI will issue the energy savings certificate, certifying the energy efficiency savings based on the information obtained from the measurement and verification agents.

The conversion by the taxpayer of old technologies to new ones often involves a substantial amount of capital expenditure for the taxpayer. Once the energy savings are realised there will be a corresponding increase of accounting profits and

taxable income. Therefore, government fully partakes in the profits gained from the energy savings. This tax impact creates an added hurdle to the conversion of new energy efficiency processes. The same holds, but to a lesser extent, for energy efficiency savings brought about by improvements in production processes and operating procedures.

It is proposed that taxpayers be entitled to claim a notional allowance for energy efficiency savings resulting from activities in the production of income. This notional allowance will enable the taxpayer to capture the full profit from the energy savings during each year in which incremental energy efficiency savings is realised.

The allowance for each year of incremental savings is determined as follows:

(Energy efficiency savings x Applied rate) / 2

Energy efficiency savings is determined by an accredited Measurement & Verification professional using the baseline methodology and is expressed in kilowatt hours (kWh) and certified by SANEDI.

The applied rate is the lowest feed-in-tariff expressed in Rands per kWh determined in terms of the Regulatory Guidelines by the National Energy Regulator. Given that the lowest feed-in tariff rate is higher than the current rate per kWh for electricity generated from fossil fuels the allowance is 50 per cent (the division by 2) of the amount derived by multiplying the energy efficiency gains with the applied rate. The Minister may change this percentage, (i.e. the amount by which the rand value of the savings is divided).

The energy savings certificate is the key pre-requisite for the allowance. The certificate must contain the M&V determined energy used baseline, the annual energy efficiency savings expressed in kilowatt hours (kWh) and the revised baseline. All this information must be authenticated and issued by SANEDI

The amendment is effective for years of assessment ending on or after 1 January 2010. This provision also has a sunset clause, resulting in the expiry of the incentive on 1 January 2020.