Consumer and Corporate Regulation

Presentation to the Portfolio Committee on Trade and Industry

31 July 2014

Delegation

Zodwa Ntuli: Deputy Director General, Consumer and Corporate Regulation Division (CCRD)

Simphiwe Ncwana: Director, Intellectual Property (IP) Law and Policy, CCRD

Desmond Ramabulana: Director, Company Law and Policy, CCRD

Astrid Ludin: Commissioner, Companies and IP Commission (CIPC)

Agnes Tsele-Maseloanyane: Tribunal Member, Companies Tribunal (CT)

Lucky Phakeng: Executive Director, Takeover Regulation Panel (TRP)

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Purpose

To brief members of the Portfolio Committee about the work of Consumer and Corporate Regulation Division

focusing on Corporate Regulation

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Context

Intellectual Property is about innovation and creativity, basically turning ideas into business.

South Africa is a member of World Intellectual Property Organisation (WIPO).

A study commissioned by the dti highlighted that creative enterprises contribute significantly to the economic, social and cultural developments of nations.

The South African copyright based industries contribution to GDP is 4.11% and to employment is 4.08%, with more potential if commercialisation is enhanced.

South Africa is ranked 17 in the world for IP enforcement.4

Context

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Copyright contribution to GDP/employment in comparison to other countries.Potential to grow contribution to 11% if copyright is taken more seriously with incentives and strategies implemented.

World Bank Study on Doing Business

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Context

Policy Perspective and Legislative Framework

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Process outline

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Framework

Policy direction

Implementation

Adjudication

Company Policy and Law

•South Africa had operated on the Companies Act of 1973 despite the democratic dispensation in 1994.•The law did not adhere to consistent and sustainable norms of corporate governance, transparency, accountability, best and fair market practices.•More, it was not aligned to the Constitution, and was contrary to policies adopted in the democratic South Africa. •Starting a business remained a daunting and costly challenge for small businesses and entrepreneurs.•Reforming the corporate laws was a never ending exercise to the detriment of small businesses

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Company Policy and Law

•Policy Review was conducted culminating in the promulgation of the Company Act (Act 71 of 2008) as amended in 2010.•Companies Act Regulations were finalised and the Act came into effect on 1 May 2011.•Establishment of CIPC, Companies Tribunal and the Takeover Regulation Panel and all relevant specialist committees.•Transition process from CIPRO as a registry to CIPC the regulator was completed.•World Bank commented on the reforms as good for ease of doing business.•On global competitiveness, SA is ranked 53, India 60, Russia 64, Brazil 56 and China 29

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Key Freatures• The strength of the corporate law reform is simplicy and flexibility through

categories and form of companies, including processes.• Business rescue was introduced to assist financially distressed companies,

save jobs and prevent productive assets from exiting.• Social and Ethics Committees introduced to promote corporate governance,

human rights and socially responsible business practices.• Independent reviews were introduced to support small enterprises and

reduce cost of doing business.• Company registration was simplified for the removal of burdensome

regulatory framework - Close Corporations were phased out• The Act provides for fundamental transactions of mergers and takeovers in

the interest of minority shareholders.• Domestication, reciprocity and exemption provisions to encourage investors.

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Advisory BodiesFinancial Reporting Standards Council FRSC is established in terms of Section 203.Advises the Minister on matters relating to financial reporting standards Each members is appointed by the Minister to serve a term of three years but may be reappointed to the FRSC.FRSC is chaired by Jeff van Rooyen and the secretariat function is performed by the dti.Regulation 27 to the Companies Act prescribes specific financial reporting standards to be appliedStandards include International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) as issued by the IASB.

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Advisory BodiesSpecialist Committee on Company LawGood governance is key in ensuring that entities are able to achieve their objectives.SCCL is appointed by the Minister in terms of Section 191 of the Act to advise on any matter relating to company law or policy or the management of the CIPC.It consists of not more than eight persons who are independent from the Commission or the Minister.The Chairman of SCCL is Professor Michael Katz and has since performed exceptional work.Company Laws Symposium was hosted in 2013 and a follow up is taking place in August 2014.

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Company Policy and Law

Corporate Governance Development Program •Need was identified to improve corporate governance as a critical aspect of the Companies Act•the dti appointed Institute of Directors Southern Africa (IoDSA) to provide technical part of this training•Trainees are placed on boards as observers to prepare them for future board positions.•Database of trainees will be kept, and marketed to companies to increase pool of women•170 women were trained last year, and placement is continuing.•Program is receiving excellent feedback.

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Intellectual PropertyThe following pieces of law are administeredPatents Act (Act 57 of 1978): to provide for the registration and granting of letters patents for inventions and for the rights of a patentee. Copyright Act (Act 98 of 1978) and related Acts: to regulate copyright in respect of, inter alia, artistic works, dramatic works, computer programs, musical and literary works.Designs Act (Act 195 of 1993): to consolidate the law relating to designs; to provide for the registration of designs; and to delineate the rights pertaining thereto. Trade Marks Act (Act 194 of 1993): to consolidate the law relating to trademarks and to provide for the registration of trademarks, certification of trademarks and collective trademarks. All the above were amended to introduce protection of Indigenous Knowledge under IP Laws Amendment Act 28 of 2013.

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Counterfeit Goods Act (Act 37 of 1997): to strengthen prohibitions on trade in counterfeit goods; confers powers on inspectors and the police to enter and search premises, with and without a warrant; confers powers on Customs and Excise to seize and detain suspected counterfeit goods.

Merchandise Marks Act (Act 61 of 2002) as amended: regulates the use of marks, inscluding protected status and authorisation for use of prohibited marks.

Intellectual Property Laws Amendment Act, 28 of 2013 on the protection of indigenous Knowledge using the current IP system – followed Patents Amendment Act of 2005

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Intellectual Property

Projects underway:IP Policy Framework on Intellectual Property developed – presented and approved by Cabinet for public consultations aims to harmonise IP legislation and laws dealing with IP in relation to access to medicine, education, exceptions, interface between competition and IP, consumers and IP.

Inter-Ministerial Committee input and final IP Policy to be issued in due course after public comments consideration.

IP Laws Amendment Act Regulations are being developed to give effect to protection of indigenous knowledge.

The Council which will advise on indigenous knowledge and a National Trust Fund for indigenous work is being established.

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Intellectual Property

ActivitiesHosted/participated in the following:IP Forum as a pre-consultative platform highlighting use of IP as an integral tool for economic development and industrialisation, and a means to facilitate competition, access to medicine and education for the poor.WIPO Committee on indigenous knowledge and IP – impasse resolved on Inter–Governmental Committee on protection of traditional knowledge, traditional cultural expressions and generic resources. Patent Limitation Conference as well as a seminar on Managing IP portfolio for Small Businesses.There is a need for education on IP to empower holders of IP, especially small businesses to know how to protect their rights.

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Antipiracy

the dti plays a key role in the fight against piracy and it was conceptualised as follows:

Anti-piracy campaigns, which include inspection blitz Formalisation of the industry to help artists to operate as businesses and

access government support Copyright Review Commission to investigate the issue of royalties

A meeting in 2009 convened by the President with creative industry, and Conference by the dti in Birchwood in 2010. Resolutions informed the nature and form of the campaign, with emphasis on government coordinationthe dti in partnership with South African Police Services, Department of Arts and Culture (DAC), South African Revenue Services (SARS), Department of Home Affairs (DHA)

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Activities

Copyright Review Commission

The Copyrights Review Commission was established in 2011 to probe concerns by artists that royalties are not properly distributed to the rightful owners of copyright by collecting societies.

It was chaired by Judge Ian Farlam and comprised of members drawn from different aspects of the industry.

It held public hearings, conducted research and benchmark approaches regarding collection and distribution of royalties.

Recommendations include: An interdepartmental committee at the level of Directors- General or Deputy-

Directors General should be appointed. Local content for public, private and community radio stations should be 80%, 50%

and 80% respectively. The Copyright Act and associated legislation must be reviewed during the

2013/2014 financial year. 21

• Copyright Act and associated legislation must be reviewed to bring it within the modern trends in the copyright regime

• Minister of Trade and Industry should liaise with the Minister of Communications with a view of encouraging the SABC and royalty collection agencies to pay royalties to musicians retrospectively from 2006 when the Copyright Act and Performers Protection Act, came into legal force through Regulations

• An interdepartmental committee at the level of Director-General or Deputy Director-General should be appointed with a view of implementing the recommendations of the Commission

• The legislation should be amended to allow for one collecting society per set of rights with regards to all music rights governed by the Copyright Act (Performance, needle time and mechanical rights).

• Collecting societies that currently fall outside the ambit of the Regulations should be given a time period after the date of amendments to reduce their administration costs in order to be in line with the requirements of the Regulations

• Collecting societies practice of distributing unallocated revenues in unacceptable

• ICASA should include as a condition in the broadcasters licences that compliance with needle time and copyright obligations is compulsory, and that a repeated failure by broadcasters to comply should lead to cancellation of their licences

• Local content for public, private and community radio stations should be 80%, 50% and 80% respectively.

• Assenting to Copyright Treaties to extend protection.

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Key recommendations

Copyright Review Commission:The Copyright Act is in the Parliamentary Program for this financial year.Recommendations of CRC included in IP Policy Framework.Committee established between relevant Ministries and chaired by DDG: CCRD to monitor implementation.ICASA has published a paper for comment on local content with a view of issuing revised regulations.

SABC presented status report on payments of royalties, and all but one payment have been processed.

SAMRO also gave an update on payments made thus far, and progress on following recommendations.

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Progress

interface with international bodiesIP Bodies CCRD engage with include:

World Intellectual Property Organisation Agency of the United Nations dealing with IP Emphasises education and awareness for developing countries. Assisted the dti study on the copyright based industries in SA.

World Trade Organisation(WTO) Administers the Trade Related Aspects of IP (TRIPS) Dealt with the Doha decision on access to public health and IP

flexibilities (Draft IP Policy)World Health Organisation (WHO)

Deals with public health matters in respect of IPAfrican Intellectual Property Organisation (ARIPO)

Deals with regional cooperation of IP24

interface with international bodies IP Bodies CCRD engage with include:

European Patent Office (EPO) Assists with information on databases and patents

Patent Cooperation Treaty (PCT) search authority for CIPC on patents

United Nations Conference on Trade and Development(UNCTAD) deals with trade, development and IP matters

South Centre Advises developing countries on IP

Pan African Intellectual Property Office (PAIPO) African Union (AU) desk for IP Advises on IP policy making

Standing Committee on IP (SACIP) and Patents Examination Board also also statutory committes on advice and exam setting respectively.

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Companies and Intellectual Property Commission

Company Registrations

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E-filing uptake and turnaround times

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Companies, CCs and Co-ops

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CC Conversions

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Registration Processes

Systems are put in place to strengthen company registration processes.

Online processes introduced for registration and compliance in Companies, Close Corporations, and IP (excl. co-operatives).

Many processes still manual – introduced service for emailing scanned documents, as well as fax services to enable easy access from anywhere in the country (incl. Co-operatives).

New systems in CIPC to store emailed and electronic documents (cuts out paper and reduces resources required for printing and filing); also introduced scanning centre for paper documents posted and delivered.

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Business Rescue Since May 2011, 1 338 business rescue notices have been filed. The

table below indicates the number of notices filed in each calendar year.

For the calendar year 2014, 94 notices were filed between 1 January and 31 March 2014, an average of 39 applications per month.

Of the total number of companies that have entered into business rescue proceedings, only 349 have ended their business rescue proceedings.

Of this number, 141 were terminations, 129 were substantially implemented, 73 ended in liquidations, and 6 were set aside by court.

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Business Rescue

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Intellectual Property Registrations

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Companies Tribunal

Cases

The NCT handled 296 cases compared to 191 in the previous financial year.

The majority of cases related to name disputes (190) followed by applications for exemptions from Social and Ethics Committee (76).

69% of the NCT decisions were issued within 30 days from date of allocation and 80% of judgment were issued within 30 days from date of hearing ensuring that the Tribunal provide speedy, cost effective dispute resolution mechanism.

No decision of the NCT has been taken for review or appeal in the financial year.

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Achievements

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Public Outreach

The Tribunal collaborated with the the dti and the City of Tshwane in outreach initiatives to inform the public about the role and services of the Tribunal.

The Tribunal published on its website Practice Guidelines to guide members of the public when submitting applications for adjudication to the Tribunal.

All decisions of the Tribunal are made public on its website.

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Cases Handled by the Tribunal

Applications for Social and Ethics Committee exemptions:

The South African Securitisation Programme (FR) Ltd – granted

South African Bank Note Company – refused

South African Mint Company (RF) (Pty) Ltd - refused

Deustche Securities (SA) (Pty) Ltd - refused

Yeboyethu Ltd - refused

The Spar Guild of Southern Africa NPC – Refused

The San Lameer Master Home Owners Association NPC - granted

Katanga Mining Services (South Africa) Pty Ltd - dismissed

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Cases

Name Dispute cases

Mzantsi Magic Trading (Pty) Ltd- refused

Gallup Poll- granted

Kulula Internet –granted

Church of England in South Africa- granted

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Takeover Regulation Panel

Transactions and Cases

The regulated and approved transactions by end March 2014 were as follows:

51 affected transactions and offers; 164 rulings in respect of affected transactions and offers -

majority of the rulings relate to regulated private companies; and

12 advisory opinions.

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Breakdown of Transactions

Analysis of Matters Considered by the Panel for the year ended 31 March 2014

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Nature of the Cases Cases

Fundamental transactionsSec 112 - disposal of assets (9), Sec 114-Scheme of arrangement (28)

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Mandatory offersComparable offer sec 123 (5), waiver by shareholder Regulations 86.4 (6)

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General offers 2

Partial offers Section 125 1

Rulings Sec 119. 6 - exemptions (149), relaxation of Regulations (6), other (9)

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Appeals

For the year under review, the Takeover Special Committee (TSC) received 1 appeal against the ruling of the Executive Director. The matter was heard and dismissed by the

Takeover Special Committee.

In addition 2 applications for appeals were lodged against the rulings of the Executive Director They were withdrawn before they were considered

by the Takeover Special Committee.

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Cases

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High profile matters considered:Adcock Ingram Holdings Limited (Adcock) and CFR Pharmaceuticals S.A (CFR), a Chilean company, by section 114 scheme of arrangement.

Parties eventually agreed to terminate the proposed scheme on 7 February 2014.

A major shareholder who did not support the transaction had in the meantime acquired 34,9% of the shares of Adcock.

Hostile offer by Eqstra Holdings Limited (Eqstra) for the shares of Protech Khuthele Holdings Limited.

Numerous rulings were requested by both parties against each other. The hostile offer eventually failed due to the fact that Eqstra could not

meet the condition precedent it had set.

Challenges

Challenges faced by the Agencies:

Enforcement capacity is a constraint for companies and IP investigationsEstablishment of the database for Indigenous Knowledge (IK).Limited Education and Awareness programmes.Only Companies Tribunal has financial resources constraints.Coordination of enforcement agencies related to IP and Companies law for better impact.Visibility and accessibility of the agencies for enhanced service delivery remain a challenge.

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Future Work

Priority Areas for the Division in this financial year 2014/15 are as follows: The Copyright Bill will be introduced to Parliament. IP Policy conclusion will give rise to reform on patents, designs, trademarks

and enforcement of counterfeit and pirated goods. Regulations in Intellectual Property Laws Amendment Act. Database on Indigenous Knowledge to commence. Upscaling of education and awareness programmes, including antipiracy. Enhance partnerships for accessible services Monitoring and evaluation of the Companies Act to be implemented. Promote the visibility and economic impact of the TRP and other agencies in

general. Finalise implementation of CRC recommendations.

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Conclusion

Thank You

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