Co-operatives Amendment Bills, 2012 PRESENTATION TO PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY 05 JUNE 2012

Introduction and Background On 14 August 2005, the Co-operatives Act, No. 14 of 2005 was promulgated, repealing Co-operatives Act, No. 91 of 1981; Regulations were approved by the Minister in April 2007; President signed the Promulgation of the Act, effective on 2 May 2007;

Introduction and Background, continue… On 15 November 2008, Minister approved the amendment of the Act; Between June and November 2009, national and provincial workshops were held in preparation for the drafting of the Amendment Bill

Introduction and Background, continue… Bill Submitted to State Law Advisors for pre- certification in April 2010; State Law Advisors divided Bill into section 75 (provisions not affecting provinces) and section 76 (provisions affecting provinces); Government Gazette for public comment January 2011;

Introduction and Background, continue… March 2011 present to Economic and Employment cluster to solicit their inputs; NEDLAC process concluded 13 July 2011; Bills submitted to State Law Advisors for second time;

Introduction and Background, continue… Bills certified by State Law Advisors in February 2012; Regulatory Impact Assessment completed in February 2012; Bills Approved by Cabinet for introduction into Parliament on 14 March 2012;

3Main Objectives for Review of Act Enhance the Development Character of Co-operative Legislation Reduce Regulatory Burden for Co-operatives Enhance Compliance, Coordination, Administration and Sustainability of Co-operatives

Area amended: Reserve Fund Challenge: No clear guidelines on purpose, reporting and use of reserve fund Every co-operative must have a reserve fund; Members to decide and stipulate the limits to be kept as reserve in the constitution of their co-operatives; Co-operatives must retain the % of the surplus, as determined in its constitution, for each financial year in reserves unless such reserves are equivalent to 5% or more of its net assets. Minister will provide guidelines for records in respect of reserves; purposes for which reserves may be used; and manner in which co-operatives must report on reserves Section 3 and Section 46 page 13

Area amended: Voting rights Challenge: Co-operatives formed in terms of Co-operatives Legislation prior to Act 14 of 2005 allowed to structure voting rights proportionally. Constitutions of Category C Primary, Secondary and National Apex Co-operatives may provide that members may have more than one vote but subject to certain limits (not more than 15%); and Co-operatives registered prior to 2005 may retain their voting rights as per their constitutions. Section 3 (3), (4), (5) and (6)

Area amended: Primary Co-operatives Challenge: Not clear if juristic persons can join primary co-operatives Primary co-operative defined as a co-operative whose object is to provide employment or services to its members and to facilitate community development formed by a minimum of – Five natural persons; Two juristic persons; or a combination of five persons Section 6 (1) (a)

Area amended: Vertical structure for co-operatives Challenge: Secondary co-operatives formed by primary co-operatives that are not operational Secondary co-operatives can only be formed by two or more operational primary co-operatives Section 6 (1) (b)

Area amended: Vertical structure for co-operatives, continues… Challenge: Apex structure and tertiary (apex) co-operatives formed by secondary co-operatives that are not operational Two or more operational secondary co-operatives may form a national apex co-operative. Object amongst other is to advocate and engage organs of state, the private sector and stakeholders on behalf of its members Section 6 (c)

Area amended: Name reservation Challenge: Clashes in names and unnecessary delays in the registration of co-operatives Compulsory to do a name reservation Section 6 (4) (e) also Section 16

Area amended: Name of Co-operative Challenge: No provision for unique identification of co-operatives; and members misled into joining co-operatives that have unlimited liability All new co-operatives will have the word “co-op” as part of its name; The name of co-operative must have “Limited” or “Ltd” as the last word of its name; and Co-operatives may use trademark name as part of name if authorised to do so in its constitution Section 10 (2) (a) (b) en (c) & SECTION 12

Area amended: Constitution of Co-operatives – Minimum requirements Challenge: Democratic control of co-operatives compromised Constitution of co-operative must provide for: a reasonable term of office for directors; whether directors may be reappointed for a consecutive term; the manner of rotation of directors; and may provide for the appointment of non-executive independent directors Section 14 (1) (i)

Area amended: Constitution of Co-operatives, continues … Challenge: No provision indication if co-operative is “Open” or “Closed” co-operative Constitution of co-operative must indicate if it is an “open co-operative” or “closed co-operative”; and A co-operative must indicate all business transactions concluded with members and non-members in its annual financial statements. Section 14 (i) (b)

Area amended: Associate Members Challenge: No clarity on role & powers of associate members Section that provides clarity on roles and powers of associate members; Provision to enable members to accept associate members as full members or to have their associate membership renewed Section 14A

Area amended: Categorisation of primary Co-operatives Challenge: High cost of compliance for smaller co-operatives Primary co-operatives categorised as follows: Category A: Survivalist to small co-operatives Category B: Small to medium co-operatives Category C: Medium to large co-operatives Section 15A

Area amended: Liability of members not holding shares in the co-operative Challenge: Clarity on liability of members not holding shares in co-operatives In instances where members do not hold shares in the co-operative their liability will be limited to the amount of money owed to the co-operative in terms of the membership agreement. Section 23

Area amended: Annual submission of information to CIPC Challenge: Lack of official and credible data on Co-operatives to assist with policy analysis and decision making Provision made for Minister to determine the form, manner and time period for annual submission of information on membership; members; and nature and value of contribution made by members to CIPC; also Information on board of directors and individual directors. Section 26

Area amended: Supervisory committee Challenge: No structure to oversee the board of directors Constitution of co-operative may provide for the establishment of a supervisory committee to oversee the board of directors. Supervisory committee consist of members who are not directors: Responsible to supervise the board of directors; May call a special meeting of all members if fair/reasonable information that any act or omission by board of directors may impact negatively on member(s); Within 7 days of meeting inform Tribunal, board of directors and member(s) of its decision and reasons for decision. Section 27

Challenge: Confusion on appointment and limits to proxies Area amended: Proxies Challenge: Confusion on appointment and limits to proxies Clear guidelines on the appointment and limits of proxies. Members may appoint one proxy; Appointment must be in writing and signed by member; Valid for period stated on the written appointment; Number of proxies a member may carry on behalf of other members may not be more than 5% of total membership of the Co-operative Section 28

Area amended: Governance of co-operatives Challenge: No clear provision for dissolution of board of directors Provision that members my by resolution of 2/3 of members at special meeting convened by supervisory committee or called by at least 25% of members dissolve board of directors if such members find justifiably good reason that the board is dysfunctional or has acted contrary to any law. Section 32 Page 12

Area amended: Flexible auditing regime Challenge: Cost of compliance with accounting requirements high for small Co-operatives Category A: Annual accounting report Category B: Independent reviewer’s annual accounting report Category C, Secondary & National Apex Co-operatives: Auditor’s annual accounting report Section 47 page 14

Area amended: Accounting practices Challenge: Tendency for granting blanket exemptions by registrar to all new co-operatives. Repeal of auditing exemption and provision for flexible auditing regime depending on the category of co-operatives.

Area amended: Amalgamate, divide, convert or transfer Challenge: Costly for CIPC to administer Minister must prescribe: fees payable; person to whom the fees must be paid; manner of payment of such fees; and where necessary the interest payable in respect of overdue fees

Area amended: Amalgamate, divide, convert or transfer, continue…. Challenge: Clarity on business form A co-operative that coverts into a company cannot continue to use the word “co-operative” in its name or branding

Area amended: Winding-up & Judicial Management Challenge: Confusion on how to handle process, also role of Registrar versus High Court, etc A clear detailed schedule on how winding-up and judicial management should take place with clear roles and responsibilities. Provision for Co-operative Tribunal to assist co-operatives with this process.

Area amended: Winding-up Challenge: Different modes of winding up A co-operative may be wound up – (a) Voluntary by special resolution of min. of 60% of full members; (b) By an order of the court; and (c) By an order of the registrar or Tribunal

Area amended: Advisory Board Challenge: Connotation of word “Board” suggest that the structure has legal powers, whereas its objective is for advisory purposes Advisory Board replaced by Advisory Council Chapter 12

Area amended: Co-operative Development Agency Challenge: Support available not tailor made for co-operatives Co-operative Agency established as government component to perform its powers and functions in accordance to this Act and any other relevant law May after consultations with authorities establish satilite branches

Area amended: Co-operative Development Agency, continues .. Objectives inter alia includes: Support, promote and assist with the development of co-operatives; Provide financial and non-financial support to co-operatives; Provide business support services to co-operatives; Provide, facilitate and coordinate training and education; Assist with compliance to legislative requirements; Provide access to information; Carry out independent review reports; etc.

Area amended: Co-operative Development Agency, continues .. Functions inter alia includes: Financial support services; Non-financial support; Education and training; Support and extension services; Market development; Monitoring and evaluation; etc

Area amended: Co-operatives Tribunal Challenge: Enforcement of Legislation; dispute resolution and judicial management Ensure compliance with legislative requirements; Assist with judicial management, winding-up, deregistration, conflict resolution and liquidation. Chapter 12 C

Area amended: Co-operatives Tribunal, continues …… Functions inter alia includes: Adjudicate to any application made in terms of Act and make appropriate recommendations Assist with conflict resolution; Assist with requested disollution, winding up or liquidation Assist with enforcement of compliance with provisions of Act; Assist the registrar of co-operatives in maintaining and updating the co-operatives database; etc

Area amended: Worker co-operatives Challenge: Abuse of employees and circumvention of Labour Relations Act and Basic Conditions of Employment Act Employees and members of worker co-operatives whether a member or non-member is deemed to be an employee as defined in terms of the Labour Act as well as the Basic Conditions of Employment Act; Exemptions from respective bargaining council and/or Minister of Labour

Area amended: Housing Co-operatives Challenge: Tendency for pseudo housing co-operatives to be formed in order to circumvent relevant legislation and exploitation of members Provision for compliance with Share block legislation and Sectional Title Act depending on type of ownership

Area amended: Social Co-operative Challenge: No clarity and guidance for social co-operatives 100% of surplus is in reserve; and Treated as a Public Benefit Organisation

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