presentation on second-hand goods bill [B 2B – 2008]

siyabonga mahlangu

06 august 2008

overview – affiliated companies

• midas metal (pty) ltd

– incorporated in 2001 in terms of the South African Companies Act

– operating for seven years

– employs nine full-time employees and provides indirect employment to suppliers and scrap metal traders

– Approx. annual turnover of R155 million

• 99% of which is earned in the form of foreign exchange

– has relationship with south african banks and lenders

– comprises three directors

overview – affiliated companies

• midas metal (pty) ltd

• two directors reside and work in South Africa and have valid work permits

• one director is based in Dubai and is foreign

• innox metal (pty) ltd

– incorporated in 2004 in terms of the South African Companies Act

– operating for three and a half years

– employs six full-time employees and provides indirect employment to suppliers and scrap metal traders

– also has relationship with south african banks and lenders

overview – affiliated companies

• innox metal (pty) ltd

– comprises of five directors

• two reside and work in south africa and have valid work permits

• remaining three are foreign directors based overseas

• kasper logistics (pty) ltd

– incorporated in 2006 in terms of the South African Companies Act

– operating for two years

– employs twenty-eight full-time employees

overview – affiliated companies

• kasper logistics (pty) ltd

– comprises three directors

• managing director – resides in SA and has a valid work permit

• 2nd director – SA citizen

• remaining director – foreign and based overseas

• simran investrades (pty) ltd

– incorporated in 2007 in terms of the South African Companies Act

– employs seven full-time employees

– comprises six directors

overview – affiliated companies

• simran investrades (pty) ltd

• Two of the directors, including the company’s managing director - reside in South Africa and both have valid work permits

• The remaining directors - foreign directors and are based abroad

• all of the affiliated companies have foreign shareholding and are audited by PricewaterhouseCoopers southern africa

• shareholders have invested more than R27 million in share capital and it is envisaged that a further $6 million (approximately R42 million) will be invested

second hand goods bill

• we fully support the stated objectives of the Bill:

– to regulate the business of dealers in second-hand goods in order to limit the trade of stolen goods and to promote ethical standards in the second-hand goods trade

• we are however concerned that certain provisions of the Bill, in its current form, may have serious and far reaching consequences for existing and future dealers in second-hand goods including scrap metal dealers (as presently defined) such as the Affiliated Companies

second hand goods bill

• section 2(1) of the Bill, provides that every person who carries on a business as a dealer must be registered. Significantly, section 2(2) of the Bill states that a person other than a natural person may only be registered if a natural person, “who is not disqualified in terms of this Act to be registered” (underlining inserted for emphasis), is appointed to manage, and be responsible for, the business of the dealer, as the case may be.

second hand goods bill

• according to section 14(1) of the Bill, “a person is disqualified from being registered as a dealer if, amongst others, such person does not permanently reside in the Republic.” A disqualified person for the present purposes would, in our view, therefore include a person who is not a permanent resident of South Africa.

• section 14(2) goes on to provide, amongst others, that “a company, corporation, partnership or trust may not be registered if a person who is disqualified to hold a certificate in terms of subsection (1) has an interest in that company …”

second hand goods bill

• the term “interest” is not defined in the Bill and has a very wide meaning. We would submit that term “interest” as referred to in section 14(2) may be interpreted to include shares of all classes, members’ interests, partnership interests, debentures, corporate bonds, and other rights and forms of equity (whether voting or not), which are held by a person (natural or juristic) in a particular company and may even be interpreted to include customers, lender, creditor and suppliers

second hand goods bill

• As a result, persons, who are not permanently resident in South Africa, are effectively barred from managing, controlling, owning or holding any other interest in a business which operates as scrap dealer anywhere in South Africa

• Concerns:

– If it is held that companies are to be regarded as “persons” for purposes of the Bill then the Affiliated Companies incapable of registration thus precluding them continuing to conduct their existing business activities

second hand goods bill

• Concerns:

– the Affiliated Companies will therefore be forced to shut down and cease operations

– provisions of the Bill are at odds with South Africa’s efforts to attract foreign investment and to foster relationships with foreign countries

– The prohibition against foreign owned and/or managed companies - seems premised upon the basis that companies and entities which are either partially or wholly foreign owned, controlled and/or managed, are necessarily involved in illegal activities or are more likely to become involved in illegal activities than South African companies

second hand goods bill

• Concerns:

– look to the Johannesburg Stock Exchange or to the Registrar of Companies to identify companies in other industries that are foreign owned and/or managed and that operate legally in South Africa duly abiding by the current laws and regulations as each of the Affiliated Companies presently do

constitutional arguments

• bill of rights

– section 8(4) of the Constitution provides that a juristic person is entitled to the rights in the Bill of Rights to the extent required by the nature of the rights and the nature of the juristic person

– the Affiliated Companies, as juristic persons, can therefore lay claim to certain of the rights which are contained in the Bill of Rights depending on the nature and content of the rights sought to be claimed.

– we are of the view that it is open to companies and other juristic persons to rely on the right to equality and the right to not be unfairly discriminated against

– section 9(1)• meaning of “everyone” (Khosa and Others v

Minister of Social Development; Mahlaule and Others v Minister of Social Development)

constitutional arguments

• bill of rights

– section 9(1)• Argument - section 2 and section 14 of the Bill

discriminates against foreign nationals who are managing South African companies involved in the second–hand goods industry and also discriminates against the foreign shareholders of South African companies involved in that industry

• test for discrimination (Harksen v Lane )– differentiation unfair discrimination

» South African companies involved in the second – hand goods or scrap metal industry that are foreign-owned and/or managed are differentiated from those that are not.

constitutional arguments

• bill of rights

– section 9(1)

• test - unfair discrimination

– discrimination on a specified ground?

» In this case the differentiation is not on a specified ground

– the ground for discrimination is based on attributes and characteristics which have the potential to impair the fundamental human dignity of persons as human beings or to affect them adversely in a comparably serious manner?

constitutional arguments

• bill of rights

– section 36

• unfair discrimination can be justified under the limitations clause (Union of Refugee Women and Others v Director: Private Security Industry Regulatory Authority)

• the important distinctions:

– consideration can be had of “any good cause shown which are not in conflict with the purpose of the Act and the objects of the Authority.” The Bill on the other hand, indiscriminately prohibits foreign-owned and managed companies in the second – hand goods industry from being registered as dealers.

constitutional arguments

• bill of rights

– section 36

• the important distinctions:

– the Affiliated Companies are existing, properly established South African companies that conduct their trade in compliance with all the relevant laws in South Africa and are not merely foreign natural persons trading within the second – hand goods industry.

proposed amendments

• that section 14(1)(e) of the Bill be amended to read as follows:

“14(1) A person other than a natural person is disqualified from being registered as a dealer if such person -

(e) does not permanently reside in the Republic or is not the holder of a valid work permit as issued under the Immigration Act or applicable immigration legislation;

proposed amendments

• that section 14(2)(a) of the Bill be amended to read as follows:

“14(2) A company, corporation, partnership or trust may not be registered if a person who is disqualified to hold a certificate in terms of subsection (1) other than a person referred to in paragraph (e) of subsection),—

(a) has an interest in that company, close corporation or trust;

(b) is a partner in that partnership; or

(c) is a beneficiary under that trust.”

proposed amendments

• accreditation of associations - recommend the insertion of a section which requires the Minister to promulgate regulations which set out the criteria in terms of which associations will be accredited. The same should apply to the criteria for the exemption of members of associations as well as the nature and extent of such exemption

• inspection powers - requiring companies such as the Affiliated Companies to submit, subject to confidentiality being maintained by the Commissioner, information and documentation such as proof of registration, registered address, audited financial statements or auditor’s certificates, tax certificates, a register of directors and other such documentation as may be required to evidence the nature and extent of the business activities conducted by such entities as well as the composition of their management structures

w w w . p r o b l e m s o l v e d . c o . z a