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Cipro mess creates devastating consequences

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 26 Aug 2010

The clock is ticking towards the implementation of the new Companies Act, but it is highly unlikely that the Companies and Intellectual Property Registration Office (Cipro) will be ready in time, which could have devastating consequences for economic development in SA.

The office has to have an enterprise content management (ECM) system in place by October when the new Companies Act is expected to come into play. If it fails to meet this deadline, it will not be able to cater for several electronic functions of the new Act.

However, a legal wrangle between the Department of Trade and Industry (DTI) and Valor IT, the company that was implementing the new ECM system at a cost of R153 million, seems to have turned the implementation on its head.

The DTI canned Valor IT's contract in June, after a forensic investigation revealed several irregularities in the awarding of the tender. The IT company's court application to have the deal upheld is set to be heard on 23 September, days before the new Act should come into effect.

Analysts have warned that - should the Act come into effect before Cipro is ready - the economy will suffer and new jobs will not be created. Although difficult to quantify, the loss to the economy will easily run into millions.

Confusion reigns

Implementation of the system stalled in mid-year when the DTI canned Valor IT's contract to overhaul Cipro's legacy IT systems.

Elsab'e Conradie, Cipro's head of communication, marketing and stakeholder relations, has previously stated the offices' current systems are legacy systems. “Although they have been upgraded, they do not have the capability or integration capacity to cater for the new functions [of the Companies Act],” she explains.

Several attempts, over a period of months, to elicit any clarity from either the DTI or Cipro have failed. The DTI previously indicated that it was not commenting while the matter was set to be heard in court, and Cipro has referred all enquiries back to the DTI. Neither was available this morning.

Sidwell Medupe, director of media and public relations at the DTI, has previously stated that the department will proceed with the development of the enterprise content management system, as this is needed for our operations and to deliver services to the public.” However, he did not explain how this would happen.

Adding to the confusion about the status of the ECM implementation is that Valor IT chairman Josias Molele claims the DTI has sent the tender specifications for the contract to Waymark Infotech. Molele says the DTI's lawyers also asked him to hand over software he has developed for the ECM system, which he refused to do.

Waymark director Joel Mpshe, however, denies the company has been asked to step in and continue the implementation, although the company is keen to help out. Waymark initially lost out on the ECM tender, but had previously installed systems at Cipro.

Devastating consequences

Econometrix senior economist Tony Twine says it is likely that companies will not be able to register and create jobs if Cipro is not ready for the new Act. He explains that the current brouhaha is a “structural impediment to economic development and growth”.

Twine adds that it is difficult to quantify the economic losses in rands and cents. “To try and measure the impact is beyond imagination, never mind beyond economists.” He says if companies break the law in order to conduct business, this will be because of government's inefficiencies.

Chris Gilmour, Absa Investment analyst, says the infrastructural aspects required to carry out the provisions of the Act will not be in force when the legislation comes into effect.

Gilmour explains that this could cost the economy many millions, as new companies may not be able to register, which will have a knock-on effect on job creation. If companies cannot register, then they will be unable to apply for business bank accounts, register for tax purposes or acquire property.

Delay implementation?

The new ECM system is required to implement a range of electronic functions that are contained in several sections of the new Act. These sections deal with business aspects such as the formation, administration and dissolution of companies, mergers and acquisitions, business rescues, and converting closed corporations to companies.

Lance Michalson, a partner with Michalsons Attorneys, says government may delay the implementation of the electronic aspects of the Act. However, this would have a spill-over effect for other aspects of the legislation, although he does not know what the exact consequences could be.

There is also a possibility that implementation of the Act could be delayed by several months. Renier Kriek, who practices with Walkers Attorneys, writes in an online newsletter that it is likely the new legislation will be delayed.

“The precise date for the implementation of the New Companies Act has now entered the domain of soothsayers, but it seems unlikely that the Act will be promulgated before the second quarter of 2011 at the earliest,” Kriek states.

However, even if the Act only comes into force next year, it is unlikely that Cipro would be ready in time. Andricus van der Westhuizen, the Democratic Alliance's shadow minister of trade and industry, has previously expressed doubts that Cipro will have the IT upgrade in place within a year.

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