Costly Act 'must be delayed'

Big business wants the implementation of the new Companies Act to be delayed even further, because there is just not enough time for companies to get the required, and expensive, IT systems in place.

The upgraded Act is set to come into effect next April, but regulations spelling out implementation were only published by the Department of Trade and Industry (DTI) this week, and industry just has two months in which to comment.

As a result, several key IT systems at institutions, such as banks and the Companies and Intellectual Property Registration Office (Cipro), will not be ready in time, which would lead to failure of implementing the Act.

The new Act requires Cipro to implement a range of electronic functions, with which its current legacy systems cannot cope. Cipro will also be converted into a Company and Intellectual Property Commission, which will report directly to Parliament.

In addition, the legislation - an upgrade to a three-decade-old law - will allow businesses to register names that contain symbols such as +, &, #, @ and %, as well as longer entity names.

The banking sector has previously indicated it would need more time to cope with these changes, as current systems cannot handle the capturing of symbols as part of company names.

Both Business Unity SA (Busa) and the Banking Association SA (Basa) have called for the Act to be delayed by at least a year. Basa MD Cas Coovadia says an extension would be ideal, but the association has also suggested a phased or staggered approach as an alternative. “We don't believe all the structures are in place, including Cipro.”

Director of economic policy at Busa Simi Siwisa agrees, saying that if Cipro can't manage under the Act then businesses will also have a major problem. She adds that essential institutions, such as the new commission, won't be in place in time for the April deadline.

Moreover, says Siwisa, before the Act can be implemented, the commission must be in place and fully functional. “It must be ensured that businesses have enough time to implement the Act and transitional issues must be addressed.”

Siwisa adds “the regulations were released on Monday and the deadline for comment is 31 January. That leaves just about two months before the implementation date and that's a problem, because at least four to five months are required for scrutiny before implementation.”

Coovadia echoes Siwisa's concerns, saying Basa wants the assurance that Cipro will be ready, and that banks have enough time to implement changes. “This is major legislation that needs to go through a range of processes to ensure everyone is ready for smooth implementation.”

Coovadia cites the implementation of the National Credit Act, which he says was rushed, resulting in several problems post-implementation. “So we should rather delay the Companies Act now, instead of having problems later.”

The banking industry has not computed the costs that banks will have to endure in preparing their IT systems for the new Act, but at the parliamentary hearings before the portfolio committee on trade and industry this week, a Standard Bank representative disclosed that it has priced the IT changes at R100 million, says Coovadia.

Jacques Smalle, the DA's shadow deputy minister of trade and industry and a member of the portfolio committee, says there is not enough time to get key IT systems in place.

Smalle explains the portfolio committee on trade and industry will meet again to hear industry's input on the regulations and the Act on 19 January and, as a result, companies cannot yet start implementing systems in case there are changes.

He adds that, in addition to the R100 million banks are expected to fork out, the effects of having to register symbols will spill over into other financial institutions, such as insurance companies.

Smalle explains that around two-thirds of the Act has been changed in some way or another and it is a complex piece of legislation that will take at least a year to comply with.

Cipro needs to make sure that companies comply with audit regulations under the new law, which is a mammoth task as there are about 1.5 million registered companies and around 2.5 million closed corporations in SA, says Smalle. He adds the commission cannot come into being until Cipro deals with its current IT issues.

The office has been under fire recently after being hit by several incidences of fraud perpetrated on its database, including a recent well-publicised hijacking of Kalahari Resources. The state of its database has also been questioned after a recent wide-ranging clean-up resulted in 750 000 companies being deregistered in one day.

The office is upgrading its existing IT systems to cut down on fraud, but acting CEO Lungile Dukwana previously conceded that “the current system is not helping us... this is an old legacy system”.

Despite the fact that implementation of Cipro's key IT system has stalled after a forensic audit earlier this year uncovered irregularities in the awarding of the tender and the contract was canned, government asserts it is ready.

Sidwell Medupe, director of media and public relations for the DTI, says: “We as the DTI, in our assessment, are ready to implement. We have over-consulted on this Act and the regulations.”

He says the fact that Cipro's key electronic content management (ECM) system will not be in place, because implementation has stalled, is not an issue. “Even the system of ECM (sic) is not an issue, because we are ready and we have contingency plans.”

Medupe cannot comment on the requested extensions, but says: “Business is requesting more time to ready themselves. This is additional to the additional time that my minister has given already.”

The DTI released draft regulations to ensure “effective implementation” of the legislation. Industry has until the end of January to comment on the proposed regulations, after which the department will gazette the regulations.

Workshops and seminars to detail the regulations will take place next month. The DTI says these workshops will result in the finalisation of the regulations so that the Act, and regulations, can be implemented on 1 April next year.