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IN THE COMPANIES TRIBUNAL OF SOUTH AFRICA, PRETORIA

 

CASE NO: CT012Jun2014

 

In the matter:

 

Britehouse SSD (Proprietary) Limited

 

(Registration number: 2001/020807/07)                                              (Applicant)

 

 

Coram: S.Gounden, L.Glass and K.Manamela

Decision handed down on the 04 September 2014

 

 

DECISION

 

 

INTRODUCTION

 

The applicant applies to the Companies Tribunal for an exemption from appointing a Social and Ethics Committee.

 

ISSUES

 

The Applicant states that it is a private company that operates within the Information Technology sector for the benefit of private investors.

 

The Applicant states that the purpose of a Social and Ethics Committee as envisaged in Section 72 of the Companies Act is not relevant nor is it necessary as it has structures that substantially performs the functions of a Social and Ethics Committee.

 

The Applicant alleges that its Executive Committee, Transformation Team, Employment Equity Team and the Board of Directors perform the function required to be performed by a Social and Ethics Committee to the extent applicable.

 

APPLICABLE LAW

 

The Companies Act 71 of 2008 provides as follows in section 72: “(4) The Minister, by regulation, may prescribe—

 

(a)      a category of companies that must each have a social and ethics committee,  if it is desirable in the public interest, having regard to—

(i)          annual turnover;

(ii)        workforce size; or

(iii)      the nature and extent of the activities of such companies;

 

(b)      the functions to be performed by social and ethics committees required by this subsection; and

(c)      rules governing the composition and conduct of social and ethics committees.

 

(5)    A company that falls within a category of companies that are required in terms of this section and the regulations to appoint a social and ethics committee may apply to the Tribunal in the prescribed manner and form for an exemption from that requirement, and the Tribunal may grant such an exemption if it is satisfied that—

 

(a)      the company is required in terms of other legislation to have, and does have, some form of formal mechanism within its structures that substantially performs the function that would otherwise be performed by the social and ethics committee in terms of this section and the regulations; or

(b)      it is not reasonably necessary in the public interest to require the company to have a social and ethics committee, having regard to the nature and extent of the activities of the company.”

 

The regulations in terms of the Companies Act (GN R351 in GG 34239 of 26 April 2011) (“Companies Regulations”) provide in regulation 43 that a Social and Ethics Committee must be appointed by:

•      State owned companies;

•      listed public companies;

•      any other company with a Public Interest Score above 500 in any two of the previous five (financial) years.

 

The Public Interest Score is calculated as follows –

(a)      a number of points equal to the average number of employees of the company during the financial year (‘employee’ has the meaning set out in the Labour Relations Act 66 of 1995 (regulation 26(1)(a));

(b)      one point for every R1 million (or portion thereof) in third party liability of the company held by creditors at the financial year end;

(c)      one point for every R1 million (or portion thereof) in turnover during the financial year; and

(d)      one point for every individual who, at the end of the financial year, is known by the company –

(i)           in the case of a profit company, to directly or indirectly have [sic] a beneficial        interest in any of the company’s issued securities; or

(ii)        in the case of a non-profit company, to be a member of the company, or a member of an association that is a member of the company (regulation 26(2)).

 

Application for a ruling must be made

·     In form CTR 142

·     together with a supporting affidavit setting out the facts on which the application is based (regulation 142 (3)).

 

 

EVALUATION

 

The Applicant is a private company for the benefit of private investors. The affidavit by the Director, Scott Douglas Gibson, state that the company has a formal mechanism within its structures that substantially performs the functions of the Social and Ethics Committee.

 

The Applicant has calculated (with workings provided) its Public Interest Score over the past five years and it has scored more 500 points in two of the previous five years, in terms of Regulations 26(2).

 

It should be noted, that the written resolution of the Board of Directors authorising Scott Douglas Gibson to make the application was duly signed in terms of Sec 66 (1) of the Companies Act in respect of the entity with the authority to manage the business and affairs of the company.

 

FINDINGS

 

The Director has failed to demonstrate that the company has some form of formal mechanism within its structures that substantially performs the functions of the Social and Ethics Committee.

 

Although there may be mechanisms within its structures that perform some of the functions of a Social and Ethics Committee, the Applicant has not provided evidence in the form of terms of reference of the various committees. In addition the functions of the Social and Ethics Committee goes beyond what is being performed by the various committees in the company. The Applicant relies on un-coordinated structures, that were formed to comply with various legislation, as a substitute for a Social and Ethics Committee.

 

RECOMMENDATION

 

I would recommend that the Applicant appoints a Social and Ethics Committee and incorporate all functions that would otherwise be performed by the Social and Ethics Committee that are currently performed by the Executive Committee, the Transformation Team, the Employment Equity Team and Board.

 

CONCLUSION / ORDER

 

Based on the facts above, I make the following order:

 

Application for exemption from appointing a Social and Ethics Committee is refused.

 

 

S.GOUNDEN

MEMBER OF THE COMPANIES TRIBUNAL

 

L.GLASS Concurring

MEMBER OF THE COMPANIES TRIBUNAL

 

K.MANAMELA

MEMBER OF THE COMPANIES TRIBUNAL

 

 

(concurring for further and different reasons):

 

I have read the decision by my colleague Mr. Sathie Gounden (main decision) and I agree that application for an exemption to appoint a social and ethics committee (a SEC) should be refused. However, I arrive at this conclusion for slightly different reasons or having navigated the evidentiary contours differently to as done in the main decision. I also refuse the application on a further ground.

 

I am indebted to the main decision in respect of the factual background to the application. Therefore, I do not deem it necessary to repeat those facts here, save to mention other facts and highlight those stated in the main decision to the extent I consider them relevant to my part of the decision. I also acknowledge a document marked Annexure “B” which is said to be a spreadsheet illustrating the calculation of public interest scores of the applicant for the previous five years. This document candidly reflects that the applicant’s public interest score exceeded the threshold of 500 points contemplated in regulations 26(2) of the Companies Regulations since the 2011 financial year.

 

The application is premised upon sections 72(5)(a) and (b) of the Companies Act 71 of 2008 (the Companies Act), but the main decision appear to have dismissed the application only on the basis that the requirements of section 72(5)(a) of the Companies Act were not met. Both sections are quoted in their entirety in the main decision and I refer to them below.

 

Other than being very parsimonious in relevant submissions, the application unfortunately doesn’t demonstrate a sufficient understanding of the relevant provisions of the Companies Act, this said with optimum deference to those involved. The submissions on the basis of section 72(5)(a) refer to the existence of teams (i.e. transformation team and employment team); the executive committee or Exco and the current board of directors to be “some form of formal mechanism within its structures that substantially performs the function that would otherwise be performed by the social and ethics committee”. These structures, especially the so-called “teams” do not appear to exist in terms of legislation and it is not far-fetched to assume that they are all voluntary groupings within the applicant with no clear powers and mandates. The executive committee or the board of directors, do not in my view qualify to serve as a substitute for a SEC. The essence of the constitution of a SEC is clearly set out in regulation 43(4) of the Companies Regulations, and in my view the legislature would not have expected the substituting formal mechanism to be comprised of persons from tiers lower than the company’s board of directors and an independent person. There is also no explanation regarding the clear fragmentation of social and ethics functions between the all levels of the company’s corporate structure. The main decision was correct in dismissing the application on this ground and my main objective here is to emphasise that, the company is not required in terms of legislation other than the Act to have the structures or mechanism submitted to be performing a social and ethics function. This disposes of the first leg of the application.

 

The second leg of the application is based on submissions based on the public interest requirement in section 72(5)(b) of the Companies Act. To obtain an exemption on this basis, an applicant must satisfy the Tribunal that, “it is not reasonably necessary in the public interest to require the company to have a social and ethics committee, having regard to the nature and extent of the activities of the company.” Firstly, the application has to set out the nature of the business of the company. In this regard, what we decipher from the submissions made is that, the applicant is “a private company that operates within the Information Technology sector for the benefit of private investors.” [See paragraph 3 of the affidavit in support of the application] Secondly, the extent of the company’s business or activities has to be set out. There are no direct submissions in this regard, except for the information in Annexure “B” to the application, which confirms the public interest score of the company to have been 793; 637 and 571 for the 2013, 2012 and 2011 financial years, respectively. This is indicative of the size of the company’s business, although without material as to how this is constructed, everything is just speculative. Even this indirect information does not necessarily advance the merits of the application since it is granted that having a public interest score higher than 500 points is the trigger to an application for exemption and not necessarily a reason to have one. The other information supplied has been in support of the application of the grounds relating to section 72(5)(a) dealt with above. This paucity of information is very lamentable and can only lead to a fatal outcome in this application.

 

I therefore agree with the order made by my colleague Mr. Sathie Gounden that the application ought to be refused.

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