IN THE COMPANIES TRIBUNAL OF SOUTH AFRICA

CASE NO: CT007JUNE2018

Ex Parte Application

CITIGROUP GLOBAL MARKETS (PTY)LTD			APPLICANT

Presiding Member: K Moodaliyar

Date of Decision: 13 July 2018

DECISION

INTRODUCTION

[1]	The Applicant is the Citigroup Global Markets (Pty) Ltd (“the Applicant”), a company registered in terms of the company laws of the Republic of South Africa, under registration number 2000/025866/07.

[2]	The Applicant applies to the Companies Tribunal in terms of Section 72(5) of the Companies Act 71 of 2008 and in terms of Regulations 142 of the Companies Regulations for an exemption from appointing a Social and Ethics Committee (“SEC”).

APPLICABLE LAW

[3]	This is an application brought in terms of Section 72 of the Companies Act 71 of 2008 which stipulates: 

“(4)  The Minister, by regulation, may prescribe –
			
(a)	a category of companies that must each have a social and ethics committee, 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.

(6)  An exemption granted in terms of subsection (5) is valid for five years, or such shorter period as the Tribunal may determine at the time of granting the exemption, unless set aside by the Tribunal in terms of subsection (7).

(7)  The Commission, on its own initiative or on request by a shareholder, or a person who was granted standing by the Tribunal at the hearing of the exemption application, may apply to the Tribunal to set aside an exemption only on the grounds that the basis on which the exemption was granted no longer applies.”

[4]	 The regulations in terms of the Companies Act (GNR 351 of 265 April 2011) (“Companies Regulations”) provide in Regulation 43(2) that a SEC must be appointed by:
-    State owned companies;
-	Listed public companies;
-	Any other company with a Public Interest Score (“PIS”) above 500 in any two of the previous five (financial) years.

[5]	 Regulation 43(5) defines the functions of the SEC as: 
	“(5) A social and ethics committee has the following functions:

(a)	To monitor the company’s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters relating to-

(i)	social and economic development, including the company’s standing in terms of the goals and purposes of:
(aa) the 10 principles set out in the United Nations Global Compact Principles; and
(bb) the OECD recommendations regarding corruption; 
(cc) the Employment Equity Act; and 
(dd) the Broad-Based Black Economic Empowerment Act;

(ii)	good corporate citizenship, including the company’s –
(aa) promotion of equality, prevention of unfair discrimination, and reduction of corruption; 
(bb) contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and 
(cc) record of sponsorship, donations and charitable giving;

(iii)	the environment, health and public safety, including the impact of the company’s activities and of its products or services;

(iv)	consumer relationships, including the company’s advertising, public relations and compliance with consumer protection laws; and 

(v)	labour and employment, including—
(aa) the company’s standing in terms of the International Labour Organisation Protocol on decent work and working conditions; and
(bb) the company’s employment relationships, and its contribution toward the educational development of its employees.
	
(b)	to draw matters within its mandate to the attention of the Board as 	occasion requires; and 
(c)	to report, through one of its members, to the shareholders at the company’s annual general meeting on the matters within its mandate.”

[6]	The PIS 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 (reg 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 the profit company, to directly or indirectly have a beneficial interest in any of the company’s issued securities; or

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

[7]	A company that falls outside the categories above, or one that falls within those categories but which is a subsidiary of another company (as defined in section 3 of the Companies Act) and has a holding company that has a SEC that will perform the functions of the SEC for the (subsidiary) company, a SEC need not be appointed (Reg 43(2)(a)).

[8]	If a company is required to appoint an SEC, it may apply for a ruling by the Tribunal for an exemption, under the provision of section 72(5) of the Companies Act.

[9]	Application for a ruling must be made by filing:
(a)	“an Application form CTR 142; and 
(b)	a supporting affidavit setting out the facts on which the application is based.” (Reg 142(3)).

EVALUATION

[10]	An affidavit in support of CTR 142 was deposed by Nicolaas Albertus Botha, the Director of the Applicant.  He was duly authorized to depose of the affidavit on behalf of the Applicant, in terms of the Resolution taken by the Board of Directors.

[11]	The Applicant applied for condonation for late filing for the exemption in terms of Regulation 147. 

[12]	In required to have a social and ethics committee, and that exists on the effective date, must appoint the first members of the committee within 12 months after the effective date, in this case being 1 May 2011 or if exempted terms of Regulation 43(3) the board of a company that is by the Companies Tribunal. 

[13]	Therefore the Applicant should have appointed a SEC by 1 May 2012 or applied to the Tribunal for an exemption in 2012.

[14]	The Applicant’s reason for failing to apply for an exemption on time was due to a bona fide oversight on its part.

[15]	The obligation only became apparent to the Applicant in March 2018 when an internal audit was conducted due to statutory obligations related to corporate governance and it was revealed that the Applicant is required.

[16]	The Tribunal having considered the reasons for delay grants the application for condonation. 

[17]	The Deponent submitted that the Public Interest Score (PIS) is more than 500 between the period of 2011 and 2018. This meets the requirements of establishing an SEC in terms of the applicable law above.

[18]	The Deponent further submitted that the Applicant requests exemption from forming a SEC on the basis that the Applicant, as a member of its group of companies has developed internal policies in accordance with the requirements of Section 60B of the Banks Act, 1990 (Banks Act) and the General Code of Conduct for Authorised Financial Service Providers and their representative under the Financial and Advisory and Intermediary Services Act 2002 (FAIS code) and as a result of the above legislation requirements, the Applicant has established the Business Risk and Compliance Committee (BRCC) and the Country Coordinating Committee (CCC), which are formal mechanisms within its structures that substantially performs the function that would otherwise be performed by the social and ethics committee in terms of Section 72 of the Act and Regulation 43. 

[19]	The Deponent states that the internal policies developed by the Group are applicable to the Applicant to implement the Group corporate citizenship obligations, including the Group’s environmental sustainability framework and criteria for charitable contributions and the Group demonstrates its commitment to a culture of inclusion and opportunity.  

[20]	The Deponent further states that the BRCC and the CCC comprise of senior management, including the directors of the Applicant and that the BRCC meets monthly, or at least quarterly and the CCC meets monthly to discuss Social and Ethics Committee related issues regarding all the businesses and legal vehicles across the local Citi franchise.

[21]	The Deponent submitted that the primary objective of the BRCC is to discuss, monitor and challenge the most significant risk and control issues impacting the franchise and that the CCC reviews the country’s business performance, coordinates business strategic planning and help optimize investments and focus on staff attrition trends, labour actions, training and developments. 

[22]	The Deponent further submitted that the Group supports the protection of human rights, and is guided by the fundamental principles  such as those in the United Nations Universal Declaration of Human Rights and the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work and that the Group is a signatory to the United Nations Global Compact.

[23]	The Deponent also stated that the Applicant and the Group’s internal policies contributed to the development of communities in which its activities are predominantly conducted through various initiatives related to scaling up local manufacturing, uplifting local communities, raising students attainment which are affordable housing and expanding economic progress.

[24]	The Deponent therefore requests the Tribunal to exempt the Applicant from the requirements to appoint a SEC in terms of Section 72(5)(a) of the Act, read with regulation 43(2)(b) of the Regulations on the basis that the Applicant is required in terms of the other legislation mentioned above, 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.

FINDINGS

[25]	Having regard to the nature and extent of the activities of the Applicant and its legal obligations in terms of the other Acts mentioned above, I believe the Applicant has demonstrated that it is not reasonably necessary in the public interest to require this company to have a Social and Ethics Committee. 

ORDER

[26]	In view of the above circumstances, the application for an order for the exemption from the requirement to appoint the SEC is therefore granted and valid for a period of three years from the date of this order. 

_____________________
KASTURI MOODALIYAR
MEMBER OF THE COMPANIES TRIBUNAL