SME's – small, not simple

For many years, small and medium businesses have carried on doing business under the radar, and have not really been affected by the huge legislative changes that have affected the South African business world. That is, until the implementation of three pieces of legislation, the consequences of which, had huge impact on the business world in general and particularly on small and medium business enterprises in South Africa.

Update: Samantha and Paul chatted about these issues and recorded the conversation for you. We touch on many of the issues in Samantha's post:

National Credit Act, 34 of 2005:

On 01 June 2006, the first phase of the National Credit Act (the “NCA”) was implemented. The Act regulates the issuing of credit between credit providers and consumers and new, more stringent requirements for credit providers were implemented. The question then was, who qualifies as a “credit provider”?

A “credit provider”, is defined in section 1 of the NCA as including the following:

1. the party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement;
2. the party who advances money or credit under a pawn transaction;
3. the party who extends credit under a credit facility;
4. the mortgagee under a mortgage agreement;
5. the lender under a secured loan;
6. the lessor under a lease;
7. the party to whom an assurance or promise is made under a credit guarantee;
8. the party who advances money or credit to another under any other credit agreement; or
9. any other person who acquires the rights of a credit provider under a credit agreement after it has been entered into.

Upon, the implementation of the NCA, certain credit providers were required to register with the National Credit Regulator as a credit provider, those being:

• Credit providers who have entered into at least 100 agreements or have a total outstanding book of credit of more than R500 000;
• Are juristic persons and individuals;
• Have a commitment to combating over-indebtedness.

The NCA also implemented a threshold in terms of the definition of a “consumer”. Businesses in general could not be defined as a consumer if they have an asset value or an annual turnover of more than R1 million.

Any businesses that at the implementation of the Credit Act had to revisit their policies as well as their measures to claim any funds owing to them and had to follow the requirements and responsibilities as dictated by the National Credit Act and the National Credit Regulator. Any failure to do so would result in compliance being enforced by the National Credit Regulator and even an administrative fine imposed in terms of the NCA which may not exceed the greater of ten per cent of the respondent’s annual turnover during the preceding financial year or R1 million.

Consumer Protection Act, 68 of 2008:

On 31 March 2011, South Africans entered into a new era in terms of consumer protection legislation with the implementation of The Consumer Protection Act (the “CPA”).

This new Act introduced a whole new level of protection for South African consumers which, in the same breath, introduced a wide range of restrictions and rules for the suppliers of both goods and services in South Africa.

Businesses were now subject to new rules regulating the marketing of goods and services, the supply of these goods and services and even more substantial, the quality of the goods and services supplied. Business-owners now had to make sure that the conducting of their business in any way, complied with the CPA, otherwise complaints could be lodged with the Consumer Protection Commission which could result in an investigation by the Commission and ultimately an order by the Commission for the supplier to alter or discontinue any conduct inconsistent with the Act or even award damages against a supplier for collective injury to all or a class of consumers generally, to be paid on any terms and conditions that the Commission considers just in order to achieve the purposes of the CPA.

One of the interesting aspects of the CPA is the definition of a “supplier”. “Supplier’’means a person who markets any goods or services. Even more interesting is the definition of “Supply” which when used as a verb, in relation to goods, “includes sell, rent, exchange and hire in the ordinary course of business for consideration” or in relation to services, means “to sell the services, or to perform or cause them to be performed or provided, or to grant access to any premises, event, activity or facility in the ordinary course of business for consideration”.

The definitions contained in the CPA are so broad, that the implication is that it applies to practically all businesses from the sole proprietor to the large corporation in South Africa.

The implication of the CPA is that businesses countrywide had to relook their marketing policies and the conducting of their business in general to make the supply of goods and services comply with the CPA and essentially more consumer-friendly.

Companies Act, 71 of 2008:

Possibly the most anticipated, earth-shattering legislation to hit the South African business world is the new Companies Act which came into force eventually, after an unimaginable amount of deliberation and redrafting, on 01 May 2011 amongst a large amount of skepticism on the part of the South African business community.

The new Companies Act introduced an incredible standard of compliance for which companies and close corporations have to adhere to. The purpose of this Act was to replace the outdated companies’ legislation of 1973 and to bring it more in line with the standards required globally and, closer to home, the King Code and the King III Report of 2009 which prescribed the compliance guidelines for companies in South Africa. In fact, the Companies Act has made many of the King Code compliance guidelines into law.

A huge implication of the new Companies Act is the liability imposed on directors and officers of companies and the repercussions of misconduct or negligence of directors or other officers of a company during their period of office and thereafter. Directors can be held personally liable for any misconduct or negligence which causes damage to company, by being made to pay damages to negate the loss suffered by the company due to the actions of the director (s) in question. There is a much higher standard imposed on the directors of a company to achieve a greater level of responsibility and awareness when carrying on their duties in order to prevent directors being let off the hook for not attending to their duties with the care and skill required.

What's clear from this overview is that that businesses are regulated fairly stringently in South Africa today and this includes SME’s who are no longer able to carry on business as if these regulations that have been implemented within the last six years don't apply to them. It is essential that SME’s revisit their compliance procedures and frameworks and make sure they are up to date and effective.