Business Law & Tax (BD, November 2021)

BUSINESS LAW &TAX

NOVEMBER 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Player brands boost clubs

Intellectual property rights are •effective money generators Rowan Forster ENSafrica

F

ootball players are brands, often very valuable brands.

Football clubs are brands too, and they are also often very valuable. In this article we look at how the value of football player brands can affect the value of the brands of the clubs they play for.

Lionel Messi and Cristiano Ronaldo have dominated world football for many years, each winning the Ballon d’Or (the trophy awarded to the world’s best player) multiple times.

We have seen how assiduously top players protect their brands. In Ronaldo’s case, his CR7 mark, derived from his initials and his shirt number, plays a big role.

Messi has had to work long and hard to get his name registered in the face of opposition from the owner of the brand Massi.

We have noted how top players have considerable trademark portfolios, with Messi topping the list with 115 registrations, followed by Neymar and then Ronaldo.

We have also reviewed top football clubs, and the value of their brands. We

DON’T MESS WITH THIS BRAND

IT’S A NUMBERS GAME

have noted that the most valuable clubs are Real Madrid (€1.28bn), Barcelona (€1.27bn), Manchester United (€1.13bn), Manchester City (€1.12bn) and Bayern Munich (€1.01bn).

Recent developments show how the values of footballers and football teams are inextricably linked.

SHOCK MOVES

Messi and Ronaldo have both moved clubs, Messi leaving Barcelona where he spent 20 years, for the French club Paris Saint Germain (PSG), and Ronaldo leaving Juventus for the club where he first made his name, Manchester United.

In Messi’s case the motivation was almost certainly financial — Barcelona is in serious financial trouble and it cannot afford to pay the sort of money players like him expect. In the case of Ronaldo, it is not quite as clear what his motivation was, but it is possible he saw United as the perfect place to end a stellar career.

IMPLICATIONS

The possible implications of the Messi move are discussed in a recent article. “FC Barcelona, now the secondbiggest football club trade-

/123RF — VERVERIDIS

/123RF — KATATONIA mark, risks losing its place to the club Paris Saint-Germain as a result of Lionel Messi’s departure”, the article says and goes on to suggest “this departure may not only impact on the club’s quality of play but also its finances and especially its intellectual property rights”.

A reference in an article in Brand Finance (August 6

2021) estimates the departure of Messi could reduce Barcelona’s value by 11%, resulting in a loss of £137m.

THE SIGNING OF MESSI LED TO A 100% RISE IN THE VALUE OF PSG’S CRYPTOCURRENCY

On the other hand, the article predicts good things for PSG. The club now has two of the biggest footballers in terms of brand portfolio, Messi and Neymar. It suggests Messi’s large trademark portfolio “is also an asset for the club that recruits him, as it increases its importance and influence”. The club “could see the value of its brand

increase considerably”.

The article goes on to make the point that the signing of Messi led to a 100% rise in the value of PSG’s cryptocurrency, the PSG Fan Tokens, taking the tokens’ capitalisation to about £144m in three days.

As for Ronaldo’s move, CONTINUED ON PAGE 2

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BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Africa likes competition law

• Enforcement increasingly used as tool to boost economies and revitalise trade and industry Angelo Tzarevski & Zareenah Rasool Baker McKenzie

C

ompetition policy continues to be viewed by regulators as a key driver of economic growth.

Across Africa, competition policy enforcement is increasingly being employed as a tool to boost economic performance and promote the revitalisation of trade and industry after the devastating effects of Covid-19.

The pandemic has led to negative economic growth in a number of African jurisdictions, and has given rise to opportunistic, anticompetitive behaviour such as unreasonable price increases and price gouging, co-ordination among competitors, and various other unsavoury business practices.

Over the past two years, African competition regulators have actively engaged in efforts to deal with these pandemic-related effects; however, there has also been a general upward trend in competition policy enforcement across the continent.

Several African jurisdictions have strengthened their competition and antitrust regimes by way of amendments to existing legislation, the introduction of new laws and regulations, and renewed fervour and political will to enforce existing laws.

Matrices used to analyse economic transformation, such as the Bertelsmann Transformation index, have noted the existence of comprehensive competition laws that are enforced (to some degree), in at least 46 African jurisdictions. This is reflected by the enforcement scores for each of the 46 countries listed, measured on a scale of 1 to 10, where 10 denotes the existence of comprehensive competition laws that are strictly enforced.

Almost half of the jurisdictions received a score of five or higher, demonstrating robust enforcement across much of the continent. Additionally, a review of historical scores indicates a year-onyear increase in respect of a number of African jurisdic-

tions, with countries such as Eswatini, Ethiopia and Namibia each ranking higher than the previous year.

This upward trend in enforcement is highlighted by significant recent developments in competition law regulation on the continent.

On September 6 2021, the Comesa Competition Commission issued its first penalty for failure to notify a transaction within the prescribed time, which amounted to 0.05% of the parties’ combined turnover in the com-

THE PANDEMIC HAS GIVEN RISE TO OPPORTUNISTIC, ANTICOMPETITIVE BEHAVIOUR mon market in the 2020 financial year. This was imposed in relation to the proposed acquisition by Helios Towers of the shares of Madagascar Towers and Malawi Towers.

The authority’s decision to impose a penalty in this matter is a clear shift towards stricter enforcement of merger regulations. This has been observed for some time, with the authority increasingly approaching parties on the basis of publicly available information and requesting further information about transactions to enable it to assess whether the transactions are notifiable.

Until the Helios Towers decision, the authority generally adopted a softer stance in relation to the timing of merger notifications. The decision to penalise the parties is intended to deter future violations of the competition regulations and signal to market participants that the authority will enforce the regulations more vigorously.

In Mozambique, almost seven years after the promulgation of competition legislation, the Competition Regulatory Authority became operational in January 2021.

Shortly after that, on August 16 2021, the authority amended its merger filing fees.

Prior to the amendment, there had been significant concern around the exorbi-

tant filing fees of 5% of merging parties’ turnover. Following the amendment, the applicable filing fee was changed to 0.11% of the turnover in the year before filing, with a maximum limit of 2.25-million metical. This move highlighted the authority’s willingness to be receptive to changing market and economic conditions and valid concerns surrounding competition policy.

Also, the rapid rise in the digital economy has resulted in some competition authorities acknowledging that the regulation of digital markets necessitates a more nuanced approach. In May 2021, the SA Competition Commission launched a market inquiry into online intermediation platforms, which focuses on digital platforms that intermediate transactions between businesses and consumers. The scope of the inquiry covers e-commerce

PUTTING WORDS INTO ACTION

COMPETITION

/123RF — RADIANTSKIES

HOW STRICTLY ARE LAWS ENFORCED IN AFRICA Scale: 1 to 10 Eritrea Somalia Rep. Congo Djibouti Equatorial Guinea Lesotho Mauritania Sudan Algeria Angola Dem. Rep. Congo Libya Mozambique Nigeria Burundi Cameroon Central African Rep. Chad Eswatini Ethiopia Gabon Gambia Guinea-Bissau Ivory Coast Mali Morocco Zimbabwe Benin Egypt Ghana Guinea Liberia Madagascar Senegal Sierra Leone Tanzania Togo Burkina Faso Kenya Malawi Niger Rwanda Tunisia Uganda Zambia Botswana Mauritius Namibia SA

1 1

2 2 2 2 2 2

3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6

7 7 7

8

Source: BERTELSMANN STIFTUNG TRANSFORMATION INDEX

marketplaces, online classifieds, travel and accommodation aggregators, food delivery and app stores.

The Malawi Competition and Fair Trade Commission submitted itself to a Voluntary Peer Review, through a tool used by the UN Conference on Trade and Development, which evaluates the competition law and policy of a country, as well as its institutional arrangements and effectiveness in competition law enforcement.

The review was begun in October 2020 and was finalised in July 2021. Unctad issued a report to the Malawian authority, in which it made recommendations in respect of among other things the substantial amendment or repeal of the Competition and Fair Trading Act; the commission’s budget; and the commission’s approach to dispute resolution and adjudication.

The review process sought to identify areas for improvement in Malawi’s legal and institutional framework to enhance the quality and competency of competition law and policy.

Amendments to the com-

petition law regime in the country are expected in the coming years.

In a move towards enhancing the efficiency and effectiveness of its enforcement activities, the Competition Authority of Kenya operationalised an Informant Reward Scheme on January 1 2021. The scheme provides a mechanism and framework for informants to receive fin-

THE AUTHORITY GENERALLY ADOPTED A SOFTER STANCE IN RELATION TO THE TIMING OF MERGER NOTIFICATIONS ancial rewards in exchange for actionable information in the course of the competition authority’s investigations. The scheme is targeted at persons with credible intelligence regarding restrictive trade practices, mainly cartel-like conduct.

An informant who provides intelligence leading to the closure of an investigation

through penalisation is entitled to up to 1% of the administrative penalty imposed by the authority, which payment has been capped at 1-million Kenyan shillings.

Globally, similar schemes generally have been instrumental in uncovering and prosecuting cartel behaviour and bolstering competition law enforcement. The implementation of a scheme in Kenya reflects the competition authority’s increasing appetite to enforce the regime and root out restrictive practices.

These recent developments in competition policy enforcement draw attention to Africa’s collective enthusiasm in ensuring competition compliance, and its determination to promote and protect more effective economies.

We expect that this trend will continue, with more intensive competition policy enforcement becoming predominant across the region.

As competition authorities gain traction in the execution of their mandates, businesses transacting in Africa should ensure they are fully compliant with all competition laws and regulations.

Player brands boost clubs: IP rights are effective money generators CONTINUED FROM PAGE 1 there was fevered speculation as to whether he would reclaim his old number 7 shirt. The iconic shirt he previously wore was also worn

by Manchester United legends such as George Best, Eric Cantona and Ryan Giggs.

It was never in doubt really, especially as Ronaldo’s own brand is CR7. The holder of the shirt, Edison Cavani,

was given another number and the money immediately started flowing in. Within the space of a few days, before the kick-off of the match in which Ronaldo would make his return, No 7 replica shirts

worth about £187m had been sold, more than covering Ronaldo’s transfer fee.

As significant (apparently) was that the announcement of Ronaldo’s move attracted 13-million likes on Instagram,

and 700,000 more mentions on Twitter than the news of Messi’s move!

WHAT THIS TELLS US

It merely confirms what we already knew — intellectual

property rights are extremely effective money generators that play a huge role in highlevel sport, as indeed they do in so many areas of life. It is well worth investing in them and protecting them.

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ENSafrica has a large team, operating across every key element of the employment sphere Legal 500 EMEA Guide 2021

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BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Trends shaping the HR function

PIECES OF THE PUZZLE

Human resources and payroll professionals have •critical roles in taking a business to the next level Yolandi Esterhuizen Sage Africa & Middle East

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ver the past decade, South African human resources and payroll professionals have seen the complexity of their roles compounded.

The shift towards digital technology, the arrival of new generations in the workplace and a complicated legal and tax environment have all contributed to this evolving landscape.

Moreso, with the rapid rise of remote working models and the fallout from the pandemic, HR and payroll professionals have even more challenges to face. This all unfolds at a time when businesses recognise that strategically focused HR and payroll departments have a pivotal role to play in building a workforce that provides a competitive edge.

Sage research of 1,000 small and medium enterprises shows that 93% of small and medium enterprises (SMEs) in SA aiming to grow in the next five years

say recruitment and resourcing should be at the heart of growth. This highlights the critical role of HR and payroll in taking a business to the next level.

In fact, 85% agree HR and payroll professionals deserve a seat at the senior management decision-making table.

Here are five trends shaping the HR and payroll profession: 1. Compliance complexity The HR and payroll function is becoming increasingly complex, particularly in terms of tax and compliance.

At a time when HR professionals need to focus on strategic concerns such as talent recruitment, development, engagement and retention, they are spending a growing portion of their time on compliance instead. Additionally, 77% consider payroll taxes complex, while 50% find it challenging to explain a tax calculation.

Their challenge, however, isn’t limited to payroll taxes such as pay-as-you-earn (PAYE), Unemployment Insurance Fund (UIF), the Skills Development Levy and constantly evolving HR legis-

lation. HR professionals also need to comply with privacy regulations like the Protection of Personal Information (Popi) Act, General Data Protection Regulation (GDPR) and health, safety and environmental regulations.

2. Getting a handle on remote work Every part of the business has needed to adjust to new remote-working models over the past 18 months, including HR. For many organisations, remote or hybrid working models appear to be here to stay. By August, 82% of South African SMEs were still running fully remote or largely remote models, according to the Sage survey, while half (50%) have been hiring, training and managing employees in a remote/hybrid work environment over the past year.

Forward-thinking organisations are looking carefully at using cloud-based systems for HR management to drive performance.

3. New generations equal new workplace expectations HR departments are wrestling with how work is

automation solutions have been available for decades, many HR professionals report spending a staggeringly high percentage of their time on manual work.

More than a third (35%) said they spend 30% or more of their daily time on payroll preparation and processing, while 83% agreed HR and payroll involve many repetitive tasks. This heavy reliance on manual processes not only drains time but also opens businesses to compliance and security risks.

GETTING COMPLEXITY UNDER CONTROL /123RF — MICHAELDB changing as a new generation moves into the workplace and millennials move up the ranks in management.

Furthermore, younger generations such as Generation Z expect more from employers regarding ethics, social responsibility and social issues. These digital natives have different expectations of work and how and where they do it. Importantly, they are beginning their careers at a time when “work” as we know it is evolving. This places the HR and payroll functions in an advantageous position to structure their cultures and ways of working to attract the best young talent.

They collaborate and use technology differently from older employees because they grew up in a world of digital saturation. They also have new expectations in terms of work/life balance.

4. Covid-19 aftershocks Covid-19 isn’t over, but we

are hopefully getting better at managing it through a mixture of vaccination and nonpharmaceutical interventions. However, we are still feeling the shockwaves of the hard lockdown and the worst months of the pandemic coupled with the July unrest. This has employees worried about job security, and those with scarce skills come with new demands and expectations, especially around remote work.

HR departments need to manage these expectations through a delicate balancing act. But they are overwhelmed after a difficult year and a half. Processes such as recruitment, retention, onboarding and offboarding have become more complex, and HR professionals in our survey reported they are generally less confident dealing with the impact of Covid.

5. Tied up in manual red tape Even though HR and payroll

For HR professionals to step up and take a more strategic role in the business, they need to tame the challenges they face in administration and compliance. This is where forward-looking HR and payroll departments see technology playing a vital role in their future. Those with accessible, integrated cloudbased platforms are already reaping the rewards.

Such systems streamline and automate their processes and provide real-time employee and organisational data needed for better reporting and analytics to inform strategy and planning. This equips them with the realtime insight they need to make substantial contributions at boardroom-level discussions about strategy, data security to improve compliance, and a streamlined payroll process to reduce errors, cut costs, and increase employee satisfaction.

In turn, this helps the organisation harness its talent more effectively as a competitive advantage.

How firms can mitigate ESG lawsuit risks Merlita Kennedy & Tobia Serongoane Webber Wentzel Litigation on environmental, social and governance (ESG) matters is rising globally and domestically, but there are various steps companies can take to mitigate the risks.

Investor and social pressure on mining and energy groups to report on ESG and consider renewable energy is immense. The Centre for Research on Energy and Clean Air (CREA) named state-owned power utility Eskom as the world’s biggest emitter of the pollutant sulphur dioxide (SO2). Eskom emits more sulphur dioxide than Chinese, US and EU power sectors combined.

According to the study by air pollution expert Mike Holland, these emissions contribute to high levels of ambient air pollution and to 2,200 air pollution-related deaths in SA every year. Most of these deaths are due to SO2 emissions, which form deadly

PM2.5 particles once released into the air.

The study poses a legal threat to Eskom as climate change litigation is gaining momentum in SA, particularly in relation to air pollution.

ESG has risen to the top of the board agenda. Companies are increasingly aware that a failure to address these matters can be detrimental to the company’s business purpose, reputation, corporate values, approach to risk management and relationships with host communities, investors, suppliers, customers, staff and other stakeholders. As ESG continues to grow in importance, the number of ESG litigation matters will become self-perpetuating.

LITIGATION RISKS

Companies and state-owned power utilities globally employ ESG policies and procedures in the energy sector, but Eskom has lagged.

The consequences of falling behind can be severe and far reaching, for example

by falling foul of climate change litigation (class actions). There is increasing focus on whether a company conducts its operations in a sustainable way and without violating any human rights. In some cases, internationally and locally, both the state and a company were taken to task for not acting appropriately to improve air quality and thus the health and wellbeing of citizens.

Sharma and others v Minister for the Environment – Australia On September 8 2020, eight young people filed a putative class action in Australia’s Federal Court to block a coal project. The lawsuit sought an injunction to stop the Australian Government from approving an extension of the Whitehaven Vickery coal mine.

The court found that a novel duty of care is owed by the minister for the environment to Australian children who might suffer potential “catastrophic harm” from the

climate change implications of approving the extension to the Vickery coal mine in New South Wales. Ultimately, the court ordered the minister to pay costs.

Milieudefensie et al vs Royal Dutch Shell — Netherlands The environmental group Milieudefensie/Friends of the Earth Netherlands and coplaintiffs filed a case against Royal Dutch Shell (RDS) requesting the court to rule that the Shell group’s annual CO2 emissions and RDS’s failure to reduce them constituted unlawful acts toward the claimants; and order RDS to reduce, by the end of 2030, the Shell group’s CO2 emissions by 45% net, relative to 2019 levels.

In this groundbreaking decision, RDS was compelled to reduce its global group carbon emissions 45% net (compared with its 2019 emissions) by 2030.

IN SA

In June 2019, the VEJMA and groundWork, represented by

the Centre for Environmental Rights, launched landmark litigation against the state, asking the court to declare that the poor ambient air quality in the Highveld was a violation of Section 24 of the Constitution. On May 17 2021 the Pretoria high court for the first time heard arguments in what has become known as the “Deadly Air” case: a case about the toxic air pollution on the Mpumalanga Highveld.

MITIGATING THE RISKS

To manage and mitigate some of the risks of ESG litigation the key is to be proactive and to: ● Involve legal counsel at an early stage to ensure ESG compliance with reporting and disclosure requirements; ● Conduct due diligence and environmental legal compliance with the suite of environmental laws; ● Point out possible exposure to liability under a changing environmental regulatory landscape;

● Audit the suite of contracts individually and ensure they contain indemnification and other contractual terms to protect against the impact of environmental liabilities; ● In the event of a breach, involve legal counsel to assist with crisis management; ● Undertake a feasibility study to see whether corporate structures and operations have the necessary resources and expertise to handle any ESG matters that may arise. ● Engage effectively with stakeholders, including regulators, investors, employees, consumers and communities; and ● Move beyond treating ESG as a tick-the-box exercise to ensuring robust governance and accountability at board level and integrating material ESG factors into strategic decision-making.

Also, any company should seek specialist legal advice before responding to any ESG litigation issues that they may face.

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BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

New focus on US-Africa trade

Potential benefits for infrastructure, energy and •climate solutions, health care and technology sectors Virusha Subban Baker McKenzie Johannesburg

T

he US administration announced in July that the Prosper Africa initiative, launched in 2019 under the Trump administration, would be renewed and reinvigorated to increase reciprocal trade.

The initiative will focus on improving trade and investment in sectors such as infrastructure, energy and climate solutions, health care and technology.

An additional $80m will reportedly be requested to support its projects. The 17 US government agencies working as part of this initiative have a mandate to, among other things, empower African businesses, offer deal support and connect investors from the US with those in Africa.

Also noted at the renewed Prosper Africa launch is the intention to focus on trade projects that support women, and small and medium enterprises in Africa.

When former president Donald Trump introduced his US Africa strategy at the end of 2018, he said the US would promote intraregional trade and commercial ties with its African allies, shifting the focus from “indiscriminate aid” to one of trade and investment and positioning the US as a more sustainable alternative to what it termed “predatory” Chinese and Russia interests in Africa.

Under President Joe

Biden, US engagement with African countries will focus on the strengthening these trade relationships in a strategic, co-operative and reciprocal way. The Biden administration has pointed out that its focus in Africa will be less on countering Chinese influence in the continent and more on the vision of “shared prosperity” between Africa and the US. The value of imports and exports between the US and Africa from January to July this year outlines the current nonreciprocal nature of trade between the two regions.

Data shows the US imported $6.3bn more goods from Africa than it exported to the

STATISTICS SHOW THAT THERE IS POTENTIAL FOR TRADE BETWEEN THE US AND AFRICA TO BE GREATLY INCREASED continent. The US Census Bureau revealed that in this timeframe, the US exported goods to the value of $14.7bn to Africa, and it imported goods from Africa to the value of $21bn.

Further statistics from the bureau show that there is potential for trade between the US and Africa to be greatly increased, when compared to other US trading partners.

For example, US goods exported to UK alone totalled

$35.3bn, and goods imported into the US from the UK from January to July were valued at $32.1bn .

The Biden administration is reportedly also supportive of the African Continental Free Trade Area agreement (AfCFTA), the landmark free trade deal that aims to bring together 54 African countries with a population of more than 1-billion people and a combined GDP of more than $3-trillion. Now that AfCFTA has launched, the US is likely to look at new reciprocal trade agreements with Africa that complement this continent-wide free trade agreement. Such new agreements are expected to eventually replace the nonreciprocal African Growth and Opportunity Act (Agoa), which allows duty- and quota-free exports from eligible African countries to the US but is due to expire in 2025.

Agoa was signed into law

by Bill Clinton, and presidents Bush and Obama extended it during their tenures.

All future trade agreements signed between the US and African countries will have to align with AfCFTA’s trade stipulations and, considering Biden’s environmental stance, new agreements are likely to include climate change provisions and tariffs on high-carbon imports. Biden will also focus on trade agreements that do not disadvantage US businesses and consumers.

However, for free trade across the continent to be successful, infrastructure is

GOODS ON THE MOVE

/123RF — HXDYL urgently needed to facilitate the free movement of goods and services across Africa’s borders. There is an urgent imperative to address funding gaps in transportation, energy provision, internet access and data services, education and healthcare infrastructure projects.

As such, the US is already a major player in funding African infrastructure projects. For example, according to IJ Global data in Baker McKenzie’s report, “New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding”, two US development agencies — the ExportImport Bank of the US and the Overseas Private Investment Corporation — funded infrastructure projects to the

value of $4.7bn and $3.6bn respectively, from 2008 to 2020.

The US hasn’t kept pace with Chinese lending into African infrastructure projects — IJ Global data from the same report reveals that the China Exim Bank alone lent $29bn to African infrastructure projects in the same timeframe — 2008 to 2020.

However, Biden’s renewed

BIDEN’S RENEWED FOCUS ON IMPACTBUILDING AND FINANCING STRATEGIC LONGTERM PROJECTS IS ENCOURAGING

focus on impact-building and financing strategic long-term projects in the region is encouraging, as is his administration’s willingness to work with regional development finance institutions to reduce the infrastructure gap.

Africa needs strong partnerships to address its development challenges so that, among other things, its trade and investment potential with major global players can be fully reached.

As such, the Biden administration’s renewed Prosper Africa initiative, as part of its sustainable and reciprocal approach to Africa, is expected to lead to a plethora of opportunities for investors in both the US and Africa.

CONSUMER BILLS

Time to recognise sex and gender are not binary

S

cience frequently outruns the law even before legislation is passed which tries to keep pace. Privacy laws, which have been overtaken by information technology and hackers, provide a good example. That does not mean we cannot all keep pace when we can.

Science has long since recognised that sex and gender are not binary.

Between those who were traditionally labelled “male” and “female” are many people who either shouldn’t be, or don’t want to be, burdened with those labels.

A recent case in the English high court shows how obtuse the law can be. A transgender man, born with

PATRICK BRACHER reproductive ability, gave birth to a child after transitioning. Although he had obtained a gender recognition certificate as a male, adopted the name Alfred (Freddy), lived as a trans man, undergone hormone treatment, been artificially inseminated in a licensed clinic as a male and given birth, the registrar of births in England insisted on recording him as the

“mother” of the child.

The English high court refused to help him on the basis that the English common law concept that only “mothers” give birth to children overrode Freddy’s admitted right to respect for private life under the European Convention on Human Rights.

England is never a good example of human rights because they do not have a written, nor any, bill of rights approaching what we have in SA. In SA, because of ingrained but outdated thinking, the identity cards that replaced the identity book include the “male” and “female” description of the person. The law has to catch

up. There is currently lobbying, and potentially litigation, to change the Alteration of Sex Description and Sex Status Act of 2003 and a number of laws relating to the registration of births and the issuing of identity documents and passports and to allow for an unspecified category for individuals. It is hoped that conservative thinking will not deteriorate into the concern that some people had in the apartheid years about what toilets people will use.

Lawyers and others drafting documents still fall into the binary gender trap.

They use the pronoun “he” to represent all genders, they put “his or her” or “his/her”

in documents and they start affidavits with phrases describing the witness as “an adult male”. (At least they have gone beyond the previous “adult white male”, which shows that changes can properly be made.)

Confining people to he or she is discriminatory and an affront to the dignity and reality of many people.

Except for an occasional lapse, statutes no longer use

CONFINING PEOPLE TO HE OR SHE IS DISCRIMINATORY AND AN AFFRONT TO THE DIGNITY OF MANY PEOPLE

gender-specific words of this nature and there is no reason why any of us needs to. The plural pronouns “they”, “them” and “their” are properly used in English as singulars. Other languages in SA do not use such genderspecific pronouns. There are many ways of avoiding discriminatory language.

We no longer recognise race as a determiner in forms and contracts except when promoting previously deprived rights. Why do we do it for gender? Our bill of rights overrides outdated thinking and an outdated common law. Let’s respect it. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX LATERAL THINKING

The virtues of simplicity

Business Law & Tax Editor Evan Pickworth interviews founder of Caveat Legal Yvonne Wakefield on the •future of the legal profession in the new normal

E

P: Your company, Caveat Legal, recently celebrated 10 years in business. It has certainly shaken up the sector, being based on a new law consultancy model.

What have been the top three highlights for you over the past 10 years?

YW: Watching the virtual platform-style business model prove its appropriateness to the legal sector, both for commercial clients and for leading lawyers.

Being approached by a number of investors keen to invest in the business (and, being so light on capital requirements, turning their generous offers down).

Watching the company fly during Covid-19, posting 65% revenue growth for the financial year ending February 2021.

EP: Where to next and how will you maintain your edge in an increasingly competitive legal space?

YW: With the market having validated Caveat’s business model, we have turned our efforts to rapid scaling. We’ll keep our edge by staying tuned into what our customers want, and responding to small shifts in demand quickly. And, of course, we will keep striving to be the best home for leading lawyers.

EP: The legal profession is in a state of flux at the moment, in essence without a chief justice, who has been on long leave since May. Do you think this uncertainty is opening the door for more work for firms like yourselves?

YW: Yes, the industry is indeed in flux, with many traditional firms not admitting to having scaled back on hiring

and promotions during the pandemic, which creates the perfect environment for disruption. The market has also learned that brick and mortar infrastructure isn’t necessary for the provision of legal services, so we expect to see many more players in the space. At the end of the day,

WHEN STARTING A CAREER IN LAW, CHOOSE THE OPTIONS THAT GIVE YOU THE MOST INTENSIVE TRAINING EARLY ON healthy competition is excellent for consumers so we encourage it wholeheartedly.

EP: What do you think of legal fees overall and as a result of your model how much lower are you able to take fees for nonreserve commercial work?

YW: People don’t like the idea of the “billable hour” but, in reality, lawyers, like doctors, accountants, architects and others, charge for their time.

There isn’t really a truly different, yet viable, alternative

to this. Having said this, we knew from the outset that heavy overheads like large buildings and teams of support staff are not necessary for the provision of legal services, and set Caveat up to be virtual from day one. So for the past 10 years, our clients have had access to lawyers who have grown up at our largest law firms, at about half the price. And because the margins are thin, our panel members earn more than their peers in traditional practice. So everyone wins.

EP: Are you not getting too big yourself — leading to higher fees down the line for marketing, space and specialist work?

YW: We are optimistic we can remain lean and nimble through our ruthless focus on simplicity. So far, by avoiding complexity at every turn, we have built a business inherently light and scalable, and see no need to change that.

EP: Are you seeing growth in mediation and arbitration work?

YW: Unfortunately not, despite doing a huge amount of marketing for the work and having accredited mediators on our panel. As a litigator in my past life, I’m very clear that litigation is — for the

/123RF — PERHAPZZZ most part — a lose-lose game, and that mediation is often the most common sense option, but unfortunately we haven’t seen the market takeup that we’d hoped for.

EP: Key trends for the Csuite to watch in the commercial law space in the next year?

YW: Compliance, especially around data protection, is high on the agenda while we wait to see how the regulator behaves and how the courts apply Popia. The employment space has become even more tricky through Covid-19 times, with policies having been seriously put to the test, and with the impact of Covid19 on employee mental health. And then, now that the world is (hopefully) returning to some kind of normalcy, general housekeeping — like making sure stakeholder relations are properly recorded and updated (in MOIs or shareholder agreements).

EP: Are you excited about Africa’s potential and

prospects for cross-border deals? Specifically, the African Continental Free Trade Agreement has kicked off and it is hoped this sparks more trade …

YW: Definitely. We do a significant amount of work in this space, and I’m always amazed by the volumes of

BY AVOIDING COMPLEXITY, WE HAVE BUILT A BUSINESS INHERENTLY LIGHT AND SCALABLE deals on the go at any given time.

EP: Which sectors of the profession excite you the most right now?

YW: Financial services, with the new Twin Peaks regulatory model — and specifically how the crypto space will be affected; data protection —

and how the regulator will keep up with its impossible task; and telecoms — with the new entrants, incumbents and inbetweeners vying for space.

EP: Advice for students planning on a career in law?

YW: When starting a career in law, choose the options that give you the most intensive training early on. Stay on as steep a learning curve as possible for as long as possible, and keep your eyes open for aspects of the profession that can be improved upon.

EP: Your message to young lawyers thinking of going it alone …

YW: Running your own practice can be difficult to juggle — while you do your work, you need to keep an eye on marketing efforts, administration, finances, insurance etc. Or, if you’re on top of your game, you can join Caveat and allow us to do all that for you so you can focus on doing the work you love without distraction.

Paia Guide helps seekers of information Peter Grealy & Karl Blom Webber Wentzel The Promotion of Access to Information Act 2000 (Paia) requires the information regulator to publish a guide (Paia Guide) to assist a person who wishes to exercise a right contemplated in Paia or the Protection of Personal Information Act 2013.

The recently published

Paia Guide is an updated version of the existing guide published by the SA Human Rights Commission.

It is important for an organisation to understand when it must or may refuse a request, to prevent falling foul of Paia. If a record falls within one of the mandatory grounds of refusal, an organisation must refuse access to it. Examples include where the record requested is leg-

IN SOME CIRCUMSTANCES, ORGANISATIONS HAVE DISCRETION TO GRANT OR REFUSE A REQUEST ally privileged or if access to it would result in the unreasonable disclosure of an individual’s personal information.

In some circumstances, certain organisations (such as government departments) have the discretion to grant or refuse a request, for instance if access to the record will hamper the operations of the organisation.

Some of the key elements contained in the Paia Guide are: ● How to request a record which is in the possession of an organisation, including a

step-by-step process map and guidance on the appropriate forms to be used; ● What types of information can be requested. The Paia Guide notes that sometimes it is not clear whether a record is public or private, and the public is advised to seek legal advice on this issue; ● Who can make a request for information; ● The fees payable for making a request and the costs of

providing access to records that are requested; ● The role of an organisation’s information officer and /or deputy information officer and the role of the information regulator in relation to a request; ● The time frames and limits for providing a response to a request; and ● How to challenge an organisation’s decision about a request.

7

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Copyright — but not as we once knew it

DIGITAL CERTIFICATE

nonfungible tokens and 68-billion melodies •mayWhat mean for intellectual property rights Gaelyn Scott ENSafrica

I

n this article we discuss two unusual copyright issues that intellectual property lawyers would never have had to consider a few years back.

The first deals with nonfungible tokens (NFTs), which are, of course, all the rage. The term “nonfungible” means not easily interchangeable and the NFT is a form of cryptocurrency that uses blockchain technology. What this means is that a new block is created with each transaction, which apparently makes it tamper proof.

It has seemingly become de rigeur for artists and musicians to use NFTs for selling art and music. Through NFTs, works can be tokenised to create a digital certificate of ownership that can be bought or sold. When it comes to music, articles sold by musicians include concert tickets (virtual and physical), previews of unreleased songs,

album downloads, physical copies of limited-edition albums and digital artwork.

It’s the rarity of the NFT that creates the value.

One of the perceived benefits of NFTs is that they create alternative revenue streams for artists, revenue

ONE OF THE PERCEIVED BENEFITS OF NFTS IS THAT THEY CREATE ALTERNATIVE REVENUE STREAMS streams that cut out the middleman and enable fans to support artists directly.

Possible downsides of NFTs are the fact that sales are driven by hype and they are seemingly the preserve of big-name artists.

There was an interesting report on the BBC recently about NFTs. A 12-year-old London lad, Benjamin

Ahmed, has created a series of pixelated artworks called Weird Whales. Ahmed was apparently “inspired” by a well-known whale meme image and a popular digitalart style, although he used his own program to create his 3,350 emoji-type whales.

Ahmed has done well for himself, selling the series of artworks as NFTs for an impressive £290,000.

Ahmed is keeping his earnings in cryptocurrency, in this case ethereum.

LEGAL ISSUES

The boy’s father, Imran, is a software developer and he is very supportive of his son, claiming he is “100 % certain” that Benjamin has not infringed any copyright.

Imran claims that he has engaged lawyers to audit the works and says he is seeking advice on how Benjamin can “trademark” the designs.

Clearly copyright is the main issue. If Ahmed has copied other works he may well be guilty of copyright

/123RF — ALIDRIAN infringement. It’s important to note that with copyright there must have been actual copying before there can be an infringement, co-incidental similarity is not actionable.

If Ahmed has created the works independently of any other works, and there was indeed no more than inspiration, he should be fine.

But the difference between inspiration and copyright can be a fine one.

A closing note on NFTs with some words from a Christie’s auctioneer, which suggest that there is still considerable scepticism about NFTs. In the BBC article the auctioneer describes people who buy NFTs as “slight mugs”. But, he adds, “I hope they don’t lose their money.”

MUSIC LAWSUITS

No song is new … (we) have exhausted the data set …(we)

have made all the music to be able to allow future songwriters to make all of their music.

These remarkable words appear in a magazine article.

They are the words of two lawyers who claim to have created an algorithm that can create, and allegedly has created, every 12-note melody that has been written or indeed can ever be written.

The creation of this algorithm is premised on the assumption that there is a finite number of melodies that can exist. The lawyers talk of the fact that songwriters are “walking on a melodic minefield”.

So how many melodies are there? It’s 68-billion, and they’re apparently all available on allthemusic.info. But the two lawyers are not claiming any ownership, rather they’re releasing the entire catalogue in the hope it

will put an end to all music copyright lawsuits.

It’s hard to know what to make of this and difficult to comment on the science behind it, but the basis of copyright protection is originality. Not in the sense of uniqueness or novelty but rather in the sense of “sweat of the brow”.

INFRINGEMENT

You can claim copyright in a work (like a song) that you have created independently, in other words without copying any other work. If a third party then copies your work and perhaps you have clear proof that they did, surely there will be an infringement.

So this development, although quite remarkable and undoubtedly interesting, is not quite the end of the music copyright infringement claim.

New tax rules can boost African recovery Denny Da Silva Baker McKenzie, Johannesburg One hundred and thirty-six of the 140 members of the OECD G20 Inclusive Framework, including SA, have agreed on a new set of global tax rules that will reform the world’s tax system.

Notably, two African countries that are members of the Inclusive Framework have not yet joined the agreement — Kenya and Nigeria.

The two-pillar system is be presented to the G20 Leaders’ Summit at endOctober and result in a reallocation of taxing rights from resident to source countries of certain multinational enterprises (MNEs), if thresholds are met, in addition to a 15% global minimum tax rate for some organisations implemented from 2023.

The agreement is intended to redress global tax revenue imbalances and is set to benefit developing economies in

Africa. African policymakers say a multilateral approach to tax collection has many benefits for the continent. Smaller economies such as in Africa rely more on business income tax than larger economies. The African Tax Administration Forum (ATAF) has noted that 16% of tax revenue in African countries is corporate tax, compared with 9% in OECD countries.

African countries have improved revenue-collection methods and implemented punitive measures to clamp down on tax avoidance because revenue collected is of utmost importance to their economic stability.

But current tax rules have meant that African countries could not collect tax revenue from multinationals, even if they were operating profitably in their countries.

The OECD’s Pillar One changes enable market jurisdictions to charge income tax on a portion of the profits of

large multinational companies operating within their borders. It will reallocate taxing rights from resident countries to markets where they conduct business and generate profits, regardless of their physical presence in that country.

Pillar One will apply to MNEs with sales of more than €20bn and that generate a net profit above 10% (profit before tax/turnover). Amount A has been confirmed at 25% of an MNE’s residual profit (ie profit in excess of 10% of revenue) and will be allocated to market jurisdictions with sufficient nexus using a revenue-based allocation key — being a revenue of at least €1m from that jurisdiction (or at least €250,000 for jurisdictions with a GDP of less than €40bn).

No agreement has yet been reached on the implementation and design of Amount B, which intends to simplify the arm’s length

principle for baseline marketing and distribution activities, but the intention is for this to be completed in 2022.

Pillar Two proposes a new network of rules that will reallocate taxing rights according to a new global minimum tax regime of 15% aimed at ensuring a minimum effective net tax rate across all jurisdictions. It will apply to all enterprises generating a revenue above €750m. Model rules for bringing Pillar Two into domestic legislation will be introduced in 2022 and become effective in 2023.

On the African front, ATAF submitted proposals to the OECD on the new agreement and announced in October 2021 that many of its proposals were incorporated into Pillar One, including broadening the agreement to incorporate all sectors, but excluding the extractives sector. ATAF stated that resource-rich African coun-

tries price their minerals on their “inherent characteristics” and not on “market intangibles”, and as such, taxing rights should go to the resource-producing country.

ATAF said their request for greater simplification of some of the rules was also incorporated. The nexus threshold was reduced to €1m, down from €5m, with a lower threshold of €250,000 for smaller jurisdictions with GDPs lower than €40bn and no “plus factors”. ATAF also secured an elective binding dispute resolution mechanism, as opposed to the existing mandatory dispute resolution process, for eligible developing countries.

ATAF was also pleased that the Subject to Tax Rule (STTR) would be a minimum standard that developing countries can require to be included in bilateral tax treaties with Inclusive Framework members, and that the STTR would cover

interest, royalties, and a defined set of other payments. But there was disappointment that the agreement allocates only 25% of the residual profit to market jurisdictions under Amount A. ATAF pushed for 35%.

African countries have until 2023 to implement the new tax rules, navigating difficulties of tax implementation due to capacity challenges and issues with how the rules will affect countries that are not members of the Inclusive Framework.

But the OECD has said it will ensure the rules can be effectively and efficiently administered and that they will offer comprehensive capacity building support to countries that need it.

Overall, the global tax changes are good news for Africa and expected to result in higher tax revenue for African countries at a time when capital is needed direly for post-pandemic recovery.

8

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Guide on how to avoid biting by watchdog

LOCAL IS LEKKER

authorities’ bid to •helpCompetition companies do localisation

right is flawed but a step forwards Heather Irvine Bowmans

S

tatistics SA recently published updated employee numbers for the SA manufacturing sector, which indicate that as a percentage of the total population, this is the lowest it has been since 1935.

Increasing local production has been identified as a top priority for SA after the Covid-19 pandemic and is a key proposed driver of growth and employment in the Economic Reconstruction and Recovery Plan (ERRP) and several industry master plans.

The role of competition policy in promoting localisation has also been recognised by the department of trade, industry & competition in the Competition Policy for Jobs and Development it published earlier this year.

In support of this objective, the Competition Commission has issued draft guidelines on collaboration between competitors in both public and private sector localisation initiatives. It aims to provide companies with guidance on how they can engage in discussions with their rivals and reach agreements which enhance local production and decrease reliance on imports, without falling foul of the outright prohibitions on price-fixing and market allocation contained in section 4(1)(b) of the Competition Act. Agreements by competitors on selling or purchase prices or on dividing up suppliers (or customers) are prohibited outright, even if this leads to procompetitive, efficiency or technological benefits or promotes a national priority such as localisation.

Even a first-time contraven-

tion of this section of the act can result in a fine of up to 10% of turnover.

Historically, prosecutions by the competition authorities of companies in industries such as glass and steel, who had tried to facilitate more local scrap recycling — in some cases, even if initiated or supported by the government — has tended to deter companies from exploring these opportunities. Competition law risk is often cited by managers as the reason for their reluctance to discuss and imple-

LOCALISATION INITIATIVES SHOULD PROMOTE ENTRY AND EXPANSION OF SMALL-, MICROAND MEDIUM-SIZED ENTERPRISES ment industry-wide localisation efforts.

The commission’s draft guidelines list various initiatives which could support localisation, including identifying opportunities for localisation; setting industry-wide and individual firm local procurement targets; and demand forecasting. Although it notes that this is not a closed list, the guidelines would also apply to other kinds of competitor initiatives.

The commission suggests ways in which companies taking part in these efforts can do so without contravening the Competition Act. For example, in identifying products which could be the subject of a localisation drive, the commission notes that competitors should appoint a facilitator (who could be a representative from a government department) to col-

/123RF — IUPHOTOS lect pricing and other necessary information, and to ensure only aggregated information is shared.

The commission’s draft suggests that final industrywide targets must be determined by the facilitator, rather than by agreement among the competitors, and these discussions must be minuted, and notified to the commission within a reasonable time. It proposes that the commission may request access to the recording or minutes of these meetings at any time, although it is not clear that the commission has any power to compel production, outside of a complaint investigation or market inquiry.

The draft guidelines are a helpful extension of the principles set out in the commission’s guidelines on information sharing by competitors (which remain in draft form).

In addition to recognising companies’ need to collect detailed pricing and purchase information, and disseminate it, to make informed decisions — as long as appropriate safeguards are put in place — the draft guidelines indicate the commission accepts that companies should be able to set industry-wide targets which affect individual companies’ pricing and purchasing decisions, as long as they appoint an independent facilitator to determine the final targets.

This provides practical guidance to companies who want to avoid potential prosecution under the Competition Act. In line with the objectives of the act, the commission notes that localisation initiatives should be inclusive and, in particular, should promote the entry and expansion of small-, micro- and mediumsized enterprises and firms owned by historically disad-

vantaged persons.

However, it is unfortunate that the guidelines do not highlight that localisation efforts should only be undertaken if they do not harm the overall level of competition in a relevant market; or if they do, that this only passes muster under section 4 of the act if it leads to efficiency, technological or procompetitive gains which outweigh these effects. It should be clear that localisation projects that shut out healthy competition from imports without delivering clear benefits, and therefore harm SA consumers, are not shielded from complaints brought in terms of the act.

In particular, localisation efforts which benefit existing inefficient local monopolies should not escape scrutiny by the competition authorities.

It is also not clear that the commission’s guidelines go far enough to provide adequate levels of comfort to SA companies that they can safely participate in the government’s localisation drive, without risking prosecution.

For example, the guideline should mention that in terms of section 3(1)(e) of the act, “concerted conduct designed to achieve a noncommercial socioeconomic objective or similar purpose” is excluded from the ambit of the act.

It would be helpful if the commission would explain the criteria which the commission considers to be relevant to a determination of conduct that is “noncommer-

THE COMMISSION COULD IMPLEMENT POLICIES AND PROCEDURES THAT ARE DESIGNED TO SUPPORT LOCAL FIRMS

cial” and provide examples of “socioeconomic” projects.

The draft guideline could also mention that in line with our courts’ analysis of section 4(1)(b) in the Ansac and SAB cases, some agreements by competitors, even if they involve the fixing of a price, should be characterised as falling outside of the prohibition on price-fixing, because it is clear from the surrounding facts and circumstances that this is not collusive in nature. This approach is already applied by the Competition Tribunal in assessing reasonable restraints on the seller of a business in the context of a sale of business, for example.

Some practical examples of how the commission believes this principle would apply in the context of localisation initiatives would be useful, particularly since the Competition Commission is not currently issuing formal advisory opinions.

In addition to publishing these guidelines, the commission could implement policies and procedures that are specifically designed to support local firms in their localisation efforts. This could include, for example, articulating that as a matter of policy, the commission will grant exemptions to competitors in terms of section 10(3)(b) of the act, if their conduct is intended to advance localisation and does not have anticompetitive effects or, if these are suitably outweighed by efficiency, procompetitive, technological or other gains.

The potential for the commission to grant more exemptions has been enhanced by the amendments to this section of the act in 2019, since it now recognises that an exemption may be granted if an agreement or practice by competi-

tors will contribute to “competitiveness and efficiency gains that promote employment or industrial expansion”. Once again, the commission could provide guidance on the kinds of evidence it will require in support of applications of this nature, and the circumstances in which it is likely to grant them.

Given that there is no timeline specified in the act for applications for exemptions to be granted, and some have taken months or even years to process, it would also be helpful if the commission would spell out an expedited investigation procedure

LOCALISATION EFFORTS WHICH BENEFIT EXISTING INEFFICIENT LOCAL MONOPOLIES SHOULD NOT ESCAPE SCRUTINY and a fast-track timeline for exemption applications of this nature. Safe harbour — perhaps even in the form of a block exemption — would permit more localisation efforts by small firms which clearly do not harm competition in the overall market (for example, if deals to buy locally produced products by small companies accounting for less than 35% of the purchasing market were automatically exempted).

Localisation will be critical for SA after the pandemic and our competition authorities have a key role to play in ensuring it happens in a procompetitive and efficient way, in accordance with the Competition Act. Clear and comprehensive guidelines for business are an important step in the right direction.

9

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

What you need to know about open banking

SOFTWARE TOOLS

A closer look at the concept and the •Reserve Bank’s survey and consultation paper Angela Itzikowitz & Era Gunning ENSafrica

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n November 2020 the national payment system department of the Reserve Bank issued its “consultation paper on open-banking activities in the national payment system”.

During the development of this paper, the Bank conducted a survey of screenscraping practices and openbanking activities in the payments industry.

Before exploring the outcomes of the survey, let’s examine these concepts.

The Euro Banking Association defines “open-banking” as “a movement ‘bridging two worlds’, making it possible for customers to use their banking service in the context of other fintech services, combining innovative functionalities from banks and nonbanks with reach through infrastructure”.

The Bank for International Settlements defines it as “the sharing and leveraging of customer-permissioned data by banks with third-party developers and firms to build applications and services, such as those that provide real-time payments, greater financial transparency options for account holders, and marketing and crossselling opportunities”.

Open banking is enabled

by technologies such as screen scraping and application programming interfaces (APIs).

SCREEN SCRAPING

Screen scraping is the technology that reads and extracts data from a target website using computer software that impersonates a web browser to extract data or perform actions that users would usually perform manually on the website. In the payments industry, it involves a third-party app which enables direct access to a consumer’s online banking profile, takes control of the internet banking session and automates a payment on the consumer’s behalf.

Screen scraping requires a customer to share his/her online banking credentials, including his/her login names, personal identification numbers (PINs) and passwords, with the third party (usually a fintech) practising screen scraping.

Screen scraping is attractive to criminals, as they can set up an illicit third-party payment provider business

THE BANKS NOTED THEY DO NOT HAVE MECHANISMS TO BLOCK SCREEN SCRAPING AS IT IS DIFFICULT TO DO SO

with the purpose of mining personal information and/or stealing customer funds and advantage may be taken of weak regulatory regimes.

Accessing customers’ financial information using screen scraping is generally regarded as less secure than APIs from data privacy and consumer protection perspectives. There have been growing interventions by regulators to combat this practice, as it poses risks to the integrity, safety and efficiency of payment systems as well as to the consumer.

APIs

APIs are software tools that enable different systems and apps to talk to one another and share data. APIs inaccessible to the outside world and internally focused are known as “closed APIs”. Open APIs are used by third parties for creating offerings that may bring convenience to existing customers and/or increase customer reach.

In banking, open APIs may be used to share customer data, with consent from the customer, within the organisation or with third parties.

They enable consumers and businesses to obtain account information and initiate and track payments using thirdparty apps that connect directly into the banks’ systems in a secure and seamless manner.

/123RF — PUTILICH Open APIs do not involve the sharing of login credentials and are widely considered a more secure way of giving third-party providers access to customers’ financial information to enable the provision of enhanced services than screen scraping.

On the downside, APIs could give banks too much power as they are usually owned by banks as custodians of customer data and the banks thus have control over what data to share, which could be anticompetitive and inhibit innovation.

The majority of the banks which participated in the survey indicated they do not endorse or support thirdparty use of screen scraping to access customer information, but do and would allow approved vendors to access such information using APIs, given that they are more secure than screen scraping.

However, the banks noted they do not have mechanisms to block screen scraping as it is difficult to do so.

The Bank’s paper makes numerous policy proposals in respect of open banking, including: ● A new class of third-party providers, with access to customers’ financial information, should be introduced to improve offerings for custo-

mers, increase competition and promote innovation.

“Good” permissible openbanking practices must be distinguished from prohibited “bad” practices, that may include unsecure screenscraping activities. ● All third-party providers in the national payment system (NPS) should be regulated by the relevant authorities, such as the Bank and the Financial Sector Conduct Authority (FSCA) and be subject to open-banking technical standards that should be devel-

CONSUMER EDUCATION SHOULD BE CONDUCTED AS MANY CONSUMERS MAY NOT BE AWARE OF THE RISKS oped and implemented.

This could necessitate the establishment of open-banking working groups that may include NPS participants, regulators (such as the FSCA, the Information Regulator, the Prudential Authority and the Bank), and other relevant authorities (such as the Competition Commission and the National Treasury) and stakeholders. ● Third-party providers

must: 1. not store customer information; 2. only use the information for its intended purpose; 3. bear the risks and costs that they introduce to consumers; 4. make the necessary efforts to prevent, detect and resolve any unauthorised access and/or data sharing; 5. be prohibited from the on-selling or distributing of data.

In addition, they must put in place requisite insurance or guarantee mechanisms against possible losses, protect the integrity of the NPS and implement effective processes to mitigate operational risks and mechanisms to promptly respond to, resolve and remedy any data breaches, transmission errors, unauthorised access and fraud. ● Banks should provide access to customers’ financial information, with customer consent, to regulated thirdparty payment providers.

Banks should grant nonbank payment providers access to their systems for the development of APIs as a safe mechanism to enable the sharing of customer data. ● Consumers should have practical means at their disposal to dispute and resolve instances of unauthorised access, the failure by merchants to honour purchase orders and possible data breaches. ● Consumer education or awareness should be conducted as many consumers may not be aware of the potential risks when using third-party providers to effect payments or the services of data aggregators. Education should include an understanding that they have the right to withdraw consent at any time, provided the withdrawal does not violate other legitimate obligations. Custodians of consumers’ financial information should ensure the withdrawal of consent is made as easy as possible.

It is crucial that regulations relating to data sharing and open banking strike a balance between risk management and the promotion of innovation.

Danger of paying lip service to governance Evan Pickworth Business Law & Tax Editor Almost four years later, it’s still hard to believe the full horror of the Steinhoff collapse. Recent acrimonious multijurisdictional settlement processes and liquidation uncertainty are just adding to the mess.

Director, auditing and broader executive duties of care were in the spotlight in the early days, but it was clear that the full story still had to be told — and damages determined.

Things spiralled rather

quickly when in March 2019 PwC found the firm had recorded fictitious or irregular transactions of €6.5bn between 2009 and 2017.

What truly beggars belief is how it came to this. After all, the King Report on corporate governance for SA was released in November 1994, embracing an inclusive approach to corporate governance. It is a heavy irony that SA has led the charge on governance rules over the past two decades but has had many of its own entities failing abysmally to abide by these laudable principles.

It’s not as if companies never had the guidance.

According to Sir Adrian Cadbury, the father of corporate governance in the UK, governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of the resources.

The aim is to align as nearly as possible the interests of individuals, corporations and society.

Fast forward to today in SA and there are embedded legislative requirements based on the Companies Act in the case of the private sector and Public Finance Management Act in the case of the public sector and all these are also solidified by the principles contained in the King code.

These rules are no longer just nice-to-haves but form part of the legislative bedrock itself — especially sections 72 and 76 of the Companies Act. The role of social and ethics committees on many boards is increasingly pro-

minent and taken seriously.

Everyone makes sure the principles are applied rigorously. This doesn’t always filter through and permeate every element of an organisation, but major strides are being made in many companies. Yet many steps backwards are also being taken by others, especially in the public sector.

In an excellent paper, Osborn Chauke and Mokoko Sebola from the University of Limpopo say the burden of complying with good corporate governance principles should not push a marginal

company into liquidation.

Instead it should steer it towards success.

Aligning a company’s operations with the prevailing philosophical, sociopolitical, legal and commercial context within which it operates is critical for the success of business. I couldn’t agree more.

Ultimately, it will be better policing of best practice and application that will prevent another Steinhoff.

But as long as some companies pay lip service to these principles, another big collapse lies in wait.

10

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Sars penalty: who qualifies for remission?

LAST CHANCE

The urgent steps a company took to rectify the •default need to be taken into account, court finds Dr Albertus Marais AJM Tax

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n a recent case before the full bench of the high court, one of our clients, with our help, appealed against a penalty imposed by the SA Revenue Service (Sars) in relation to the ostensible late payment of its December 2017 PAYE amount due.

The December 2017 amount due was R10,648,341, which Sars argued was due to be paid to it by Friday January 5 2018.

That payment was, however, made on Monday January 8 2018, causing Sars to levy a 10% late payment penalty of R1,064,834 against the taxpayer.

In terms of the fourth schedule to the Income Tax Act, when an employer is required to deduct and withhold PAYE from remuneration paid, that amount is required to be paid to Sars within seven days following the end of the month during which the remuneration in question is paid.

Sars argued here that the seventh day fell on Sunday January 7 2018 and therefore payment was due by Friday January 5: the Tax Administration Act requires payments to be made by the last immediately preceding business

day where a day on which it is otherwise required to be made falls on a Saturday, Sunday or public holiday.

In an objection against the penalty, the taxpayer argued that it had reasonable grounds for paying the amount in question late and therefore it qualified, at least in part, for a remission of the amount in question. This it was able to do as a result of the Tax Administration Act allowing for a remission of penalties in instances where a transgression involves a socalled first incidence, one which has since been rectified, and reasonable grounds therefore existed. However,

THE PERIOD WITHIN WHICH PAYMENT WAS REQUIRED TO BE MADE WAS ALSO SHORTER THAN THE SEVEN-DAY PERIOD USUALLY ALLOWED Sars disallowed the objection on the basis that reasonable grounds for the late payment were absent.

The taxpayer, having been advised it had reasonable grounds for the late payment coming about, appealed to the tax court. It argued that the

time of year has to be taken into account. The taxpayer’s offices, like most, reopened only on January 3 2018, at which stage it was discovered that not enough cash was available to pay the required amount.

This came as a surprise since its debtor’s clerk projected significant debtor payments to be received over the holiday period and in line with what previous years’ experience taught would have been the case.

The period within which payment was required to be made was also shorter than the seven-day period ordinarily allowed where the seventh day did not fall on a weekend.

By January 3, the taxpayer arranged for a R5m overdraft to shore up its cash reserves to ensure it was able to make the payment to Sars. By the Friday, however, it was still R138,262 short of the required cash balance amount for its payment instruction to go through. It secured undertakings from its debtors that payment of at least R200,000 would be made to it on the Friday, and which will reflect on the Saturday to ensure that sufficient cash was available for the payment to go through on the Saturday.

By Saturday, however,

/123RF — IQONCEPT payments of only R132,338 were received, leaving the taxpayer still R5,923 short of its liability of R10,648,341.

Payment therefore did not go though as planned.

An intragroup transfer of R20,000 was arranged, and the amount was received on January 8, allowing the taxpayer to pay the requisite amount at 10.13am.

The taxpayer’s appeal to the tax court was based on two arguments: first, the payment was not late; and second, due to the facts surrounding the payment, reasonable grounds existed for the late payment, meaning the penalty qualified to be remitted in terms of the Tax Administration Act. The appeal failed on both counts. In the first instance, the taxpayer argued that in terms of the Tax Administration Act, deadlines for payment are imposed. The calculation of when that deadline actually is must be determined in terms of the Interpretation Act. The Interpretation Act determines that the counting of days to determine when a deadline is

must take place through counting the number of days from December 31 2017 and, where a period so calculated ends on a Sunday or a public holiday, that that day should then not be counted, with the final day of a prescribed period then rather falling on the next day.

In other words, the sevenday period would have ended on Monday January 8 2018 in terms of this calculation, meaning payment by the taxpayer was in fact timeous.

The tax court disagreed and found that the seven-day period prescribed by the Income Tax Act should be calculated without referring to the Interpretation Act — rather, the plain wording of the Income Tax Act should be followed.

The tax court also found that a failure to withhold PAYE and pay such amounts over to Sars in timeous fashion would be unreasonable.

The taxpayer appealed against this decision to the full bench of the high court, which recently allowed the taxpayer’s appeal. While it held that the payment was in

fact late, it agreed with the taxpayer that reasonable grounds existed and which would qualify for the penalty to be remitted.

While the high court agreed that failure to withhold a sufficient amount of PAYE could not be said to be reasonable, the urgent steps taken by the taxpayer in rectifying the default in question needed to be taken into account in considering whether reasonable grounds existed and, therefore, that the penalty stood to be remitted in full.

This matter sets new precedent in the sense that in considering whether reasonable grounds for an administrative noncompliance penalty such as the present exist or not is linked not only to those circumstances creating the penalty in question but also to the steps taken to rectify it.

We understand Sars intends to appeal the judgment, and we wait to see how the matter ultimately is resolved — that is, if a petition for appeal to the Supreme Court of Appeal is indeed successful.

New chapter opens for sustainability funds Khurshid Fazel & Karen Couzyn Webber Wentzel Innovative funding for sustainability projects is spurring legal firms such as Webber Wentzel to innovate also in the loan agreements that they are drafting for clients.

One of the discussion points at COP26 is sustainable finance and mobilising public and private finance flows at scale for mitigation and adaptation. A key question is how this funding issue is playing out in the SA context and what issues are cropping up in the space.

Demand for sustain-

ability-linked loans is surging, with banks competing to offer this new form of finance in SA. Webber Wentzel is being challenged to devise innovative ways to draft terms and agreements.

JSE LISTED

A sustainability-linked loan or a sustainability-linked debt security (collectively referred to as an SLL) is different from a green bond or other sustainability use of proceeds debt security.

An SLL could be used for any purpose, such as making an acquisition, but the interest rate applicable is informed by the achievement of certain

targets by the borrower on environmental, social and governance key indicators.

Sustainability use of proceeds debt securities, on the other hand, are advanced to finance one or more green, sustainable, and social projects. A green bond, for example, is specifically lent to fund a “green” activity, such as building a solar plant.

A green bond, like any other sustainability use of proceeds or sustainabilitylinked debt security, can be listed on the sustainability segment of the JSE and is available for investment by a wide group of financiers, including pension funds and

asset managers.

There are usually four performance indicators in a sustainability-linked loan — three are related to the environment and one is related to social factors.

ACHIEVING TARGETS

The environmental goals are generally quite standard — improving the lender’s carbon footprint, waste and water management. However, the social element is usually unique and is specifically tailored to the environment in which the borrower operates. For example, a sustainability-linked loan to a hospital might depend on

achieving a specified level of patient satisfaction.

These will not all be absolute goals. They could also be incremental. For example, a borrower could state its current carbon footprint is X and it intends to improve this to Y during the term of the loan — or even beyond the maturity of the loan, in which case annual targets would be set during the term of the loan and their achievement would be independently verified.

Whether the borrower achieves its targets will influence the interest rate.

One of the reasons banks are able to offer SLLs at favourable interest rates is

related to their back-to-back funding. Entities such as the World Bank and International Finance Corporation (IFC) will provide funding to banks for onward lending at a concessional interest rate, on condition those funds are only lent to achieve sustainability objectives. Using this form of finance improves the funding costs of commercial banks, and they can offer better rates to their customers.

SLLs are becoming popular in SA and we expect this trend will continue. The government can play a role in promoting sustainabilitylinked financing by providing more tax incentives.

11

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX LATERAL THINKING

Laying out the ABCs of ESG

Business Law & Tax Editor Evan Pickworth interviews Jason Wilkinson, a partner from Bowmans Finance •Practice, on the National Treasury’s Draft Green Finance Taxonomy, which sets out a more concrete regulatory framework for SA’s environmental, social and governance goals

E

P: ESG has been seen as secondary in importance to the bottom line for a long time by corporates. Does this change that?

JW: ESG initiatives are key market drivers for governments and corporate leaders, given the overwhelming need to advance sustainable investing. It is rewarding to see that such a key global initiative is being driven from a few critical pressure points: primarily from (a) a regulatory perspective; (b) an investor-driven perspective; and (c) a consumer-driven perspective.

We think of this as the sandwich effect. The National Treasury’s Draft Green Finance Taxonomy (draft taxonomy) is therefore a key ingredient, but only tells a part of the story.

It’s said that “what doesn’t get measured doesn’t get done”, and this goes some way to explaining why the ESG challenge has not been adequately taken up — there is a mix of perception and reality regarding challenges in defining, measuring and reporting ESG objectives.

A regulated taxonomy is a significant step towards standardisation, and consequently, adoption and implementation.

Regulatory regime: Regulatory requirements have been and will continue to remain a driving force behind sustainability in global financial markets. For example, the Paris Agreement introduced a critical mandate to state actors of reducing greenhouse gas emissions by 40% by 2030.

From an SA perspective, several foundational documents, including the Paris Agreement, inform the domestic regulatory framework to achieve the country’s ESG goals.

The Treasury’s paper on “Financing the Sustainable Economy” — first published in May 2020 and subsequently revised and released recently — is a “foundational step” towards encouraging more long-term investments in sustainable economic assets, activities and projects in SA. It is aimed at increasing access to sustainable finance and stimulating the allocation of capital to support a development-focused and climateresilient economy.

Investor appetite: Due to

its role in capital distribution, the financial services sector is integral to achieving sustainable development. Generally speaking, institutional investors and asset managers in SA recognise the importance of ESG and are taking steps to improve the integration of ESG into their operations.

OVER THE PAST FOUR YEARS ALONE, THE VOLUME OF SUSTAINABLE FINANCE GLOBALLY HAS GROWN 15 TIMES Consumer considerations: ESG initiatives are being prioritised by the younger generation, both in terms of value-based investing and keen job satisfaction.

The next few decades will see the largest generational wealth transfer in history, from the baby boomers to millennials and beyond.

With this will come newly prioritised investment criteria, notably in where they choose to work, how they invest their funds, and who they select for business relations.

EP: What are the main sector classifications and are there any limits?

JW: The draft taxonomy classifies economic activities according to two objectives: those making substantial contributions to climate change adaptation, and those making substantial contributions to climate change mitigation.

The intention is that a further four objectives will, in time, become part of the draft taxonomy. These being sustainable use of water and marine resources, pollution prevention, sustainable

resource use and circular economy and ecosystem protection and restoration.

The draft taxonomy identifies economic sectors in which identified economic activities can be measured according to internationally accepted norms and standards, and then lays down specific technical limits for maximum emissions and adverse impacts beyond which the activity cannot be regarded as “green”.

On the other end of the scale, it identifies the levels at which the activity can be credited as having positive climate adaptive or mitigatory effects.

Not all sectors are listed.

For example, mining is not mentioned in the draft taxonomy, while agriculture, construction, ICT, water and waste management, energy production and industry are.

The draft taxonomy is just that, a draft, and the Treasury has invited commentary specifically on “livestock and crop production” and “production of electricity, heating and cooling from gas”, which are not yet featured in the draft but are noted as areas for inclusion in future drafts.

EP: Will it help drive alternative power investments, and do you see growth in that area to take pressure off the national grid?

JW: The draft intends to assist and enhance critical investment opportunities for SA, in particular priority matters, such as energy and power.

It sets out explicit criteria for measuring and categorising the environmental impacts of producing electricity, heating and cooling from solar, wind, oceanic energy, hydropower, geothermal power, bioenergy hydrogen and renewable and low-carbon gases, and also in relation to the storage and distribution of power.

EP: How will this change the structuring of green finance instruments?

JW: The draft taxonomy aims to assist the financial sector with clarity and certainty in selecting green investments, in line with international best practice and SA’s national policies and priorities. It further aims to lessen the cost of these instruments.

We are seeing a significant uptick in sustainable linked loans (SLLs) and green bonds between corporates and financial institutions, so hopefully the draft taxonomy

will further these efforts, by establishing common terminology and criteria to measure the performance of parties to contracts, or the issuers of financial instruments.

EP: How fast is the green economy growing now? Is that fast enough?

JW: With government and corporate leaders embracing ESG principles, the lending market has exploded with a significant volume of SLLs and green bonds. Over the past four years alone, the volume of sustainable finance globally has grown 15 times.

Closer to home, green and ESG initiatives and the related financings are no longer a theoretical aspiration, but are at the forefront for governments, banks and corporates.

EP: Is this a fillip for investment?

JW: That certainly is the intention! Companies are increasingly devising green and sustainable strategies, incorporating them into their business strategies and aligning their funding mechanisms to their green and sustainable development commitments.

Entering into a green loan or SLL in this context has a number of wide-ranging advantages for borrowers and lenders, such as building stronger, values-based relationships with shareholders; having a positive impact on reputation and credibility; showing commitment to achieve sustainability goals with a correlated economic impact; promoting sustainable long-term growth and profitability; and increasing ability to attract and retain staff who see contribution towards achieving the UN Sustainable Development Goals as an important part of their lives.

EP: Is it a finished product, or can we expect more to come?

JW: The taxonomy working group intends on carrying out further work to expand the draft taxonomy and its use, including developing a transition taxonomy, which references “transition activities” that is, activities that support a transition to a green economy). This work should be completed by February 2022.

One area we feel needs to be addressed is the source and costing of the funds provided for these ventures by our financial institutions; in particular at a time when margins are already thin. A further incentive that could be considered is offering preferential treatment of SLLs or green bonds from a capital adequacy perspective or from a tax perspective.

EP: Is Africa behind the curve in green finance and how does this translate to African trade deals now that the African Continental Free Trade Area (AfCFTA) has been launched?

JW: With governments and corporates embracing and adopting ESG principles, the banking market has recently seen a significant number of green loans and SLLs — which we anticipate will increase steadily across Africa.

In pursuing growth in green finance, African economies have an added

CLIMATE CHANGE IS THE KEY ESG CHALLENGE OF THE COMING DECADES, WHICH WE EXPECT WILL BE A DOMINANT THEME challenge of needing to transition economies to being green while still pursuing industrialisation. This challenge will impact on how green finance is implemented across Africa.

The need for funding from developed countries to assist African economies in achieving climate resilience and green status is an important issue at COP26.

AfCFTA will have a significant impact on trade agreements, but we do not see this affecting the green finance industry at this stage.

EP: Interesting trends to watch in this space?

JW: Our expectation is that

incorporating ESG-linked financing terms will become part of mainstream financing transactions in the near future. Developments in other markets certainly point in that direction.

The main issue of concern for proponents of ESG is to move beyond the virtue signalling and bare-minimum compliance of “green washing” to a more proactive approach to ESG. Different approaches to ESG, make it difficult to compare performance. Added to this is a lack of capacity and expertise in ESG, requiring training on ESG integration.

However, ESG will become a core strategic concern for corporates, driven by exogenous and endogenous factors and pressures, including a shift towards a more stakeholder-inclusive capitalism.

Climate change is the key ESG challenge of the coming decades, which we expect will be a dominant theme as governments, investors, regulators and pressure groups increase engagements around climate change.

The trend of increasing pressure on companies and institutional investors to tackle ESG issues is likely to continue. We are hopeful the draft taxonomy can help codify and unlock some of these concerns.

Understandably, the “E” (environmental) aspect of ESG is receiving the bulk of investors’ attention. However, an interesting space to watch is the development of financing arrangements that address the “S” and “G” components of ESG. Once the basic structures for financially incentivising certain environmentally positive behaviours, and financially disincentivising environmentally negative behaviours, becomes more commonplace and more refined, such incentivisation and sanction of other socially positive or negative conduct by capital markets is inevitable.

One interesting question that arises is to what extent SA can, through the development of its own domestic taxonomy, drive investment activity that furthers its domestic and regional policy aspirations, or to what extent it and other African countries’ ESG agendas are dominated by more powerful markets via the global supply chain.

12

BusinessDay www.businessday.co.za November 2021

BUSINESS LAW & TAX

Can a BRP cancel entire agreements?

THROWING A LIFELINE

High court case reveals some potential limits on a •business rescue practitioner’s room to manoeuvre Lara Kahn, Ryan Smith & Sikelelwa Ndaliso Webber Wentzel

U

nder section 136(2)(b) of the Companies Act, business rescue practitioners can only cancel obligations under agreements that meet certain criteria, and not agreements in their entirety.

Section 136(2)(b) of the Companies Act, 71 of 2008 is a key tool for a business rescue practitioner (BRP) when engaging with creditors and onerous agreements that the company has concluded before the commencement of business rescue.

It has become apparent that, in practice, the full extent of the powers afforded to a BRP in this section are often misunderstood.

Section 136(2)(b) provides that: “Despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any obligation of the company contemplated in paragraph (a)” (our emphasis added).

We address below certain key aspects of this section.

In our experience, BRPs are often quick to suggest that if an amicable cancellation cannot be agreed, the courts will be approached to terminate the agreement. This veiled threat is often based on the assumption that a court will always come to the aid of a BRP seeking to implement a restructuring for the benefit of all stakeholders, leaving the disgruntled party with nothing more than a damages claim (which is, in turn, often compromised).

While it is true our courts generally lean towards supporting business rescue rather than liquidation, it is not a given that a BRP can exit an agreement in toto. The right to approach a court is only in respect of the cancellation of obligations which meet certain criteria, not in respect of entire agreements.

As a starting point, for urgent relief under this section, the BRP must show: ● The application is urgent; ● The contract giving rise to

CERTAIN CONTRACTUAL OBLIGATIONS MAY FALL DUE ONLY AFTER BUSINESS RESCUE HAS ENDED

the obligation that is sought to be cancelled was in existence at the start of the business rescue proceedings; ● The obligations sought to be cancelled fall due during the business rescue proceedings; and ● It is just and reasonable in the circumstances that the obligation be cancelled, whether entirely, partially or conditionally.

These requirements could potentially be problematic for a BRP who is seeking to implement a plan to ensure the current legal entity in rescue continues to exist.

Certain contractual obligations may fall due only after business rescue has ended.

Examples can include obligations relating to warranties, indemnities or defects. In these events, a court is not empowered to provide the relief sought by a BRP under this section in relation to these obligations.

This creates a fundamental issue in that the BRP may well successfully terminate most of the obligations of a company under an onerous agreement, but will be unable to terminate other obligations which will survive business rescue. These types of obligations often arise at some unknown future point, and could prompt substantial

/123RF — MAXXYUSTAS claims after completion of the business rescue process.

In the recent unreported case of Du Toit and Others v Azari Wind Proprietary Limited and Others (8825/2021) [2021] ZAWCHC 168 (August 4 2021), judge Matthew Francis was asked to consider several issues relating to section 136(2)(b) of the Companies Act. The court took the view that to succeed a BRP who approaches a court in terms of section 136(2)(b) of the Companies Act has to provide a legal and/or factual basis that the elements set out above have been met.

The court held that since the cancellation of an obligation in terms of section 136(2)(b) of the Companies Act is a court-sanctioned cancellation and the obligation cannot be revived in the ordinary course, if the business rescue process does not succeed, it is incumbent on an applicant to identify precisely which obligation ought to be cancelled and provide a proper explanation why such a drastic measure is necessary.

In this case, it was held that apart from identifying in

general terms the obligations to be cancelled, the applicants failed to demonstrate that the obligations they sought to be cancelled would become due during the business rescue proceedings.

The findings in this matter highlight an important aspect of the limitation of the BRP’s powers under section 136(2)(b). A BRP cannot simply approach a court, refer to obligations that it wishes to cancel and expect

A BRP IS NOT EXEMPT FROM FOLLOWING THE NORMAL PROCEDURE FOR GETTING URGENT APPLICATIONS INTO COURT relief, even if the relief would assist the business rescue process. The obligations, apart from having to meet certain other requirements, have to be obligations that would otherwise become due during the business rescue process. If not, they

cannot be cancelled and the company will remain liable.

The second issue of importance the court decided was the statutory right to approach the court urgently.

While it is often assumed business rescue matters are inherently urgent due to the nature of the process, the court in this matter found that, despite the reference in the section to approaching court urgently, the BRP was still required to make out a proper case for urgency. A BRP is therefore not exempt from following the normal procedure for getting urgent applications into court.

Although Francis ultimately found that in the context of business rescue proceedings there was no merit in the contention that the matter was not urgent, his judgment serves as a warning to BRPs not to assume their statutory right to approach the court urgently is assured.

Furthermore, a BRP’s right to cancel agreements in toto is potentially limited and these limitations must be properly taken into account when preparing a business rescue plan.

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