National Credit Act matters must go through the much cheaper – and more accessible – magistrates’ courts. From Moneyweb.

A recent judgment by a full bench of the Grahamstown High Court makes it unlawful for banks to bring National Credit Act matters before the high court instead of the much cheaper magistrates’ courts.

Lawyers have complained for years that banks were attempting to financially ruin their customers by forcing them into the high courts in an effort to collect on outstanding debts. They also argue that forcing customers into high courts – often far from where they live, a practice known as ‘forum shopping’ – is a further prejudice intended to stack the deck against a customer in default.

Apart from being financially ruinous for customers, it is also a denial of access to justice.

This recent judgment means lenders no longer have that luxury of suing in high courts. Though the judgment is confined to credit agreements falling under the National Credit Act (NCA), a minority ruling by Judge Mbulelo Jolwana called for all civil actions and applications to be instituted in the magistrates’ courts to give effect to the constitutional right of access to justice.

Easier and less costly to mount a defence

Disputes over credit agreements must now be argued in magistrates’ courts, where the allowable scale of legal costs are a fraction of that in the high court. Customers being sued by the banks can argue their own cases without legal representation in magistrates’ courts and will not get lumbered with huge legal bills from the opposing side should they lose the case.

The full bench was asked by the Judge President of the Eastern Cape High Court in Grahamstown to deliberate on several cases involving Nedbank, Standard Bank, Ford Credit and Wesbank. All of the cases involved unopposed matters brought by the lenders seeking default judgment against clients. The Judge President asked the full bench to consider why the high court should entertain matters that properly belong in the magistrates’ courts.

The banks argued – without success – that in matters where the magistrates and high courts had “concurrent jurisdiction”, forcing them to bring matters to the magistrates’ courts would infringe their right of access to justice. The judges did not agree.

The Black Lawyers Association and the minister of justice and correctional services were admitted as friends of the court.

‘Major victory’

Consumer lawyer Leonard Benjamin says the judgment is a major victory for consumers and tilts the scales of justice in their direction. “A majority of foreclosures and repossessions are unopposed, which allows banks to get judgments which could be based on defective cases and incorrect information.

“I believe that the main reasons why consumers do not oppose the banks are because of their use of the high court. They are inaccessible because they have unfamiliar procedures, are intimidating and located far away.”

Most consumers do not put up a fight against the banks, believing they do not have a defence. But this is incorrect.

Benjamin says when it comes to foreclosures, not opposing a claim by the bank is a waiver of your constitutional rights. “Where your primary residence is under threat, even if you are in default, the court must consider relevant circumstances before granting the bank an order that will allow it to sell your home to recover its debt. The court must give special consideration to how granting the judgment will impact on children, the aged, the sick and disabled, and women-headed households.

“The court does not know what your circumstances are unless you tell the court. Hopefully, for consumers who defend themselves it will be easier and less intimidating to appear in the magistrates’ courts.”

The NCA came into effect in 2007 with the clear intention that all NCA matters (credit agreements) should be dealt with in the magistrates’ courts. The Magistrates’ Court Act was amended to allow all NCA matters, regardless of the amount claimed, to be heard in the lower rather than the higher courts.

However, some of the banks argued successfully that nothing in the NCA amounted to an express ousting of the high courts’ jurisdiction.

Although they could easily have brought foreclosures and repossessions in the magistrates’ courts, for more than a decade the banks sued consumers in the high courts. There is little doubt that this was a strategy employed to make it as intimidating and expensive for consumers to oppose the litigation.

The reason is not difficult to fathom: the banks’ lawyers make little or no money arguing cases in the lower court.

They avoid it like the plague. They are, as we previously reported, fighting for their lunch.

Read: Lawyers fight for their lunch in abusive lending case

Indicative of this is the banks’ favourite ploy of suing consumers living in Johannesburg in the Pretoria High Court. For those defending themselves, this adds a layer of unnecessary and unwelcome expense: a round trip just to serve and file court proceedings costs between R200 and R300 each time. This is quite apart from the costs of hiring lawyers, which left consumers in a dilemma: pay the lawyers’ fees or try to catch up on the bond and forestall legal proceedings?

Benjamin says the high costs of mounting a legal defence means most cases involving the banks go undefended. After this recent judgment, that should no longer be an issue.

“Late last year a bench of the Pretoria High Court seemed to have brought an end to the practice of banks suing in the high courts rather than the magistrates’ courts,” says Benjamin. “Holding that it was an abuse of the courts and denied consumers access to justice, the court gave a directive that after February 2, 2019, all NCA matters should be brought in the magistrates’ courts unless the bank had been granted leave to sue in the high court, for instance, if the issues were complex.”

This proved to be a pyrrhic victory as banks continued suing their customers in the higher courts, but without the courts’ leave. It was business as usual, with Johannesburg customers being sued in the Pretoria High Court instead of the Johannesburg Magistrates’ Court.

The Grahamstown judgment will make this more difficult.

New powers to enforce recommendations and chase down stolen money should help. From Moneyweb.

It is astonishing to read in the Auditor-General’s (AG’s) 2019 consolidated general report that public entities spent R1.747 trillion in the last fiscal year.

But perhaps it shouldn’t be that surprising, given the 2019 national budget estimated spending of R1.665 trillion for 2018/19, which amounts to 33% of GDP.

If we take the AG’s figures, the public sector is gobbling up 34.5% of GDP – and this figure is growing each year. That should concern us.

It should also concern us that more than a third of the national budget is going on salaries.

The 20 state-owned entities (SOEs) audited by the AG spent R347 billion in the last financial year.

Irregularities defined

At a media training session this week, representatives from the office of the AG explained the audit process followed, as well as the AG’s new powers to curb the alarming trends in irregular spending and material irregularities.

The two have quite distinct meanings:

• Irregular spending (SI) is where there is non-compliance with legislation leading up to payment. For example, awarding a contract without a competitive bidding process. Everything paid out to the winning bidder will then be deemed irregular, even though the service was delivered as promised. In the last year, irregular spending amounted to R62 billion, up from R51 billion the previous year.
• A material irregularity (MI) is where there was non-compliance with the law but goes a step further than IS to embrace fraud, theft and actual loss. For example, where an uncompetitive bidding process results in the award of a contract for R20 million when the same service could have been delivered for R18 million, resulting in a loss of R2 million.

In the last financial year the AG identified 28 material irregularities, representing a financial loss of R2.8 billion, of which R2.2 billion was logged to the Passenger Rail Agency of SA (Prasa).

“A prepayment of R2.6 billion was made to the supplier, but the auditee [Prasa] derived no value as the locomotives were not fit for purpose,” says the AG report. The supplier filed for liquidation in December 2018, dashing any hopes of financial recovery. The contract was set aside by the court in May 2019 after the matter was referred in 2015 to the Directorate for Priority Crime Investigation (the Hawks).

The greatest offender in terms of the number of material irregularities was the Department of Human Settlements in the Free State where contractors were paid for work not done, or duplicate invoices were paid out, and in some cases, retention amounts were paid out unlawfully.

In one instance, nearly R33 million was squandered after contractors were paid for work not done.

In another, the Gauteng Department of Health lost R149 million over an IT project for which no competitive bids were invited.

New powers

In terms of amendments to the Public Audit Act passed this year, the AG can now refer these matters to the police, the public protector and the special investigations unit, and recommend remedial action with timelines.

If no action is taken by the stipulated date, the AG must take action itself and instruct the accounting officer at the public entity to quantify and recover the loss. If that fails, the AG must issue a certificate of debt to the accounting officer or the relevant accounting authority. It then falls to the minister or other executive authority to recover the loss.

How this works in practice remains to be seen, says Alice Muller, national leader of audit services at the Auditor General of SA (AGSA). “Private auditors only have to comply with the Companies Act. We, as public auditors, have more legislation that must be complied with.”

This includes the Public Audit Act, the Public Finance Management Act and the Municipal Finance Management Act. And that’s not counting a tower of accounting and audit standards.

Muller believes state recoveries will increase 10-fold as a result of the new powers in terms of the Public Audit Act.

Drilling deeper into the material irregularities we learn that 39% of the cases involved unfair or uncompetitive procurement processes resulting in R438 million in overpriced goods or services. Another 39% of cases involved goods and services not delivered. And in 11% of cases, invoices were not paid on time.

Releasing the report last week, Auditor-General Kimi Makwetu said it was encouraging that unauthorised expenditure had declined by 23% from the previous year.

That’s where the praise ended.

In actuality, 74% of government departments had insufficient funds to settle their liabilities. This means they start the new financial year with part of their budget effectively pre-spent.

Fruitless and wasteful expenditure swallowed R849 million in the last financial year but swells to R4.16 billion over the last five years. The AG report also shows irregular expenditure in SOEs audited by private audit firms was R57 billion, of which R49.9 billion was at Transnet and R6.6 billion at Eskom.

Overall, audit outcomes across public entities regressed since 2015, with only 26% of auditees earning clean audits.

No state-owned entity managed to receive a clean audit.

The SA Post Office regressed, receiving a qualified audit opinion, and the Development Bank of Southern Africa received a financially unqualified opinion. Some SOEs enterprises were struggling to produce financial statements demonstrating their going concern status.

Makwetu recommends stabilising leadership at SOEs so they can tighten controls and implement action plans.

Given the parlous state of public finances, the AG’s new powers of enforcement will be a vital tool in reining in spendthrift public entities. And there’s every likelihood accounting officers and others involved in corrupt practices will end up in prison within the next 12 months.

The arrest of a sitting ANC MP is an important development, and more are expected. From Moneyweb.

Former state security minister Bongani Bongo was arrested by the Hawks on Thursday and appeared in the Cape Town Magistrate’s Court before being released on bail.

He was accused of interfering in a state capture inquiry at Eskom in 2017, when he allegedly offered a bribe to Advocate Ntuthuzelo Vanara who was leading evidence at the inquiry. The apparent purpose of the bribe was to deep-six the inquiry.

Read: Former minister arrested on corruption charge

Bongo shot from obscurity in Mpumalanga to sitting ANC MP in the last three years. He got the call from former President Jacob Zuma in October 2017, offering him the role of minister of state security – a key position that gave him unrivalled intelligence on Zuma’s enemies.

He had been investigated by the Hawks for alleged corrupt land transactions in Mpumalanga, during his time as legal advisor in the provincial government, according to City Press.

Land valued at R55m allegedly sold for R124m

The Hawks claimed he drafted the contracts for the purchase of several farms by the Mpumalanga human settlements department, which ended up paying R124 million for land that was valued at just R55 million. The land conveyancer reportedly then transferred R300 000 to BMW Sandton as a deposit for a vehicle purchased in the name of Bongo’s brother.

Given his history of dubious dealings, many were shocked when he was appointed as recently as June this year as chair of the National Assembly’s portfolio committee on home affairs.

He was one of a string of Zuma loyalists linked to the Guptas and state capture who now head up parliamentary committees.

Many of them must now be wondering when the Hawks will come knocking on their doors.

The Hawks are reportedly about to pounce on several more officials over a R630-million toilet tender fraud in the Eastern Cape. Independent Media reported that Goodman Ntandazo Vimba, CEO of the Municipal Infrastructure Support Agent, will appear in court next February after being released on bail this week. He is one of ten people expected to face arrest for the tender irregularities.

But by far the biggest fish caught in the Hawks’ net so far is Bongo.

The ANC has declined to take action against him as the matter is still before the courts, but Bongo has levelled accusations against Public Enterprises Minister Pravin Gordhan as the man behind his arrest – a claim rejected by Gordhan.

We can get some sense of the man from the ‘High-Level Review Panel on the State Security Agency (SSA) and Related Matters’, published in December 2018. It is clear this agency was the source of untold friction in the country and the ruling party.

The report does not cite Bongo by name, but this can be inferred from his tenure as minister of the SSA between August 2017 and February 2018, when he was removed by President Cyril Ramaphosa. He was known to be close to the Guptas and held a crucial position of power in an agency that had been commandeered in the service of waging war on Zuma’s enemies.

Read: Ramaphosa’s ‘poisoned chalice’ 

Bongo was the latest in a long line of Zuma loyalists to occupy the position. Current Deputy Minister of Human Settlements, Water and Sanitation, David Mahlobo, was his predecessor and is said to have initiated an inquiry into whether former Public Protector Thuli Madonsela, who was herself investigating state capture at the time, was a spy.

“It is astonishing that Bongo still occupies a position in the home affairs portfolio committee,” says Thami Nkosi of Right2Know. “The ANC has been rolling the dice on corrupt Zuma-era members, hoping the noise dies down. That doesn’t seem to be happening. I think what might be unfolding here is a gradual purge of Zuma loyalists.

“It’s a good sign that the Hawks are going after Bongo, but he is low-hanging fruit. There are bigger fish to catch in the ruling party.”

The review panel found the SSA was subject to political interference, and often ended up as a pawn of the ruling party, rather than serving the intelligence needs of the country. The agency became politicised over a period of ten to 13 years and “has become extensively embroiled in the politics and factionalism of the ruling party,” says the report.

One of the questions the panel investigating the agency considered was whether SA needed a minister of intelligence at all.

This has been discussed for the better part of two decades, and was considered necessary to drive transformation in the intelligence services. The transformation drive has been a remarkable success, to the point where the agency became a tool of a faction within the ruling party. And Bongo squatted in the middle of this.

It started with the hoax email saga in 2005 when elements within the National Intelligence Agency (NIA, which has since been subsumed into the SSA) advanced bogus intelligence in the form of emails and chat messages suggesting a conspiracy against then-deputy president Jacob Zuma. Despite this being debunked by the Inspector-General of Intelligence (IGI), elements within the ANC refused to believe the IGI.

Factionalism became rife when Zuma took over as president, and the influence of the Guptas started to bleed from their home in Saxonwold to the highest office in the land – and just about everything in between.

The Oath of Allegiance that SSA members are expected to take requires members to swear allegiance not just to the Constitution and the laws of the country, but also to the president. It further requires them to “recognise the authority of the Minister of State Security”.

‘Temporary advances’ were like ATMs

The report suggests that financial controls in the SSA were loose, as most of the agency’s transactions are done in cash to hide their origin. Cash disbursements are made by a system of ‘temporary advances’ and agents are supposed to return unused amounts and reconcile the transaction before applying for a new one. But this appears to have been widely abused. Even where agents were required to settle temporary advances by deducting from their salaries, the amounts were so large (running into millions of rands) in some cases that they could not realistically be settled. Others left the agency before they could settle what they owed.

An amount of R17 million was stolen from a safe at the SSA in 2015, but the culprits were not brought to book – despite being identified by video.

Civil society groups Organisation Undoing Tax Abuse (Outa), Right2Know and Corruption Watch have welcomed Bongo’s arrest.

“Bongo was put in charge of the State Security Agency by Jacob Zuma to keep an eye on intelligence gathering and to spy on Zuma’s opponents,” says Nkosi. “We know that Zuma was handed an intelligence report suggesting there were people in the ANC who were intent on staging a revolt. This was a case of using state resources to do the ANC’s dirty work.

“Under Bongo’s tenure, the SSA was co-opted as an organ of a faction of the ruling party, to the neglect of the national interest.”

Says Outa CEO Wayne Duvenage: “We’re following the [case of Bongo’s arrest] with interest, as we are following all cases where the rule of law is unfolding against others in authority who have been involved in corruption. This matter and others unfolding now and into the future is significant to instilling confidence into SA’s future and the need for accountability.”

The fact that Bongo is a sitting ANC MP is a positive development, as his arrest would not have happened in the Zuma era, adds Duvenage. This gives the country confidence that the rule of law is able to flow without political interference.

Heinous

“There can surely be no more heinous act of political corruption than a sitting MP and cabinet minister offering a bribe to an officer of parliament, specifically in order to undermine parliament’s core function of holding the executive to account. If Bongo is convicted we trust he will face the full might of the law,” said David Lewis, executive director of Corruption Watch.

“While we welcome the Hawks’ investigation and prosecution of Bongo, the real hero is Advocate Vanara, a true officer of the court and a person of integrity,” Lewis said. “The institution that comes out worst in this whole sordid saga is the governing party, the ANC. Bongo already had this massive cloud hanging over him when he was placed on the ANC parliamentary list. Salt was then rubbed into the wound by making him chair of the important Home Affairs portfolio committee.”

There are many more like him serving in parliament, said Lewis, and they too should be removed.

R19 billion owed to beneficiaries in metal industry. From Groundup.

More than half the unclaimed benefits of R42 billion owed to roughly 4.2 million former workers are bottled up in just two trade union-affiliated pension schemes.

This is one of the findings in a recent report into unclaimed benefits entitled The Bottom Line by non-profit organisation Open Secrets. The amount of unclaimed benefits owed to former workers rises to more than R51 billion if funds falling outside the Pension Funds Act are added.

The fund with by far the largest amount of unclaimed benefits is the Metal Industries Benefit Fund with nearly R19 billion, followed by the Mineworkers Fund with R4.3 billion. These numbers are from a 2017 report on unclaimed benefits from the Financial Services Conduct Authority, or FSCA (formerly the Financial Services Board).

Administrators earn huge fees on these unclaimed benefits, which would disappear if the beneficiaries were to be located and paid out.

GroundUp asked for comment on the Open Secrets report from the regulator, the FSCA, and two administrators, Liberty and Alexander Forbes. Only Liberty responded.

Tiaan Kotze, managing executive of Liberty Corporate, said the problem of unclaimed benefits is decades old and not unique to South Africa. He said workers often left employment unaware that they have pension benefits owing to them. The administrators responsible for safekeeping fund members’ personal data often kept poor and incomplete records, he says. For example, many members were identified by their initials and surnames, rather than their full names. Nor, apparently, was there much effort to keep a record of forwarding addresses, which was a particular problem when workers went back to the rural areas or neighbouring countries. They simply disappeared off the radar, says Kotze.

Benefits Exchange allows those who believe they may have unclaimed benefits to do a free search, and claim a 12% success rate on search requests. The FSCA also has an unclaimed benefits database search facility. Benefit Exchange founder Sean Rossouw says by far the greatest culprits in dragging their feet over the tracing of beneficiaries and payment of unclaimed benefits are the trade union-affiliated funds which are not administered by large third-party administrators.

“These funds account for about 80% of all unclaimed benefits,” he says. “Some administrators such as Liberty are far more diligent in tracing beneficiaries than others. The reasons some are more lethargic than others is obvious, he adds: if they were to be too successful in tracing beneficiaries, some administrators might be out of a job as the fees they earn from active fund members would not carry their operating costs.

“Our experience with the trade union-administered funds has been frustrating for many claimants. We have done searches on behalf of former members that show they are entitled to benefits, yet when they then approach the administrators directly, they are told there is no record of them on file.”

“Our impression is they are not trying very hard to assist former members and poor staff quality and training results in valid claims not being processed,” says Rossouw.

Where fund administrators have been tracing members of funds, the processes have remained the same for more than 15 years. Meanwhile, the amount of unclaimed benefits increases every year. Rossouw believes that it is critical that fund administrators and trustees try alternate tracing methods to complement existing processes.

In addition, poor membership records mean the unclaimed benefits will continue to increase. “It is time for the FSCA to implement data quality requirements and audits which is the practice in the United Kingdom,” adds Rossouw.

Administrators charge up to R12 per member per month – or R144 per year. Liberty charges R10 per member per month for administration, and 0.6% annually on long-term funds invested. By way of comparison, a typical fee on a commercially available retirement annuity is between R60 and R80 a month for administration, and 1% annually to the manager who invests the funds.

For the millions of claimants with relatively small unclaimed benefits, these fees can quickly gobble up whatever meagre benefits they are entitled to.

Often administrators do not earn fees when a member leaves employment and is no longer an active member of the fund. One way for administrators to start earning fees again is to move these “dormant” members into an unclaimed benefit preservation fund after two years, and then to drag their feet in tracing the beneficiaries.

“We’re not trying to make secret profits on unclaimed benefits,” says Kotze of Liberty Corporate, one of the largest administrators in the industry, with R2.2 billion in unclaimed benefits. In the last two years it paid out R270 million in unclaimed benefits to roughly 39,000 claimants.

Kotze says Liberty has more than 50 people in the company working full time at tracing beneficiaries in old funds and getting benefits paid to members. The company also uses the services of outside tracing agents.

SA had about 13,000 retirement funds at the time the Financial Services Board (which later became the FSCA) began a project to deregister funds about 12 years ago. Of these, about 6,700 were administered by Liberty. The number of funds has since been whittled down to about 5,000, of which 1,300 are administered by Liberty.

“This was done because the cost of administration is a huge financial burden to the industry,” says Kotze. “To the best of my knowledge, Liberty is the only administrator to engage with the Unclaimed Benefits Campaign (which lobbies on behalf of beneficiaries owed money in these funds), assisting them to reclaim benefits that remained unclaimed.”

“The unclaimed benefits in funds administered by Liberty account for about R2 billion of the R42 billion of unclaimed benefits across the industry. We are fully committed to paying the benefits to members of these funds and are investing significant resources into enhancing our tracing and payment capabilities,” says Kotze.

Pensions fund whistleblower Rosemary Hunter says Liberty asked the Registrar of Pension Funds to cancel the registrations of 130 funds with assets of some R110 million. The company later applied to the court to set aside the cancellations of 25 of them and that application was granted in March 2018.

“The problem is that while all this delay is happening, beneficiaries could well be dying,” says Hunter. “Liberty said that it was going to be making several more applications to court for the reinstatement of the registrations of the remaining 105. But then it didn’t do it.

“There is still no sign of more applications by Liberty and the fear now is that it is waiting for an amendment to be made to the Pension Funds Act to allow the FSCA to reinstate the funds so that it can be done quietly and without the necessity to explain why the funds’ registrations had been cancelled in the first place. In the meantime those entitled to the money held by those funds get older and no doubt some of them have died and more will die before the funds’ registrations are reinstated and board of trustees or curators are appointed to make sure that their assets and liabilities are disposed of properly.”

Kotze replies: “Over the course of 2007-2013 the South African pension fund industry embarked on a wide-scale project to deregister dormant retirement funds. Following a review of systems and processes, Liberty identified approximately 130 funds that were deregistered in error. Liberty has successfully re-instated 25 of these funds via the High Court and is working with the regulator and trustees to allow for benefits to be paid to members as soon as possible.”

Liberty says those who believe they are entitled to unclaimed benefits can access the Liberty Unclaimed Benefits service.

Thousands who can again pay their bills can get out from under the heel of debt review. From Moneyweb.

A recent judgment by a full bench of the Johannesburg High Court paves the way for thousands of consumers under debt review to rehabilitate themselves. The judgment is good news for those who went under debt review without a magistrate making it an order of court.

Provided they have settled their short-term debt obligations, but not their mortgage or other long-term debts, they can ask their debt counsellors to issue a so-called clearance certificate and have their credit records sanitised at the credit bureaus.

This means they can once again access the credit market.

And: Too many South Africans are slaves to debt

But for others with a magistrates’ court order placing them under debt review, the path to redemption is more arduous. The National Credit Act introduced the concept of debt review to assist overindebted consumers and to freeze any legal action against them. However, they are shut out of the credit market until released from debt review.

The applicants in the case were Hermanus Janse van Vuuren and Fabrian Nel; both are consumers who ended up under debt review but whose circumstances changed, allowing them to service their original credit agreements.

Their debt counsellor, however, refused to issue them clearance certificates so they decided to seek clarity from the court.

According to the court papers, Van Vuuren applied for debt review in 2015. A year later his financial position had improved to the point where he could repay his creditors on the original terms of the agreements, without relying on the relaxed repayment schedule allowed under debt review.

Van Vuuren asked his debt counsellor, Neil Roets, to take the necessary steps to release him from debt review. Roets refused, replying that he could not issue a clearance certificate, nor could the magistrates’ court release him from debt review. His only avenue of relief was to approach the high court.

Fabrian Nel also applied for debt review in 2016, also with debt counsellor Roets, who notified debtors and credit bureaus that Nel was overindebted. The difference in Nel’s case was that no order was ever made by a magistrate, though Nel maintained his repayment schedule as agreed with the debt counsellor. In July 2017, Nel voluntarily withdrew from the softer debt review repayment schedule and resumed payments to creditors in terms of the original agreements.

Both Nel and Van Vuuren argued that they were trapped in debt review despite their ability to assume normal repayments.

This had the effect of barring them from accessing further credit, despite their evident ability to repay their loans. The key benefit of going under debt review is that any legal action against the overindebted consumer is stalled.

The Banking Association of SA (Basa), the National Credit Regulator, the Law Society of SA and debt counsellor Michelle Barnard were admitted as friends of the court.

The respondents were Neil Roets, RCS Cards, Edcon, Standard Bank and Tenacity Financial Services.

Jurisdiction

The respondents argued that the high court had no jurisdiction to release Nel and Van Vuuren from debt review.

The high court examined the different ways a consumer may enter debt review: when a consumer voluntarily approaches a debt counsellor, or when a creditor leans on a credit agreement when a consumer claims reckless lending or overindebtedness.

The National Credit Act (NCA) has been widely criticised for poor wording, and a full bench of the high court had to wade through its arcane language to determine whether the applicants’ cases had merit.

The NCA allows a debt counsellor to issue a clearance certificate when the consumer has settled all obligations covered by the debt review, or shows they are able to cover future liabilities – including mortgage or other long-term obligations – provided other credit agreements have been settled in full.

The purpose of this clause is to allow a consumer to exit the debt review process once shorter-term debts have been settled, but without having to pay up a 20-year mortgage bond or other long-term debt.

If a debt counsellor decides not to issue a clearance certificate, the consumer can approach the Consumer Tribunal for a decision. The tribunal can then order the debt counsellor to issue a clearance certificate, which must then be distributed to the credit bureaus and the National Credit Register.

Conflicting clauses

Basa pointed out that there are conflicting clauses in the NCA, which allow a consumer to exit debt review but still be frozen out of the credit market.

There is also conflicting case law around debt review. The full bench of the high court rejected the argument that the high court had jurisdiction to release consumers from debt review. The magistrates’ courts and the Consumer Tribunal, with recommendations from the debt counsellor, are the only routes available to consumers.

Consumer lawyer Leonard Benjamin says “as with many of the matters involving interpretation of the NCA, the issue is so self-evident that it is difficult to understand why it reached a point that needed a full bench judgment.

The judges made no order as to costs.

Makes debt review even more unattractive

“As I see it, the import of the judgment makes debt review even more unattractive than it already is and makes it more likely that credit providers will withdraw from the debt rearrangement in terms of Section 88(3) of the Act.

“The way to get out of debt review when there was no order [by a magistrates’ court] was to get the application set down after supplementing it with new facts that show that you are no longer overindebted, but historically magistrates would dismiss the application. I think this was why this matter ended up before the court, as the debt counsellor refused to issue the clearance certificate.

“The value of the judgment is that there was previously great uncertainty regarding the exiting of a debt rearrangement order. In some cases, the route followed was to rescind the judgment by showing ‘good cause’, but it was hit or miss.”

How to exit debt review

The judges ruled that the High Court had no power to release consumers from debt review. In Nel’s case, though his debt review has not been made an order of court, his debt counsellor will have to approach the magistrate with the facts of his changed financial position and the magistrate “must conclude, logically, that Nel is not over-indebted,” reads the judgment.

Van Vuuren’s case is different because he went under debt review by way of a court order. In his case, the debt counsellor must issue a clearance certificate. If the debt counsellor fails to do so, he must approach the Consumer Tribunal, which can then instruct the debt counsellor to issue a clearance certificate.

The judges found that no court can order a release from debt review.

Financial damage is diminishing as services are gradually being restored. From Moneyweb.

SAA has resumed flights to its eight international and six regional destinations, as the impact of the pay-related strike launched last week appears to have been contained.

At a press conference at Airways Park near OR Tambo Airport yesterday, airline executives outlined the progress made in resuming services since the strike commenced on Friday last week. Roughly 200 of the 1 000 striking workers returned to work in the last few days. This strike was costing the airline about R50 million a day, but the financial damage has diminished as services are gradually being restored.

SAA’s Acting General Manager for Human Resources Martin Kemp said roughly one-fifth of the 5 000 airline employees had gone on strike. That number reduced as the airline adopted a ‘no work no pay’ approach to strikers.

This is a high stakes gamble for both sides in the dispute. A drawn-out strike could sink the airline, which has accumulated losses of R28 billion over the last 13 years, and this would put thousands of employees out of work.

Public Enterprises Minister Pravin Gordhan said yesterday there will be no more bailouts for the airline, which has received R20.5 billion in fiscal support in the last three years. A successful and quick resolution of the strike is vital for the financial stabilisation of the company, according to Interim CFO Deon Fredericks.

A representative of the Commission for Conciliation, Mediation and Arbitration (CCMA) has been parachuted in to assist in negotiations with the trade unions which, in addition to demanding an 8% pay increase, have introduced new demands in recent days relating to the restructuring of the airline and the in-sourcing of services currently supplied by contractors. The airline’s opening pay offer to workers was 0%, but has since increased to 5.9%, effective from March 2020.

The airline says it will approach the Labour Court to prevent the striking trade unions – the National Union of Metalworkers (Numsa) and the South African Cabin Crew Association (Sacca) – from introducing new demands. as these were not part of the initial dispute.

Acting CEO Zuks Ramasia said statements by the trade unions questioning safety standards at the airline “are deeply regrettable, untruthful and without foundation. In response, SAA is taking appropriate legal action for these statements to be retracted.”

Captain Mpho Mamashela, acting chief pilot and fleet captain, said safety standards at the airline are given the highest priority, with pilots averaging 17 to 20 years’ experience in the cockpit.

Fredericks said if the airline were to accede to the unions’ 8% wage demands this would cost an additional R240 million over the next three years. “This not something we can afford.”

“The most critical time in the turnaround of the airline is in the next two years. We’re open to negotiation (on pay increases) on longer time frames.”

Ramasia called on striking employees to return to work. “After all, our customers contribute to our salaries and it is only through their confidence and custom that we can secure the future for SAA and ensure our essential contribution to the country’s economy.”

The strike comes at a time when the airline is attempting to negotiate a R2-billion lifeline, guaranteed by National Treasury, from a consortium of banks to cover working capital requirements over the coming months. Fredericks says the airline’s debt currently stands at R9.2 billion, soon to be augmented by the R2 billion working capital loan.

The airline has also saved R600 million by overhauling its procurement. Most of this was achieved by cutting out middlemen and cancelling less vital contracts.

Further savings are expected by almost halving the time it takes to service a plane in SAA’s Technical division to 35 days.

SAA’s ageing fleet is getting an injection of four Airbus A350s, which should save R140 million a year per plane on long-haul flights.

Strike contingency plans have been in place to re-accommodate up to 11 000 daily passengers on alternative and partner airlines, such as Mango, Airlink and SA Express.

SAA chairperson Thandeka Mgoduso says the board has the support of the government in the “tough choices” that have to be made to return the airline to profitability.

Fredericks says talk of introducing an equity partner to the airline could only be considered when the airline returns to financial stability.

Plans to march to Parliament. Part 1 of a 2-part story from Groundup. Also published at Fin24.

A campaign to reclaim billions of rands in unclaimed benefits is about to kick into high gear. The Unclaimed Benefits Committee (UBC), representing a group of claimants, and non-profit organisation Open Secrets, are planning to lobby Parliament.

“We will also be calling for a boycott of finance companies involved in withholding benefits,” says Thomas Malakotse, a member of the UBC steering committee. “The fund administrators have been making secret profits for decades by charging fees on these unclaimed assets, and they are accountable to no-one.”

The group plan to march to Parliament early in the new year.

In a recent investigation, Open Secrets found there was R42 billion in unclaimed pension benefits owed to more than four million South Africans, a country where 44% of pensioners live in poverty. If one adds funds not subject to regulation and supervision in terms of the Pension Funds Act, the amount of unclaimed benefits is closer to R51 billion.

Billions then in the financial system belong to people who have yet to be tracked down. Nor does there seem to be much serious effort going into tracking them down. Michael Marchant of Open Secrets says he is surprised that the damning report has not elicited a response from the Financial Services Conduct Authority (FSCA) which is the regulatory body in charge of pension funds (previously the Financial Services Board). Malakotse says the UBC has no intention of allowing the report to be buried.

This is not a typical story of corruption, says the Open Secrets report. It says it stems from the perverse incentives built into the pension fund industry. The administrators – private companies appointed by the trustees – are responsible for chasing down unclaimed benefits but are also the ones who earn hefty fees on administering unclaimed benefits. So long as the pension funds remain unclaimed, the fund administrators can continue to extract fees, year after year.

These funds belong to millions of employees (and their families) who left their jobs, unaware that they had unclaimed pension benefits owed to them. Many of them returned to Zimbabwe, Malawi or other neighbouring countries, often decades ago, leaving their pension benefits behind.

In a discussion document entitled Unpaid Benefits for which Pension and Provident Funds in South Africa are Liable, former Financial Services Board deputy pensions director Rosemary Hunter outlines a few reasons why so many pensioners and their families are unaware of the benefits owing to them.

• failure by employers to inform employees that they were members of retirement funds
• failure to keep retirement fund members up to date on the state of the funds
• failure by members to inform their dependants that they had benefits owing to them
• the requirement that foreign workers leave South Africa after their work permits expire; and
• the practice of some foreign workers adopting different names to obtain work in South Africa.

Malakotse says it doesn’t surprise him that the regulator and the administrators have been sluggish in tracking down beneficiaries. “So long as the beneficiaries remain untraced, everyone makes billions on these unclaimed benefits.”

Based on a conservative charge of 3% a year for fund administration, these unclaimed funds could generate annual fees in excess of R1 billion for the administrators and asset managers.

The Open Secrets report provides a disturbing insight into pension fund practices, and comes after two fairly recent court cases involving pension beneficiaries attempting to hold companies and fund administrators accountable. Both cases – one involving Tongaat pensioners, and the other brought by Hunter – went against the beneficiaries.

In 2016, Hunter took her employer, the Financial Services Board, first to the High Court and then to the Constitutional Court over its deregistration of 4,600 pension funds, many of which still had funds in them. She lost her case in the Constitutional Court after a majority of judges decided that the Board had made efforts to investigate the extent of assets and liabilities in deregistered funds. The judges also argued that there were other remedies available to Hunter. The judgment has been criticised for failing to discharge the court’s constitutional obligation to adequately protect the interests of those prejudiced by cancelling funds.

Malakotse says the UBC has embarked on “a new strategic approach” to “make the FSCA and administrators accountable and transparent when it comes to cancelling funds”.

“We are 100% behind all beneficiaries who are still deprived of access to these benefits. My father was told that he did not qualify for any of his pensionable benefits since he started working in the mines from 1948 to 1975. To date, we are still deprived of access to his benefits. I have been sent from pillar to post by these mine administrators and the FSCA, who claim to have no records of my father. The UBC and Open Secrets will challenge all these administrators and the authorities until they accept their wrongdoing, show transparency, and return to the beneficiaries what is due to them.”

The Open Secrets report says more than 6,000 “dormant” pension funds have been cancelled since 2007, even though some of these still had assets and liabilities.

More than 4,000 of these funds were cancelled at the request of the fund administrators who were “appointed by the regulator to act as representatives or trustees”.

“In their capacity as trustees, they were obliged to make sure that the funds were indeed empty of assets and liabilities and that members were paid before submitting them to be deregistered, but this was often not the case.”

The assets in these cancelled and dormant funds were moved to unclaimed benefit funds held by the fund administrator. Since 2008, the assets of these unclaimed benefit funds increased more than R450 million to R8 billion. The fund administrators continue to earn generous fees on these assets.

“In 2019, well over 16 million South Africans belong to a pension fund. Of these, around 90 percent are members of over 5,000 privately administered pension funds, most of which are run by some of South Africa’s largest financial institutions,” says the Open Secrets report, entitled “The Bottom Line – Who Profits from Unpaid Pensions?”

“Every month, these people give up a portion of their earnings in order to secure a retirement and old age with dignity, and to provide for themselves and their dependents when they can no longer work. These hopes have been dashed for the millions who have not been paid the pensions that they are owed.”

Ciaran Ryan on SAFm talking about spying allegations and assassination attempts in the tobacco industry.

It has been served an access to information request by smaller players. From Moneyweb.

The tobacco industry can’t quite shake off its shady image.

Two months ago there was an assassination attempt on Zimbabwe-based Simon Rudland, CEO of Gold Leaf Tobacco, as he and his attorney were entering the driveway of the Johannesburg offices of the Fair Trade Independent Tobacco Association (Fita), which represents smaller cigarette producers.

Read: Tobacco wars turn deadly

When Moneyweb visited him at his Johannesburg factory a short while back, he stuck to his initial claim that a competitor was trying to rub him out. He survived the assassination attempt but now travels with a convoy of private bodyguards when in SA and has his own private investigators on the case.

This says something about the state of the cigarette business in SA. Johann van Loggerenberg’s book ‘Tobacco Wars’ lays out the field of battle and who the main players are. It’s a dirty business, but we’ll come to that in a minute.

On November 4 Fita served a Promotion of Access to Information Act (Paia) request on British American Tobacco SA (Batsa) to make public the findings of an investigation into the cigarette giant’s alleged conduct several years ago against its smaller competitors.

Read: Illicit tobacco trade: Cheap manufacturer fights back

In September 2016 Batsa announced that it had severed ties with forensic investigation firm Forensic Security Services (FSS), which has been accused of dirty tricks against smaller producers.

‘Rogue unit’

The ‘rogue unit’ supposedly operating within the South African Revenue Service (Sars) emanates from a mix of shady sources and contributed hugely to the state capture project, Van Loggerenberg told Moneyweb.

A former tax investigator for Sars, he was accused of being part of the rogue unit, a story now debunked (and for which the Sunday Times, Carte Blanche, KPMG and Judge Frank Kroon have apologised). It had all the elements of a counterintelligence operation, but the real purpose was to kill off a devastatingly successful investigation unit that had tightened the noose on criminals and big-time tax dodgers.

Van Loggerenberg estimates that the spiking of this Sars unit has probably cost SA R3 billion in tax revenue.

The rogue unit story was kept alive for years, and implicated Van Loggerenberg, fellow Sars officials Ivan Pillay and Andries Janse van Rensburg, as well as Public Enterprises Minister Pravin Gordhan, who was previously in charge of the tax agency. It was claimed the unit bugged the offices of senior politicians, including former President Jacob Zuma, and operated an illegal brothel. These claims have since been debunked. Gordhan has repeatedly claimed this rogue unit story was floated by those opposed to ridding the country of corruption.

According to Tobacco Wars, FSS recruited former cops and spooks ostensibly to stop illicit trading in cigarettes, but one of its key tasks was to spy on Batsa’s competitors. A key piece of evidence in support of this claim is an affidavit from former FSS employee Francois van der Westhuizen, in which he says he was told that all his actions – including the interception of communications and breaches of the right to privacy – were sanctioned by the law.

In hindsight, he says, the purpose of his employment was for Batsa to use his investigative skills, with back-up from corrupt police and Sars officials, “to disrupt the business of Batsa’s competitors”.

All this is detailed in Tobacco Wars and has yet to be refuted by Batsa, says Van Loggerenberg, probably because the evidence and documentary back-up is substantial.

The alleged reach of the FSS was astonishing, and included Sars, the Hawks, the South African Police Service, the Crime Intelligence Unit, the Asset Forfeiture Unit, and the Customs and Traffic Control Policing Unit.

Batsa head of external affairs Johnny Moloto replied that the report in question “is legally privileged and was prepared for the purpose of British American Tobacco obtaining legal advice”, stating: “The contents of the report may be relevant to ongoing investigations and litigation. British American Tobacco has made disclosures to the appropriate South African and other law enforcement authorities.”

Moloto then fired off some accusations of his own against Fita, whose members have come under increasing scrutiny by Sars. He says Fita’s allegations against Batsa are an attempt to deflect attention away from themselves, by dredging up allegations that have been in the public domain for more than five years.

Says Moloto: “British American Tobacco has and will continue to co-operate with any investigation by law enforcement authorities in South Africa or anywhere else.”

In support of Moloto’s claims of smaller producers attempting to deflect attention away from themselves, Batsa points to a 2018 study by the Economics of Tobacco Control Project (ETCP) at UCT, headed by Professor Corné van Walbeek, which shows a steady decline in excise tax revenue from tobacco products.

“Excise tax revenue from tobacco products decreased by approximately 10% between the financial years 2016/17 and 2017/18, despite an 8% increase in the excise tax per pack of cigarettes in that period. Overall, between 2016 and 2018, there was a 20% decrease in the number of tax declared cigarettes,” says the UCT report.

The graph below is taken from the report and shows the decline in excise revenue since 2015.

Source: The Economics of Tobacco Control Project at UCT (2018)

“Such a rapid decrease in consumption over this short period cannot be explained by changes in people’s smoking patterns alone,” van Walbeek contends. “Instead, it points to a large increase in the illicit cigarette market.” 

Data from SA’s poorest areas shows packets of cigarettes selling for R10 when the excise alone was R15.52 per pack.

The evidence is that illicit sales of cigarettes and smuggling are rampant, despite efforts by Sars to snuff it out. A position paper released by the Tobacco Institute of SA this year suggested illicit cigarettes in the informal sector accounted for 42% of the market, and a third of the national market. Some packs are selling for as little as R5 when the excise payable to Sars is R17.85 per pack. This suggests a loss to the fiscus of R40 billion since 2010.

Sars is taking action

Sars has started to act on this massive leakage. When Moneyweb visited Gold Leaf Tobacco in Johannesburg recently, Sars inspection teams were visible on the factory premises, and Rudland confirmed they were permanently encamped (and welcomed). Batsa likewise confirmed the presence of Sars teams at its production facilities. Sars officials have been despatched to all cigarette factories in SA, and this reportedly had an immediate impact on revenue collection. It could be that Sars is at last starting to turn the tide against illicit cigarette sales.

The reason Sars has a special interest in the tobacco industry is its rich history of smuggling and illicit trade, as Van Loggerenberg makes plain in his book.

Back to Fita’s PAIA application and its attempt to get access to Batsa’s internal investigation into the now reasonably well-documented activities of FSS. Its operatives are alleged, by former employee Van der Westhuizen, to have placed tracking devices on competitor trucks to monitor their frequency, type of stock and to see who was receiving the goods.

They intercepted phone calls, placed hidden cameras at competitors’ workplaces and homes, and followed their vehicles around.

The spies also stole commercially sensitive documents, such as production schedules and invoices, and handed these to their FSS ‘handlers’ who would then allegedly pass them on to Batsa.

Tobacco companies were also making donations to political parties.

“It is no secret that the small manufacturer Carnilinx has made donations to the EFF [Economic Freedom Fighters] or that Yusuf Kajee of Amalgamated Tobacco Manufacturers was an outspoken supporter of Jacob Zuma’s presidency. But we do not really know to whom the big boys have donated money, or how much and for what reasons,” according to Van Loggerenberg in Tobacco Wars.

Fita and Carnilinx have since apologised to Sars and the affected officials for any role they may have played in advancing the rogue unit story. The tobacco sector was crawling with double agents, and some of the players got duped, says Van Loggerenberg.

The statement issued by Fita two weeks ago says that after the allegations of spying by FSS became public knowledge in 2016, Batsa had instructed three sets of attorneys in SA and the UK – Norton Rose Fulbright, Linklaters and Slaughter and May – to conduct investigations on their behalf “in respect of allegations that implicated Batsa and/or British American Tobacco plc and its agents and/or service providers of conduct, including but not limited to unlawful surveillance, unlawful interception of private communications, corruption, money laundering, tax evasion, unfair trade practices, and undue influence over law enforcement officials in the Republic of South Africa”.

It’s now more than three years since the investigation was announced and the findings have yet to be made public.

Fita’s Paia request seeks to flush it into the open. Financial Mail had previously filed a similar Paia request, to no apparent avail.

“It is our understanding that Batsa prides itself as a law-abiding entity,” adds Fita, “and we, therefore, implore them to do the right thing and to ensure that they keep their reputation intact by not allowing this dark cloud to remain over their heads, and by bringing to light the steps taken in ensuring that those who acted unlawfully and tarnished the name of Batsa and BAT plc have been brought to book.”

Van Loggerenberg says he holds out little hope of Batsa releasing evidence that implicates it or any of its service providers and agents in unlawful activities.

“Nor do I expect Batsa to publicly acknowledge their relationships with, and the roles played by, some of their secret agents, or any other implicated law enforcement and intelligence operatives, such as the unholy and rogue so-called Tobacco Task Team. Doing so would demonstrate how these rogue agents deliberately sought to discredit the SA Revenue Service and its officials from 2014 onwards, purely to distract from and hide away their own sins. The result was that their actions gave birth to the now wholly discredited ‘rogue unit narrative’ which was capitalised upon with great fervour by all and sundry that wished to capture Sars.”

By making disclosures to the authorities and law enforcement officials, Batsa was attempting to wash its hands of past wrongdoing, adds Van Loggerenberg.

“The fact that the Public Investment Corporation holds about R30 billion in shares in Batsa doesn’t seem to matter either. It is for a few privileged persons and lawyers at Batsa to know and nobody else.

“The fact that Fita members have been found wanting on compliance issues in the past, is a complete sideshow and distraction. The public is well aware of their sins and the consequences of these. This is no secret. Fita members collectively hold significantly lower market share [than] Batsa. None are listed multinationals either. Batsa should perhaps focus on their own sins, before pointing fingers at others.”

In November 2013 and April 2014, Sars publicly announced its intention to pounce on spies and dirty tricksters in the tobacco trade. Van Loggerenberg says Sars was about to expose all of them and hold them accountable.

“Their counterattack suited state capture perfectly, and the rest is history. Every South African is now paying for the consequences of these events, whether it is a poorer government, fewer services, increased Vat and lower tax collections. This matter should concern everybody that cares for our country’s future.”

They asked the court to force Eskom to reconnect them, and to cap tariffs at R100 pm. From Moneyweb.

Several hundred Soweto residents got blown out of the Johannesburg High Court on Wednesday, after asking the judge for an urgent order compelling Eskom to reconnect their electricity and cap their monthly payments at R100.

Acting Judge Marcus Senyatsi threw the case out of court on the grounds that the case lacked urgency. He also said the court application, prepared by King Sibiya of the Lungelo Lethu Human Rights Foundation, looked more like a petition.

Read: Soweto residents to take Eskom to court

Eskom said it found it difficult to respond to some of the community’s allegations and asked that the matter be struck from the roll.

Many of the residents have had their electricity disconnected for more than six months. The case must now be placed on the ordinary roll and await a court date, probably well into 2020.

“Of course we are disappointed by the judge’s decision,” says Sibiya. “I was denied the right to argue the case for the residents of Soweto, most of them sick or elderly, because I am not a lawyer. We regard this as a denial of access to justice and this is something that we intend to take up with the Department of Justice.

“There is no question that this is an urgent matter, given the escalating service delivery protests that are happening around Soweto.”

Sibiya and other community members were frustrated at the judge’s adherence to court formalities, rather than the substance of the case and its broader impact on human rights.

Read: Electricity: Who pays what

This week actor Patrick Shai was injured when shot with rubber bullets by police, as he tried to stop the police from using force against community members protesting service disconnection.

Service protests have erupted in several parts of Soweto in recent months. Eskom’s latest annual report suggests arrears of R18 billion from Soweto, out of total arrears of about R40 billion.

Soweto community activist Monde Mngqibisa says frustrations are growing in Soweto, as most of the applicants in the case have prepaid meters but have been disconnected because Eskom has failed to do basic maintenance. The court papers also suggest that some of the meters have malfunctioned or caught fire. “We are not giving up,” says Mngqibisa. “We will regroup and re-present the case.”

‘Group punishment’

Mngqibisa says he has not been affected by the disconnections but approached Eskom on behalf of community members. Some residents were told by Eskom to get their neighbours to start paying their electricity before their homes would be reconnected, which is a form of group punishment, according to Sibiya.

Moneyweb spoke to several of the applicants in the case, who dismissed the notion that Eskom disconnected their electricity for being in arrears. “That’s not true,” says Sello Mahsiloane, one of the applicants. “We are on prepaid meters and the reason we are disconnected is because the mini sub-station Eskom has [has] been broken for months and has not been repaired.

“Yet [President Cyril] Ramaphosa’s house nearby has electricity. How is that possible?

“My child failed school because there is no light at night for studying.”

Mashiloane is a diabetic and says he is forced to use candles for light and a “gel” stove for cooking. Martha Sedibe has a two-week-old grandchild living with her, and has been forced to use candles and a paraffin stove for six months since Eskom cut off power in the area in June. She is also on a prepaid meter and normally spent R300 to R400 a month on electricity.

Pamela Thobela of White City in Soweto says parts were stolen from an electricity sub-station in her area several months ago, and residents in her area have been without power since then.

Sibiya says he is in discussion with several legal organisations to provide representation for the next phase of the battle to restore lights to Soweto.

Read: Army protects Eskom workers as they remove illegal connections