Small Enterprise Bill a big hurdle

……article dated 7 March 2022……

Hindrances with new Bill, not help….

Small business development Minister, Khumbudzo Ntshavheni, has now tabled her controversial National Small Enterprise Amendment Bill, having earlier sought comments for sixty days from interested parties. The Bill now presented seems to have ignored the major point in many of the responses during the period of public comment that the Bill is proposing the kind of legislation that will simply create a new layer of bureaucracy.

The proposal is to establish the office of an ombudsman with wide ranging powers but critics say there is absolutely no supporting business case for this.

John Dludlu, CEO of Small Business Institute says, “Defining arbitrarily what constitutes “an unfair trading practice” and granting powers for an ombud to intervene in “contractual arrangements or other legal arrangements” could well lead to indiscriminate interventions.

Exceeding powers

He added that conflict with civil law was bound to arise with the ombudsman overlapping with established civil and contract law in SA

The view is held that the minister and his department have ignored the input made by a swathe of submissions that by establishing an ombud office reporting to the Minister, which has the authority to decide outcome on a myriad of business issues, both contractual and in terms labour and business law, and it also raises the question of political overreach, with interference in business also being arrived at.

Little empires

In its overview, the draft National Small Enterprise Amendment Bill says it seeks to set up the Small Enterprise Ombuds Office to create an enabling environment for Small, Medium and Micro Enterprises (SMME) and Co-operatives to operate. It proposes that the Minister will be able to declare certain practices in relation to small enterprises to be prohibited unfair business practices.

Currently, the anchor legislation, National Small Enterprise Act, provides for the establishment of an advisory body, to represent and promote the interests of small enterprise and advise the Minister on the impact of current and new legislation on small enterprise; and on constraints affecting the viability of the small enterprise community.

Over the top

By taking liberties with the wording in the anchor law, the draft amendment Bill proposes a new dispute-resolution chapter and for this, the author reaches the point where an office of a Small Enterprise Ombud Service is introduced as a spinoff from the Minister’s advisory office, but with the same reporting and advisory responsibilities left untouched.

Free Market Foundation (FMF) notes the following in a press statement issued as the Bill was tabled and noting the dichotomy that exists where the Ombud must consider and dispose of complaints by a “small” enterprise against an enterprise “which is not” a small enterprise.”   The Bill refers to small businesses entities as being “complainants” justiciable by the Ombud alone” and noting the Bill coins many odd expressions, some of them worrying as to what they really mean.

What do you really mean?

Much play, says FMF, is made on certain words, totally undefined, such as the “effect” of “unreasonably” prejudicing or “unfairly affecting any action to be prohibited by “unfair” trading practices” …… “transfer of commercial risk to the ‘weaker’ party” ….   and “unfair exclusionary compliance requirements.”

The list continues, says FMB, suggesting that at the very least the Ombud would have police powers with further ad hoc extractions from the Bill, such as: “the Ombud may investigate any” ……  and “make regulations requiring specified enterprises to provide prescribed information” ……  and “small enterprises have the right to transact ‘freely” including the “right”.  Even worse, says FMF, is the following The Minister may, on the Ombud’s recommendation, prohibit certain practices in relation to small enterprises as being unfair, including transfer of commercial risk to the weaker party.

Aspirant lawyers

FMF concludes on the subject, “Any abstract value such as fairness (while performing a controlling function in established rules of the law of contract) cannot constitute an independent substantive rule that a court or tribunal can use to intervene in contractual relationships. Acceptance of a notion that a contract need not be enforced because it offends the adjudicator’s sense of fairness will give rise to legal and commercial confusion.

Many have proposed that the clauses related to unfair business practices be removed from the Bill and in general have suggested that a socio-economic impact assessment would identify these shortcomings of the draft Bill, which it appears has not been undertaken.

Accounting nightmares

About red tape, John Dludlu notes that on the vexed subject of late payments to SMMEs over the stipulation of thirty days, the bill proposes a broad plan to prohibit all manner of complaints, whether “unfair” contractual or “other legal arrangements” that may arise in the normal course of business-to-business engagements. Each prohibition would trigger myriad gazette notices and result in stacks of yet more red tape, not to mention potential overreach, he says.

The DA’s position on this muddled Bill is not clear other than they are busy promoting their own Ease of Doing Business Bill which covers the same subjects. The National Small Enterprise Amendment Bill is now to be introduced to Parliament with a briefing from Minister Ntshavheni.

In all fairness, she is new at the game.

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