• Jun 05, 11
  • Statucor

This article first appeared on the MoneyWeb website

Small businesses face closure due to system inefficiencies and failures.

Johannesburg – A number of secretarial companies which often, as part of their business, register companies on behalf of clients, say they will have to close down if the Companies and Intellectual Property Commission (CIPC) does not get its act together. Moneyweb has been inundated with complaints about the CIPC, with some saying smaller agencies are bleeding and could be forced to close down within the next two months.

All the agents Moneyweb spoke to requested to remain anonymous fearing "victimisation" from the CIPC. One of them has explained that her company lodges around 80 applications a day for, among others, special resolutions (articles of association which pertain to the rules governing your company) or name changes of companies. She currently has R1m in fees lying in the commission's coffers but because she has received no processed documentation from the CIPC, she is unable to invoice her clients. Other businesses are in a similar situation which is having a critical effect on their cash flows, especially for the smaller players. Her company's dealings with the CIPC have been bedevilled by incongruous e-mails from CIPC employees who take up to three weeks to respond to queries. See below for an example of a responding email from a CIPC official explaining why an application for registration has been rejected, it is clear from this communiqué that agents trying to act on behalf of their clients are at a total loss as to what they are, or are not required to submit to deal with the problems being experienced. It also illustrates the lack of training of CIPC employees. Agents say the commission has been unable to register any special resolutions since the 1st of May while the registration of new company names came to a halt on May 20.

Another frustration is the incorrect capturing of names on the system, frustrating attempts to register companies and directors even further. A director, for example, whose name is incorrectly spelt, will not be able to access funds if his/her name does not correlate 100% with the name in the ID book. One agent says she ploughs around R300 000 a month into the commission, but once again, because of the CIPC's inability to function, she is unable to invoice clients and is not able to generate any income. A source from within the commission claims that while the CIPC's internal IT systems have not yet crashed, the various sections of the system are dysfunctional and don't allow for transactions to reserve a company name, for example, to be completed. This is apparently true for most of the processes that need to be performed on the CIPC's system to enable it to perform basic functions like registering a company. The insider says it will take at least six months for the system to reach a stage where it "will work reasonably well". This has been confirmed by another agent who says the root of the problem is that the commission is trying to integrate two systems, the old one (which was troublesome to be begin with) with a new one and the two are incompatible. What should have been done is that a completely new system should have been implemented.

Some agents claim they are still waiting for documentation from applications lodged in April before the implementation of the new Companies Act on May 1 2011. Another says a communiqué from the CIPC says around 200 companies have been registered since the promulgation of the legislation. However, he says this completely unacceptable as an average of 6 000 companies, including CCs and Ptys, had been registered monthly under the old Act. "By my calculations they should have registered about 15 000 companies under the new Act by now."

Agents says they are losing clients at a rapid rate because they are being seen as incompetent in not carrying out the duties of a company secretary, when in fact the problem lies with the CIPC. Yet another complaint is that not a single company resolution has been registered since the implementation of the Act. According to two independent agents this was confirmed to them on Wednesday by CIPC officials who said their systems were not working. CIPC spokesperson Elsabe Conradie has conceded it could take the commission up to six months to develop a proper system, adding "we are working on more than one database and they need to be synchronised". She acknowledged that the billing system was problematic saying an IT program was in the process of being written to fix it. Credit notes are being issued in the interim. The registration of company resolutions has posed problems from the May 1 and the system has had to be rewritten to accommodate the process. In a statement, Conradie said: "Not everything is doomed at the Companies and Intellectual Property Commission (CIPC) with its current challenges. The CIPC is making progress in system developments and has put a plan in place to improve system challenges and dealing with backlogs; in some areas results will be visible as early as next week." In the same statement Acting Commissioner Rory Voller said: "Customers should bear in mind that the CIPC is a new entity that has to implement a total new law as per the new Companies Act. This requires redesign of systems which will be ongoing due to the complexity of the Companies Act and functions to be fulfilled by the CIPC. However, new companies are being registered daily, allowing South African businesses to continue trading".

This has been hotly disputed by agents who say the current state of play is likely to have a devastating effect on the economy. The CIPC has been plagued by problems since day one of the new legislation being enforced. The commission has consistently said it is aware of the problems and is working to resolve them. But this is no longer cutting it for companies out there who are working their fingers to the bone but are unable to generate cash due to a situation which is out of their hands. Given the statistics provided by one agent that only 200 companies had been registered since May, where the CIPC's predecessor, CIPRO, with all its set of problems, had been able to register 6 000 a month, this does not bode well for the economy and for the thousands out there who are trying to do their bit by forming their own company, bringing with it possible job creation. The commission and the responsible Minister Rob Davies owes the Republic an explanation.