Confused by sports law - then read this!

Employees of Sport and Recreation South Africa: 

It is often said that South Africa law is becoming too complicated. This is debatable, it certainly seems to be proving a challenge for the Minister of Sport and Recreation and his department.

Let’s start by sketching some background. The Companies Act, 2008 provides for the creation of a company known as a Non Profit Company (also known as an NPC). (The equivalent provision in old Companies Act was the Association Not For Gain or s 21 Company.)

The Non-Profit Organisations Act, 1997 on the other hand deals with the registration and regulation of Non-Profit Organisations (or NPOs). NPOs are in many cases voluntary associations which are registered in terms of the Act.

They are completely types of organisations and are dealt with differently. There are even different government departments which look after them.

There is no provision in the Companies Act for a company to become a Non-Profit Organisation (and vice versa). The Companies Act only provides for a company, under very narrow circumstances, to become a Co-operative, but other than there is no provision in that Act for a company to become something other than another type of company.

There’s a good reason for that – a member of the public dealing with a company needs to know who they are dealing with. If the company is allowed to chop and change what type of legal entity they are there would be no protection for creditors, etc. You enter into a contract with a company based on the provisions of the Companies Act and suddenly you find it is no longer registered with the CIPC because it has decided to become something else with different rules applying. You may not have entered into the contract if you knew the organisation was not a company.

It is also important to understand that if a Company is wound up in terms of the Companies Act it is dissolved and ceases to exist. If a new organisation starts up using the same name, it cannot be regarded as the same organisation.

To give an example, ABC Company employs staff and is registered for Income Tax, VAT, Employees’ Tax, etc and has all the relevant registration numbers. The owners decide to wind up and start over again as DEF Company. They have to retrench their staff, pay off any debts, and have the company deregistered. Then they have to register with SARS all over again as DEF Company. They also aren’t the employers of the staff at ABC Company. That all seems obvious.

The only way ABC can transfer everything to DEF is to pay all of ABC’s debts, transfer all left over assets to DEF, transfer the staff to DEF in terms of the Labour Relations Act, and then close ABC down. It is not possible for ABC to transfer it’s debts to the DEF without all the creditors’ agreement. Also, any court cases with which ABC is involved will end with its dissolution, unless the court grants it leave to substitute DEF as a new party in its place.

Any properly trained lawyer will tell you this. But it seems the Minister (Fikile Mbalula) and his department (SRSA) do not have access to any of them. Or at least his response to a question asked in Parliament by Mr MS Malatsi (DA) last year would indicate that to be the case.

When asked where he was aware that the non-profit company of SA Sports Confederation and Olympic Committee (SASCOC) had indicated its dissolution in its 2014 financial statements, the Minister responded that he and his department were “fully aware that SASCOC was converting from an NPO (sic) registered in terms of the Companies Act to a Voluntary Association” and further that “the SASCOC membership took a resolution at its Special General meeting on 9^th November 2013 to dissolve the NPO (sic) SASCOC as of the 31^st March 2014 and adopted a constitution and the formation of SASCOC as Voluntary Association. The Assets and Liabilities of the NPO SASCOC will be transferred to SASCOC the Voluntary Association.”

As we have seen, an NPO is registered in terms of the Non-Profit Organisations Act, and not the Companies Act. SASCOC is also a Non Profit Company, not an NPO.

There seems to be no consideration of the fact that debts can’t just be transferred. Otherwise anyone could just call a bank up and tell them that they have transferred their overdraft to their friend. Try that and see how far you’d get.

In response to further questions the Minister clearly refers to SASCOC NPC being wound up in terms of s 80(2) of the Companies Act.

But the Minister further states that a body called SASCOC is still recognised as the macro sports body, claiming that it is still in existence as a voluntary association now and no longer a company. As we have seen, once a company deregisters it ceases to exist and any new organisation has to start from scratch. It is not the same organisation.

This, of course, has far reaching consequences, which need to be dealt with otherwise it will create a legal headache in years to come.

Since a company cannot ‘convert’ to a voluntary association, if SASCOC has formed itself as a new organisation it will have to have done, at the very least, the following:

• Registered afresh with the tax authorities.
• Signed new leases on all property and equipment it rents.
• Transferred all its staff from the company to the association, in terms of the Labour Relations Act.
• Settled all its debts or obtained the agreement of its creditors to allow the new organisation to accept the liability to pay the debt.
• Terminated any court cases with which it is involved or obtained the leave of the court to substitute the new organisation in place of the company. It is known that SASCOC NPC is involved with several court case, including a high profile defamation case against Graeme Joffe. With SASCOC NPC dissolving, that will have to end, as it is inconceivable that someone can sue for defamation on behalf of someone else.
• Asked the Minister to end the recognition of SASCOC NPC as the macro sports body in terms of the National Sports and Recreation Act and recognise the new body in its place.

The Minister and his department, and SASCOC (whether the company or the voluntary association), seem to burying their heads in the sand and not dealing with a legal dilemma they have created by the hasty decision to deregister as a company, after they found the provisions of the Companies Act to be too onerous. If nothing is done to correct the mistaken which have been and are being made, future generations of sportspeople and administrators could find themselves paying for them.

As a matter of interest, SASCOC NPC is still registered with the CIPC as being in business, over year after it was supposed to be wound up. Even more interestingly, SASCOC was registered as a Non-Profit Organisation on 25 April 2006 and is still registered. So we have a SASCOC which is an NPC, one which is an NPO and one which is a voluntary association. Confused? You are not the only one.