The proposal to establish a statutory ombud that will enable small businesses to settle disputes without going through an expensive court process is back on the legislative agenda.
The Minister of Small Business Development, Stella Ndabeni-Abrahams, has gazetted her intention to introduce the National Small Enterprise Amendment Bill in Parliament.
The draft bill was published for comment in December 2020. It was due to be introduced in Parliament in 2022, but the Chief State Law Adviser and the Office of the State Attorney said it needed to be revised.
Among other things, the bill provides for the establishment of the Office of the Small Enterprise Ombud Service.
The ombud will consider and dispose of complaints by small enterprises in relation to the interpretation of the terms of an agreement for the procurement of goods or services or the late or non-payment of amounts due and payable to small enterprises.
“The mischief the bill aims to remedy is the lack of effective and affordable access to a justice mechanism for small enterprises. Business-to-business disputes and late or non-payment of amounts due and payable to small enterprises are a significant reality in the lives of small enterprises across the world, with very adverse implications on their growth,” said the notice published by the Department of Small Business Development on 12 June.
The most prevalent way of resolving business-to-business disputes legally is through the courts, the notice said. However, litigation places small enterprises at a significant disadvantage relative to their larger counterparts because:
- The financial cost of unresolved disputes is heavily borne by small enterprises;
- Even where the amount involved is large, going to court is a prohibitive proposition for small enterprises; and
- The process is cumbersome, time-consuming, and expensive.
The cost to the small enterprise of an unresolved dispute may not be limited to the actual amount in dispute but may extend to loss of the business relationship with the customer, which means loss of future revenue for the small enterprise, the notice said.
Provisions in the draft bill
It has yet to be seen to what extent the bill differs from the draft legislation, which empowered the ombud to deal with contractual and “other legal relationships” not captured in a contract.
Within such a relationship, small businesses would be able to complain of “unfairness”; “abuse or unjustifiable exercise of power, or unfair or other improper conduct or undue delay”, and any “practice, act, or omission which results in unlawful or improper prejudice to a small enterprise”.
Specific abuses the draft law considered included ambiguous contracts, unfair leases, sudden termination, long-term exclusive agreements that keep others out of a market, and shifting risk from a stronger to a weaker party in a relationship.
If the ombud upheld a complaint, it would have the power to award damages, which could exceed the amounts specified in contracts or invoices.
The ombud would be able to direct any action it deemed fit beyond a cash award.
Where a cash award was made, the ombud’s finding would have the power of a court judgment, so the sheriff would be able to attach the assets of a party that did not pay up.
Minister’s powers expanded
The bill, which amends the National Small Enterprise Act, will also expand the powers of the Minister of Small Business Development.
The bill empowers the ombud to make recommendations to the minister to by, notice in the Government Gazette, declare certain practices in relation to small enterprises to be prohibited unfair trading practices and to make regulations regarding such practices.
The definition of “small enterprise” will set out the criteria to be used to determine the different categories of small enterprises. The objective is to reduce the number of size categories and criteria, to simplify the classification of small enterprises.
The size category “very small” and criteria “asset value” will be removed. The “very small” category will be subsumed into the “small” category, while no reliable and evidence-based data supported the criteria of “asset value”, the notice said.
New state-owned company
The bill proposes to establish a new state-owned company, the Small Enterprise Development Finance Agency (Sedfa), which will replace the Small Enterprise Financing Agency, the Co-operative Banks Development Agency, and the Small Enterprise Development Agency.
“The purpose of Sedfa will be to ensure that the small enterprise and co-operative ecosystem is able to offer the most efficient business advice, business development services, investment support, business facilitation, and incubator support.
“The vision of Sefa is to be a leading business development entity that will drive economic transformation and inclusive growth in the economy through ensuring the provision of customised financial and non-financial support and greater access to finance for small enterprises and co-operatives,” the notice said.
