The Amendment Act has been described by the Minister as a “game changer” in the ecosystem of small, medium and micro enterprises. To this end, the extent to which the Amendment Act revolutionises the interaction between various economic players, needs to be determined.

Background

In terms of Proclamation Notice 190 of 2024 (Proclamation), sections 1, 2, 3, 4, 6, 7, 9, 10(1), and 10(3) to 10(9) of the Amendment Act came into operation on 1 October 2024. These sections:

• expand the definitions within the Principal Act;
• provide for resolution of conflicts between the Principal Act and other legislation;
• establish a new state-owned company called the Small Enterprise Development Finance Agency SOC Limited (Agency), which will incorporate pre-existing entities; and
• provide for the Director-General responsible for small business development to conduct a national review of small enterprises.

The Proclamation further provides that section 10(2) of the Amendment Act, which disestablishes the Co-Operative Banks Development Agency, Small Enterprise Development Agency and the Small Enterprise Financial Agency, will come into effect on 1 December 2024.

As of the date of this alert, the remainder of the Amendment Act has not come into operation, and it is unclear at this stage when it will. The provisions, yet to commence, concern inter alia:

• the establishment of an Office of Small Enterprise Ombud Service and its “Ombud”; and
• empowering the Minister on the recommendation of the Ombud, to declare certain practices in relation to small enterprises as unfair trading practices.

Definitions

The definition of “small enterprise” in section 1, read with section 20(2) of the Principal Act, has now changed to overcome previous constitutional hurdles. It allows the Minister to prescribe the criteria to determine the classification of micro, small and medium enterprises and to account for inflation and macro-economic shifts in the economy. Previously, the criteria and monetary thresholds were in the schedule of the Principal Act and could be amended from time to time by the Minister.

The Amendment Act now provides that the Minister of Small Business Development, instead of the Minister of Trade, Industry and Competition, will be in charge of administering the act.

Application of the Principal Act

Section 1A of the Principal Act now provides that in the event of a conflict between the provisions of the Principal Act, Companies Act 71 of 2008, Co-operatives Act 14 of 2005 or the Co-operative Banks Act 40 of 2007, the provisions of the Principal Act will prevail.

The Agency

Now that the Amendment Act has partially come into operation, the Minister must take all necessary steps to ensure that the incorporation of the Agency takes place and that it will replace the soon to be disestablished entities referred to above. The aim is to create a “one-stop shop” for aspiring entrepreneurs.

The Agency’s primary purpose is to assist small enterprises in various ways, including designing and implementing developmental support programmes for small enterprises as well as promoting a service delivery network that increases the contribution of small enterprises to the South African economy and that enhances economic growth, job creation and equity to historically disadvantaged communities.

The Agency will have broad powers and functions to achieve its goals as contemplated in section 13 of the Principal Act, which include:

• implementing the national Government’s policy for small enterprise development, including both financial and non-financial support services;
• designing and implementing a standard national delivery network that must apply uniformly throughout the Republic in respect of small enterprise development; and
• designing and implementing small enterprise development support programmes in order to, inter alia, facilitate the building of sustainable and competitive small enterprises, facilitate the promotion of entrepreneurship, promote participation of historically disadvantaged persons in small enterprises, and promote a service delivery network to facilitate access and outreach to development support for small enterprises.

The Agency will be governed by a board of directors appointed by the Minister and will be primarily funded via appropriation from Parliament. In terms of section 12(1) of the Principal Act, the Agency will have to meet objectives and targets as contained in its corporate planning instruments as specified by the Minister, and if it materially fails to do so, the Minister may call a special general meeting to consider corrective action.

While the Agency shows promise in providing a “one-stop shop”, it remains to be seen how it will go about performing its functions. Certain provisions of the Amendment Act, however, still remain ambiguous. For instance, it is unclear what is meant by “standard national delivery”.

National Review of Small Enterprises

In terms of section 19(1), the Director-General must, on the request of the Minister, compile a review called the National Review of Small Enterprises that covers areas defined by the Minister or the Director-General.

The Ombud

In an effort to expand access to justice and to reduce procedural red tape for small enterprises, the Amendment Act establishes an Ombud that must consider and adjudicate complaints by small enterprises and small enterprise organisations through alternative dispute resolutions. In terms of section 17M (1) (not yet in operation) of the Principal Act, the Ombud will have the power to make a final determination to dismiss or uphold complaints and may grant monetary or directory relief.

Unfair trading practices

The most “game changing” aspect of the Amendment Act may be its insertion of section 17Y into the Principal Act, which empowers the Minister, on the recommendation of the Ombud and after consulting with the Minister responsible for Trade, Industry and Competition, to declare certain practices in relation to small enterprises to be prohibited unfair trading practices, and may, subject to the relevant provisions of the Principal Act and on recommendation by the Ombud, instruct that a comprehensive investigation into an alleged unfair practice take place.

The effect of making a declaration as to an unfair trading practice is that the Ombud may instruct any party that continues the unfair trading practice after the publication of a notice in the Gazette to correct, to the Ombud’s satisfaction and within 60 business days, any harm caused by the continuation of that practice. If a party still fails to comply, the Ombud may impose an administrative penalty, as prescribed by the Minister, after giving the party a reasonable opportunity to make representations.

Section 17Y appears to be open-ended and provides the Minister with immense discretion in prohibiting practices deemed harmful to small enterprises. The section appears to draw inspiration from section 49(1) of the Consumer Protection Act 68 of 2008, which aims to prohibit unfair, unreasonable or unjust contract terms between suppliers and consumers.

When determining whether to make a declaration as to an unfair trading practice, the Minister and Ombud must be guided by the following:

• whether the practice concerned, directly or indirectly, has or is likely to have, the effect of:
• harming the sustainability and competitiveness of small enterprises;
• unreasonably prejudice any small enterprise;
• deceiving any small enterprise;
• unfairly affecting any small enterprise; and
• if the practice is allowed to continue, one or more objects of this Act will, or is likely to be defeated.

Section 17Y (2) of the Principal Act further establishes a set of rights that small enterprises have; namely the right to trade and transact freely, including the right to:

• an unambiguous business contract;
• a reasonable payment date and interest on late payments;
• disclosure of relevant information; and
• accountability from large enterprises and government entities.

Conclusion

In conclusion, the Amendment Act appears to bring notable (proposed) changes to the commercial landscape, although it remains to be seen how the Amendment Act will operate in practice. It appears that the most “game changing” aspects of the Amendment Act, namely those that establish the Ombud and unfair trading terms, have yet to commence. In that sense, businesses may have to wait a bit longer to experience a large shift in the ecosystem of small, medium and micro enterprises.