Walkers Attorneys

In your June edition of Talking Point, specialists at Walkers Attorneys highlight further ways that our law is changing.
This month, the Children's Act comes in for double scrutiny. John O'Leary may prompt nostalgia for the era when parents were parents and ruled the roost, and Lauren Whate stimulates sympathy for the township granny running a community creche, but both these writers demonstrate that child protection is now a serious item on the State's agenda.
Additionally, Andrew Duncan pursues the question of tax clarity when a home's ownership changes -- and provides a reminder that we at Walkers, aside from interpreting the law, get involved in changing the law,too! Andrew also fixes a watchful eye on the new Companies Act.

Most South Africans would, if they were asked to identify the prime cause of conflict between divorced parents, reply to the effect that “it is about which parent has custody of the child and about what access the other parent has to the child”.

Fundamentally they are, of course, right. This issue has always lain at the heart – in more ways than one – of partings between parents. But the approach changed with the Children’s Act of 2005, and the specifics continue to change as more provisions and regulations under that Act come into effect, most recently in April this year.

For instance, the Act no longer recognises the terminology that most South Africans use. “Custody” and “access” are no longer the terms in use. The new terms are “care” and “contact”, and a “parent” is now, legally, a “co-holder of parental responsibilities and rights”. The duties of a guardian are included in the parental responsibilities.

Central to the relationship between co-holders of parental responsibilities and rights is the Parenting Plan, which co-holders must attempt to agree on before seeking the intervention of a court.

Parenting Plans may cover where and with whom children will live, the maintenance of the children, schooling and religious upbringing, and contact between the children and any other person, including any co-holder.

In drawing up a Parenting Plan, the parties must seek the assistance of a Family Advocate, social worker, or psychologist or reach agreement through mediation (Walkers offers mediation services in preparing Parenting Plans.)

A parenting plan that was made an order of court can be changed by that court on application by either of the parents or by the child or someone acting on behalf of the child provided the child or person representing the child acts with the leave of the court.

In coming to a “major decision” affecting a child, a co-holder of parental responsibilities and rights must give due consideration to (i) the views and wishes of the child, bearing in mind the child’s age, maturity and stage of development, and (ii) views and wishes expressed by another co-holder. “Major decisions” are listed in the Act and include consent to marriage (by a child who is still a minor), consent to adoption, changes to the contact between the child and a co-holder, and any decision which is likely to significantly change the child’s living conditions, education, health, personal relations or general wellbeing.

These changes to the terminology are not simply cosmetic. They reflect a shift towards a consultative style of parenting after divorce. They also show how the trend towards using mediation to resolve disputes is gathering momentum.

On 11 July 2007 certain sections of the Children's Act 38 of 2005 came into effect. It was anticipated that the rest of the Act would come into effect in 2008. People may wonder why portions of the Act are still coming into effect in 2010. The answer is that regulations were needed because much of the Act dealt with matters that needed to be implemented on a practical level. These regulations took time to finalise and only came into effect on 1 April 2010. This article deals with ‘Partial care facilities’ which is in chapter 4 of the regulations.

Partial care facilities are facilities which children attend such as after-care or a crèche. All partial care facilities have to be registered. Activities provided by religious, cultural or social organisations are exempted from being registered as well as sporting and camping activities

Applications must be accompanied by a business plan, a constitution, building plans, an emergency plan, clearance certificates and a health certificate. Clearance certificates are to ensure that employees are not registered on the National Child Protection Register or the National Register for Sex Offenders.

Employees at partial care facilities must have skills that include, apart from literacy and numeracy, basic knowledge about child development in order to assess age related developmental milestones and to identify irregular and dysfunctional behaviour in a child and. They must have proof of these skills and must be able to communicate with the child in a language the child understands (which may include sign language).

Whereas the Act required inspection only on reasonable suspicion that a place was being used as an unregistered partial care facility, the regulations require inspection at least every five years or at shorter intervals if necessary. After all inspections a report must be submitted to the head of social development and to the management of the facility.

All-in-all the partial care regulations pose many practical problems to people who operate such facilities. These regulations apply to women running one of the humblest activities imaginable, a day-care home for children, often in areas where desperate parents would otherwise leave children alone for hours on end. Now the Gogo must produce business plans, building plans, a constitution, proof of her skills and a certificate that she is not a known sex offender -- ??? This regulation is perfectly structured for a first world country but in a developing country such as South Africa one wonders how this system will actually work.

In our January Newsletter we dealt with relaxation of tax and duties when a primary residence is transferred from a Trust or Company to a natural person. We touched on the circumstances where, in a transfer by distribution of a house having a base cost value of R1 million but a market value of R10 million, the party best entitled to whoop for joy was a third party, namely SARS, which upon the death of the recipient would gain an additional 20% of R10 million. We suggested that this oddity, and its effects, might be allayed if the property were sold at market value by way of a loan account.

Clarity, of sorts, has now been furnished, by Appendix “B” to the Taxation Laws Amendment Bill. SARS concedes that a Company may dispose of the residence “by distribution in specie, or by a sale.” But while this qualifies for CGT and Transfer Duty exemption, it would not be exempt from STC! For accounting purposes, the Company has made a capital profit that has to be distributed, and STC is payable. Anyway, it unnecessary to use the sale procedure for companies, because the natural person gains an asset the value of which is identical to the decrease in the share’s value...

Insofar as Trusts are concerned, however, a sale is still in my view appropriate and without fiscal disadvantage. A Loan Account is created, reflecting the value of the residence in the Trust against the value of the property in the natural person’s estate. However, where spouses are married out of community of property. transfer can only take place in favour that spouse who has wholly funded the acquisition of the residence by the Trust. Otherwise the exemption doesn’t apply; i.e. if both spouses have funded the Trust or a third party in a miniscule proportion, then neither can take transfer in terms of this exemption, which again seems short sighted.

I am often queried on this exemption where the house is owned by a Company, the shares of which are in turn held by a Trust. To qualify, the shares have to be held by a natural person! I urged SARS to extend the exemption to similar structures, on the basis that now was the time to clean up on all aspects of the situation but unfortunately to no avail.

We have heard tell from a little bird that the effective date for the new Companies Act No. 71 of 2008 is intended to be the 1st of October. It is also whispered, though, that the chances of that date being met are not good from a betting point of view because of some 105 amendments that have to be made to the Act itself. But what is very clear is that when it does come into effect, Companies will have two years to get their documentation -- Shareholders’ Agreements and the like, the Alterable provisions, and other housekeeping items – into the new required shape.

If during that period there is a conflict between the provisions of the new Act and the Articles, the present Articles will for the most part (depending on the nature of the conflict) survive. Certain provisions, however, will not.

For instance, under the new Act, every Shareholder in a Private Company has a right of pre-emption, pro rata to his shareholding in respect of the issue of new shares. If the Shareholders’ Agreement says anything to the contrary, it is invalid.

Another fascinating aspect of the Act will be the effect of the Business Rescue provisions under its Chapter 6. Contemplate Section 136 (2) “…despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may cancel or suspend entirely, partially or conditionally any provision of an agreement to which the company is a party at the commencement of the business rescue period, other than an agreement of employment.”

You can by a cursory reading of these terms see that a Business Rescue Practitioner can pick and choose exactly the terms of a contract he wants to abide by. In other words, if in terms of a lease a rental is payable, the Practitioner may advise you as the Landlord that he likes the lease premises very much, but is not crazy about the rental and will not be paying it! Or likewise for a Bank, that the Practitioner has decided not to pay interest or to agree with the security previously furnished! This is going to have major consequences for the whole sphere of commercial undertakings not just in South Africa, but abroad as well, as foreign banks and manufacturers do business in South Africa, based on the sanctity of contract law and enforcement of provisions agreed upon.

Finally, you will be interested to know that these rescue procedures apply only to Companies. They specifically do not apply to Close Corporations, Trusts, or businesses conducted by individuals. It is indeed strange that so important a new provision is not thought through to the extent that it does not apply right across the board!