Stokvel insurance: A potential South African phenomenon
By Lwazi Gumede (Associate), overseen by Deon Francis (Partner)
One can never guarantee most things in life but history has taught us that one can certainly guarantee change. The question then arises is whether or not corporate South Africa, and in particular, the insurance industry is ready for the change that commercial/investment stokvels will bring.
The Companies Act No. 71 of 2008 ("the Companies Act") does not define what a "stokvel" is. However guidance may be ascertained from the National Credit Act No. 35 of 2005 ("NCA") which states that a stokvel is a formal or informal rotating financial scheme with entertainment, social or economic functions, which: (a) consists of two or more persons in a voluntary association, each of whom has pledged mutual support to the others towards the attainment of specific objectives; (b) establishes a continuous pool of capital by raising funds by means of the subscriptions of the members; (c) grants credit to and on behalf of members; (d) provides for members to share in profits from, and to nominate management of, the scheme; and (e) relies on self-imposed regulation to protect the interest of its members.
Government Notice 404 in Gazette 35368 25 May 2012 which deals with the designation of an activity not falling within the meaning of "The Business of a Bank" (a group of persons between the members of which exists a common bond) in terms of the Banks Act No. 94 of 1990 ("Banks Act"), describes a stokvel as a saving group. While the combined annual report of the supervisors of the Co-operatives Banks Development Agency and the South African Reserve Bank 2010/11 describes stokvels as clubs, associations or syndicates in which members contribute regularly and receive payouts in rotation. This definition is in line with sentiments shared by entrepreneurial commentators such as Vusi Thembekwayo who have defined a stokvel as pooling of funds/things to such a way which is similar to banks.
While the above is of much assistance in defining what a stokvel is, it remains uncertain as to whether or not a stokvel is to be considered a juristic person. While the NCA has defined what a stokvel is, same is not considered to be a juristic person if we are to rely on its definition of a "juristic person" which states that a juristic person includes a partnership, association or other body of persons, corporate or unincorporated, or a trust if the trustee is itself a juristic person.
During the period of September 2016, the stokvel industry was estimated to be worth around R44 billion, and R49 Billion by the end of December 2016. Tshepo Moloi, the founder of a South African app called StokFella stated that 60% of stokvels were investment focused, 18% were savings clubs and the remaining 22% were grocery stokvels and burial societies.
The Short Term Insurance Act No. 53 of 1998 ("STIA") defines “short-term policy” as to include a guarantee policy, liability policy, miscellaneous policy, motor policy, accident policy, property policy or transportation policy or a contract comprising a combination of any of those policies; and includes a contract whereby any such contract is renewed or varied.
The common denominator in the abovementioned insurance policies is that the abovementioned policies are contracts in terms of which a "person", in return for a premium, undertakes to provide policy benefits if an event, contemplated in the contracts as a risk prevails.
In this regard, the question arises if commercial/investment stokvels can be considered as "persons" which could be insured in terms of the STIA.
The STIA does not define a "person". However the common law recognises a juristic person (fictitious or artificial person) in the form of a voluntary association called an universitas. In order to qualify as an universitas the voluntary association must: (i) enjoy perpetual succession (continue to exist notwithstanding changes in internal membership); (ii) be able to hold property in its own name; and (iii) not be formed to carry on a business which has as its object the acquisition of gain by association or its members.
Considering that commercial/investment stokvels are most likely to be formed for the purpose of carrying on a business that has for its object the acquisition of gain by the stokvel (association) or its individual members, it appears that a commercial/investment stokvel will not be regarded as an universitas. However, one may argue that a commercial/investment stokvel in which members share the profits and losses is in essence a partnership considering that the stokvel constitution (partnership agreement) dictates what the stokvel and its members can or cannot do or invest in.
Assuming that a commercial/investment stokvel is considered to be a partnership, at first glance it appears that it will not be able to be insured in terms of the STIA as a partnership is not considered to have a separate legal personality as it is not regarded as a juristic person. This is because partners are jointly and severally liable for the profits and losses of a partnership.
In South African law a partnership does not ordinarily enjoy the status of a juristic person; however in certain moments it is said that a partnership enjoys the personality of a "juristic ghost". This is because in litigation a partnership is permitted to be sued in the name of the partnership. Furthermore, a partnership is regarded a separate person for purposes of valued added tax ("VAT").
Again, the question arises if a member of a commercial/investment stokvel will be able to enjoy for instance directors and officers insurance ("D&O") cover where for example a seller sues a member of a commercial/investment stokvel who is transacting on behalf of the commercial/investment stokvel.
The practical solution seems to lie in the wording of a policy, as members of the commercial/investment stokvel (and indirectly the stokvel) will enjoy coverage if the policy for example states that there will be indemnification for "members of the stokvel called investment stokvel RSA from time to time".
At this stage, it seems as if there is be a gap in the market for insurers to provide fidelity and legal expenses coverage for commercial/investment stokvels. Furthermore, there seems to be an opportunity for insurers to provide a bespoke "D&O" product (or something similar) for members of a commercial/investment stokvel.
However, in order to avoid a legal and administrative nightmare, the better practical solution would be for members of a commercial/investment stokvel to incorporate a company in terms of the Companies Act, as this would remove the uncertainty in being able to be insured in terms of South African law for activities pertaining to business and investment ventures.
Breaking News »