The future of footwear company Drip hangs in the balance after the South African Reserve Bank seized millions of rands of the company’s funds following an alleged breach of exchange control regulations.
The money was from a transaction concluded two years ago.
Drip also allegedly owes millions of rand to a Johannesburg-based company that applied to liquidate the popular footwear brand for failing to pay its debt.
Gauteng Finance and Economic Development MEC Lebogang Maile says township-based businesses with difficulties complying with domestic tax laws should be treated with leniency due to inadequate tax education by business owners.
Maile has emphasised the importance of educating township businesses on foreign exchange laws to prevent future violations.
He says ideally the central bank should find a legal way for the funds to be accessed and they should also educate small businesses trading in foreign currencies.
“The township economy issue comes as a result of Drip being founded in Ivory Park which is a township. We were encouraged by the fact that we have a company that has been founded in the township and it has managed to transition and participate in the mainstream economy.
“They have been five years now in existence and we are saying five years after hard work we think that if there is something that can be done to make sure we propel them to the next five years and possibly many more years let’s help them. They have committed a mistake and they are admitting and they have said they have been able to regroup and look at whatever is required by the Reserve Bank,” Maile explains.
University of Witwatersrand Corporate Law Professor Tshepo Mongalo has weighed in saying while the MEC had good intentions, the approach could have been handled more appropriately.
Prof. Mongalo believes that the situation at Drip should not have escalated to this level and suggests that the rehabilitation of the company should take place after the relevant exchange control regulations are completed.
“It could be a matter for the Department of Trade Industries and Competition where there were a number of grants and also programs for training that the founders of Drip can actually qualify for. And in order for them to be able to raise enough money to comply with whatever. Penalty that would have been issued by the Southern Reserve Bank. They should then be in the process of getting into some form of training through one of the agencies of the Department of Trade, Industry and Competition where they would be, you know.
“Fully trained with regard to compliance, governance and I think you know, Department of Trade and Industry, if it doesn’t have enough, you know sort of resources for them to undertake that kind of training. They can always contract with a department or Institute of Directors in Southern Africa that will have, you know, programs like compliance governance that they can take the founders of DRIP into so that they would not find themselves in a situation where compliance is a problem,” adds Prof. Mongalo.
He says it is important for this matter to be handled correctly to avoid giving an impression that regulations that landed South Africa on the grey list are not being complied with.
Meanwhile, last month the bank gazette its decision about the forfeiture of Drip Group money to the state. South African Reserve Bank declined to comment on the matter.
Drip Group | Appeal to Reserve Bank to prevent liquidation of the footwear company: Lebogang Maile
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