30 Apr 2021
RE : A BILL entitled: AN ACT to regulate social enterprise organisations and their administration.
30 April 2021
SEAM looks forward to the adoption of the much-awaited Social Enterprise Act and looks forward to working with the relevant authorities for the development of the sector and the creation of an ecosystem for social enterprises in Malta.
To this effect, we welcome the opportunity to contribute towards the debate pertaining to the Bill presented in parliament, and respectfully submit our position on a number of provisions contained therein.
1. The Bill envisages a number of legal entities that can be considered as social enterprises, namely limited liability companies, partnerships and cooperatives. In doing so, the bill omits sole traders from the possibility to be considered as social enterprises. In view of the fact that within the Maltese context, most of such social enterprises are comprised of sole traders or micro-enterprises, the Bill is in fact omitting the majority of current and prospective operators.
2. Article 4 (3) provides that “A social enterprise organisation may make use of the services of volunteers provided that such volunteers do not constitute more than fifty per cent of the total number of persons participating in the activity of such social enterprise organisation.” This provision may create a limitation for a number of existing social enterprises which are sole traders or single member companies and rely on the support of a number of volunteers. Moreover, the Bill defines a volunteer as “a person who provides unremunerated services through or for a social enterprise organisation but who may receive a refund of any reasonable expenses incurred in connection with these services”. To this end it would be useful to clarify whether interns are to be considered as volunteers within the context of this definition.
3. Article 5 provides, inter alia, that “only twenty five per cent of the profits generated by the social enterprise organisation may be distributed and it shall not be permissible for any person, whether a private interest or a non-profit making organisation, to enjoy directly or indirectly more than twenty five per cent of the profits through the holding of shares or other interests in such organisation, or in any other manner.” It is felt that this limitation might pose a particular hindrance for those organisations that seek to attract external investors. This notwithstanding, in the eventuality that the 25% threshold is extended, it is imperative to ensure that the social impact report referenced in our proposal in point 12 hereunder, is adhered to at all times in order to avoid ‘social washing’ and abuse of the system.
4. With regards to employees, article 5 (6) stipulates that “In the case of those organisations which are registered as social enterprise organisations under the provisions of article 3(1)(b)(i), the administrators shall seek to maintain a level of expenses for persons who are employed or engaged which shall not be more than sixty per cent of the annual turnover of the organisation so as not to materially prejudice the continued functioning of the social enterprise organization”. Once again, in the Maltese context where the majority of such enterprises are micro-businesses who often employ very few people and who have limited turnover, this criterion may provide a hindrance.
5. Article 5(7) provides that “It shall be the responsibility of the administrators of a social enterprise organisation to ensure compliance with the provisions of this article. When an accountant, reviewer or auditor is engaged to review the accounts of the social enterprise organisation, such accountant, reviewer or auditor shall notify the administrators in writing, with a copy to the Regulator, if the social enterprise organisation has exceeded the limits established by this Act.” It is felt that this is obligation is excessively onerous and it is recommended that the said accountant, reviewer or auditor should be able to raise the relevant shortcomings with the enterprise prior to notifying the Regulator.
6. Whilst article 6 makes reference to possible benefits that could be offered to social enterprises, there is currently no information as to what kind of benefits (such as fiscal benefits or support schemes) are being proposed. SEAM recommends that as a minimum, social enterprises should be entitled to lower income tax, lower VAT rates, preference is participating in tenders and PPP’s, and access to finance and support services which should be financed through fees and penalties levied by the Regulator.
7. Article 8(5) provides that “The Regulator shall refuse registration if, to the best of his knowledge, the name of the applicant is already used by another social enterprise organisation or if the proposed name is offensive or is likely to deceive or be misleading”. It is recommended that the regulator should also refuse registration if the name in question is already in use by another entity not being a social enterprise as per intellectual property legislation.
8. Article 11 goes on to define the functions and obligations of the Social Enterprise Regulator. Sub-article (4) thereof provides that the Regulator shall not hold any position which results in a conflict of interest. In the spirit of good governance, guidelines outlining what constitutes conflict of interest should be provided. Moreover, when the Regulator delegates his/her functions to other persons, such persons should also be bound by the same duties and obligations of the Regulator.
9. Whilst article 14 outlines the duties of the Regulator, which include accepting and/or refusing applications, as well as investigating any complaints relating to social enterprises. It is felt that these two functions could be better fulfilled if there was a clear separation of powers. Moreover, it is felt that in cases of potential breach which are considered of a minor nature, the Regulator should be able to raise the issues with the enterprise in question, and give it sufficient time to rectify the relevant shortcomings, prior to referring the findings to the Police;
10. Another function of the Regulator is that making legislative and policy recommendations in support of the sector – we propose that this function is fulfilled, inter alia, through adequate consultation with relevant stakeholders.
11. It is not understood why the Bill provides that the provisions of article 72 of the Financial Administration and Audit Act shall not apply to the Regulator.
12. Article 16 goes on to list the documentation that should be provided by an applicant entity in order to be registered as a social enterprise. This documentation includes the business plan of the organisation. It is felt that this is excessive and far exceeds the obligations imposed on other types of enterprises, and has the potential of obliging such enterprises to reveal commercially sensitive information. It is felt that relevant information can be supplied without revealing the full business plan of the enterprise, for instance, through supplying a detailed mission statement at initial registration stage, and a chapter on social impact ( including relevant metrics) in the annual report.
13. It is suggested that fees and penalties payable to the Regulator should be reinvested in the sector, to provide for instance for capacity building or provision of support services to operators.
14. There is also reference to guidelines that the Regulator has the power to introduce. It would be beneficial to have an indication of what these guidelines will comprise.
15. The benefit to the community envisaged under the Bill is limited to Malta. It is to be noted that some social enterprises may offer products or services which benefit the community, albeit not in Malta, especially in this day and age where online trading is encouraged.
16. Whilst agreeing that political parties should be excluded from the remit of the Bill, excluding all political candidates may result in a situation where activists are unjustly precluded, particularly in view of the fact that the bill defines political parties as whether registered as such or not – effectively giving the Regulator discretionary powers in this regard.
Dr. Roberta Lepre