Source: http://pmg-assets.s3-website-eu-west-1.amazonaws.com/docs/2002/appendices/020801ch11.htm
Timestamp: 2019-08-21 11:27:51
Document Index: 475121336

Matched Legal Cases: ['art 1', 'art 4', 'art 2', 'art 4', 'art 3', 'art 4', 'art 5']

FINANCIAL PROBLEMS IN MUNICIPALITIES
Part 1: Avoiding, identifying and solving problems
Financial aspects of cooperative governance
88. (1) Provincial and national government must:
support the development of financial management capacity in municipalities;
assist municipalities’ efforts to identify and resolve financial problems; and
monitor the financial performance of municipalities.
(2) Municipalities must monitor and manage their financial affairs so as to foresee and avoid financial problems wherever possible, and so as to identify and resolve any financial problems at the earliest possible stage.
(3) Municipal councillors and officials must cooperate with national and provincial efforts to identify and resolve financial problems in municipalities.
Provincial financial watch
89. If a provincial MEC responsible for local government knows of a serious, chronic or recurrent financial problems in a municipality, the MEC must:
place the municipality under financial watch;
notify the municipality, the provincial premier, the Minister of Finance, and the Minister for Provincial and Local Government that the municipality has been placed on a provincial financial watch; and
act promptly and in consultation with the municipality to identify the causes of, and potential solutions to, these financial problems.
National financial watch
90. If the Minister of Finance knows of a serious, chronic or recurrent financial problems in a municipality, and has reason to believe that adequate steps are not being taken by the municipality and the provincial executive to identify and resolve these problems:
the Minister must consult with the provincial executive and the Minister for Provincial and Local Government;
following such consultation, if the Minister is of the view that further measures are needed to resolve the municipality’s financial problems, the Minister must:
notify the municipality, the provincial executive and the Minister for Provincial and Local Government that the municipality has been placed on a national financial watch; and
act promptly and in consultation with the municipality and the province to identify the causes of, and potential solutions to, these financial problems.
Serious, chronic, or recurrent financial problems
91. For the purposes of sections 89 and 90, serious, chronic, or recurrent financial problems include the following conditions:
a municipality or a municipal entity under its sole or joint ownership control is at least 60 days late on any payment to a supplier of water, sanitation, solid waste, or electricity services;
a municipality or a municipal entity under its sole or joint ownership control is at least 60 days late on any payment due to any organ of state or agency of government;
a municipality or a municipal entity under its sole or joint ownership control is at least 60 days late on any payment due to any other person or entity;
a municipality or a municipal entity under its sole or joint ownership control is at least 30 days late on any payment due to, or for the benefit of, any employee;
a municipality or a municipal entity under its sole or joint ownership control is at least 30 days late in adopting a budget or making any financial report required by this act;
a municipality's actual current expenditure has exceeded actual current revenue for at least two consecutive financial years; or
a municipality has had an operating deficit in excess of twenty percent of revenues in the most recent financial year for which financial statements have been prepared;
the Auditor General has been unable to render an opinion on the financial reports of the municipality or a municipal entity under its sole or joint ownership control, or has rendered a qualified opinion, due to inadequacies in the report or the financial records of the municipality or a municipal entity under its sole or joint ownership control;
service delivery or governance are compromised because of financial problems in the municipality or a municipal entity under its sole or joint ownership control;
such other conditions as the MEC or Minister reasonably believe have caused, or will imminently cause, the municipality to be unable to perform its functions for financial reasons or meet its financial obligations.
92. In identifying the causes of, and possible solutions to a municipality’s financial problems, the provincial executive, the Minister of Finance and their designees may:
employ such advisors, accountants, professionals, and agents as they deem advisable for the purpose of identifying problems and proposing solutions;
conduct such consultations, workshops, meetings and investigations as they may deem useful in identifying or resolving financial problems in the municipality or municipal entities;
have access to such financial information, records, and documents of the municipality and municipal entities as they may deem useful in identifying or resolving financial problems in the municipality or municipal entities;
request the Municipal Financial Recovery Service established in Part 4 of this chapter, or any other qualified person or entity, to develop a financial recovery plan for the municipality.
Terminating a financial watch
93. At any time after a provincial MEC or the Minister of Finance has placed a municipality under financial watch, he or she shall terminate the financial watch when he or she determines that the serious, chronic or recurrent financial problems that gave rise to the financial watch have been resolved.
Part 2: Financial Recovery Plan
Preparing a financial recovery plan
94. (1) When the provincial MEC or Minister requests that a financial recovery plan be developed in accordance with section 92(d), the person or organisation charged with preparing the recovery plan must consult with:
the municipality's creditors; and
the provincial executive.
(2) A financial recovery plan must:
be designed to restore the municipality and municipal entities to a sound financial and fiscal condition as soon as possible;
identify the financial problems of the municipality and any municipal entities;
describe a general strategy for addressing these problems;
identify the human resources needed to assist in resolving these problems;
describe, so far as is reasonably possible, the specific actions to be taken by various parties;
describe the anticipated time frame for financial recovery, and objectives to be achieved;
identify the principal objectives of the plan, and methods for achieving those objectives;
identify what actions must be taken by, or on behalf of the municipality, in order to implement the plan; and
identify what actions must be taken by other parties in order to implement the plan; and
provide for stakeholder input during the implementation of the plan.
(3) A financial recovery plan may:
provide for liquidation of non-core assets;
not permit the liquidation of assets needed for the provision of minimum essential municipal services;
provide for sanctions, including the suspension of remuneration and other benefits of members of the council or officials should they fail to co-operate in the implementation of the financial recovery plan;
provide for special control measures to prevent unauthorised or irregular expenditures;
include spending limits and revenue targets;
provide budget parameters;
identify the tax rates, tariffs, and revenue collection measures that are necessary for financial recovery.
(4) The person or organisation preparing the financial recovery plan:
shall consider the extent to which financial problems in the municipality are attributable to:
structural financial imbalance, as where the municipality’s potential revenues from all sources are not sufficient to obligations it must meet in terms of the Constitution and national legislation; or
transitional factors in the local economy that temporarily impair rate payers’ and service customers’ ability to pay rates, fees, and charges; and
shall note the existence and extent of such causes in a written report to the provincial executive, the Minister for Provincial and Local Government, and the Minister of Finance.
(5) At least 14 days prior to finalisation of the recovery plan, the person or organisation preparing the plan must:
submit the plan for comment to the municipal manager, the provincial executive, the Minister for Provincial and Local Government, the Minister of Finance, the Municipal Financial Recovery Service and any creditors who have not been paid in a timely fashion; and
make the plan available to the public and the media during normal business hours for inspection and copying.
(6) When the MEC or Minister receives the final recovery plan, he or she shall submit the final recovery plan to the municipality, and the municipal council must either:
adopt the plan and any budget, revenue and expenditure measures required by the plan; or
adopt a resolution stating what steps it intends to take to resolve its financial problems.
(7) If the municipal council does not adopt the recovery plan, or any budget, revenue, and expenditure measures required by the plan; or otherwise fails to implement the plan, then the MEC or Minister must determine whether any steps that the council has identified are adequate to resolve the municipality’s financial problems, and if he/she determines that they are not, he/she may adopt a recovery plan and any measures necessary to implement the plan on behalf of the municipality, and they shall have the same force and effect as if they had been adopted by the municipal council.
Implementing a financial recovery plan
95. When a financial recovery plan has been adopted for a municipality:
all revenue, expenditure and budget decisions must be taken within the framework of, and subject to the limitations of, the financial recovery plan;
the municipality must report to the provincial executive and to the Municipal Financial Recovery Service in such a manner, and at such intervals, or upon the reaching of such objectives as the financial recovery plan shall prescribe;
the financial recovery plan may be amended in the same manner as it was originally adopted, provided that:
a copy of any proposed amendment is first submitted to the provincial executive, the Minister and the Municipal Financial Recovery Service for comment;
any comments from such persons are considered prior to adopting the amendment; and
the public shall have access to the amendment in the same manner as required for the original plan;
the municipality, provincial executive, or Minister may apply to court for the declaration of a financial emergency in accordance with the provisions of part 4 of this chapter.
the implementation of the plan is an obligation of the municipality, and if the municipality does not fulfil that obligation, the provincial executive must intervene in terms of section 139 of the Constitution in order to assure that the plan is implemented;
intervention by the provincial executive, where that is necessary to assure that the plan is implemented, is an obligation of the province, and if the province does not fulfil that obligation, the Minister of Finance must intervene in terms of section 100 of the Constitution in order to assure that the plan is implemented.
Part 3: Financial emergency
Conditions for declaration of financial emergency
96. A financial emergency may only be declared when:
a municipality requires temporary or permanent protection from legal process by any of its creditors, in order to continue providing minimum essential services; or
a municipality or a municipal entity has defaulted on the payment of an amount due, or on a contractual obligation providing security in terms of section 27 of this Act, to a lender or investor; or
a serious financial problem, as described in section 91, has persisted for at least one year.
97. (1) An application to the high court for a declaration that a municipality is in a financial emergency may be made by:
the council or the municipal manager;
the MEC for finance in the province;
the MEC for local government in the province;
the Minister for Provincial and Local Government;
a creditor of the municipality; or
organised labour.
(2) In considering an application in terms of subsection (1), the court may declare that a municipality is in a financial emergency if
at least one of the conditions listed in section 96 exists; and
there is a serious fiscal or financial problem in the municipality that impedes the municipality from meeting its obligations.
(3) If a court declares that a municipality is in a financial emergency, the provincial executive must:
immediately consult with the Minister of Finance, the Minister for Provincial and Local Government, and the municipal council, to determine what steps must be taken in the short-term while a financial recovery plan is reviewed or prepared;
immediately request the Municipal Financial Recovery Service to review any financial recovery plan that has been adopted for the municipality and recommend any changes that may be necessary or appropriate to assure that it complies with section 94 above;
if no financial recovery plan has been adopted for the municipality, immediately request the Municipal Financial Recovery Service to prepare a financial recovery plan which complies with section 94 above;
If the municipal council does not adopt the recovery plan, or any budget, revenue, and expenditure measures required by the plan; or otherwise fails to implement the plan, the MEC responsible for local government must adopt the plan and any measures required by the plan on behalf of the municipality, and they shall have the same force and effect as if they had been adopted by the municipal council.
(4) Without derogating from the rules of court
any application in terms of this section must be heard by the court as promptly as possible; and
notice of the application must be served on
the mayor of the municipality, where applicable;
the municipal manager of the municipality;
the chief financial manager of the municipality;
the Minister of Finance; and
the Minister for Provincial and Local Government.
(5) If the court declares that the municipality is in a financial emergency, it may order that legal proceedings by any creditor and the execution of legal process against the municipality or a municipal entity be stayed for a period not exceeding 90 days to allow for the review of, or preparation of, a financial recovery plan for the municipality.
Application for termination of declaration of financial emergency
98. (1) An application to court for the termination of a declaration of financial emergency may be brought by:
the Municipal Financial Recovery Service;
the council of the affected municipality; or
the applicant in the application to declare a financial emergency.
(2) Without derogating from the rules of court, notice of application for the termination of a declaration of financial emergency must be given
to all creditors to whom the municipality owes as amount in excess of a prescribed amount;
to any creditor who filed the original application for declaration of a financial emergency;
to the municipal manager;
to the MEC for finance in the province;
to the MEC for local government in the province;
to the Minister of Finance;
to the Minister for Provincial and Local Government; and
to organised labour.
(3) Should the court find that a financial emergency no longer exists, the court must terminate the declaration of financial emergency.
Effect of boundary redetermination
99. (1) If the boundaries of a municipality under a declaration of financial emergency are redetermined in terms of the Local Government: Municipal Demarcation Act, 1998 (Act No. 27 of 1998), and the MEC for local government in the province issues a notice in terms of section 12 of the Municipal Structures Act regulating legal, practical and other consequences of the total or partial disestablishment of the existing municipality, then the declaration of financial emergency automatically
extends to any resulting municipality having at least 50 per cent of its territorial area within the former municipality; or
terminates upon the issuance of the MEC's notice, and be of no further force and effect, as to any resulting municipality having less than 50 per cent of its territorial area within the former municipality.
(2) An automatic extension in terms of subsection (1)(a) may be terminated in accordance with section 98 at any time.
(3) An automatic termination in terms of subsection (1)(b) may be avoided where a party named in section 98(1)
files an application with the court within 15 days of publication of the MEC's notice in terms of section 12 of the Municipal Structures Act; and
demonstrates to the satisfaction of the court that financial, fiscal or management conditions are such that a financial emergency also exists in the newly established municipality.
Part 4: Protection in a financial emergency
Application for extraordinary relief
100. (1) If the Municipal Financial Recovery Service on reasonable grounds is of the view that the financial emergency cannot be resolved without restructuring the municipality’s obligations to creditors, the Municipal Financial Recovery Service may apply to a court for an order:
to stay legal proceedings by any creditor and the execution of any process against the municipality for a period not exceeding 90 days at a time;
to suspend the obligations of the municipality to its creditors until the declaration of the financial emergency is terminated; or
to terminate the obligations of the municipality to its creditors, and to settle claims proportionally, taking into account the preference of claims.
(2) Without derogating from the rules of court, notice of application for extraordinary relief under this section must be given in the prescribed manner
to all creditors to whom the municipality owes an amount in excess of a prescribed amount;
to any creditor who filed the original application for a declaration of a financial emergency;
Suspension of municipal obligations
101. (1) Before granting a suspension application in terms of section 100(1)(b), the court must be satisfied that:
a financial recovery plan has been adopted for the municipality that complies with the requirements of section 94;
the municipality cannot meet its obligations to its creditors; and
all assets and rights not necessary to provide minimum essential municipal services have been liquidated for the benefit of meeting creditor's claims.
(2) If the court grants an application referred to in subsection (1):
it must give preference to the rights of secured creditors as to assets or rights with which they are secured, if the security in question was given good faith and at least six months' application;
it may condition such a suspension on the municipality’s implementation of the financial recovery plan.
Termination of municipal obligations and proportional settlement of claims
102. (1) Before granting a termination application in terms of section 100(1)(c), the court must be satisfied that:
the municipality cannot meet its obligation to its creditors and would not be able to do so in the foreseeable future;
all assets and rights not necessary to provide minimum essential municipal services have been liquidated for the benefit of meeting creditors' claims; and
personnel expenditure is at a level that is sustainable in terms of reasonably projected revenues.
(2) If the court grants an application referred to subsection (1):
it must give preference to the rights of secured creditors as to assets or rights with which they are secured, if the security in question was given in good faith and at least six months' application;
it must treat unsecured claims as concurrent and order that such claims be settled proportionally; and
Part 5: Establishment, functions and administration of Municipal Financial Recovery Service
103. A Municipal Financial Recovery Service is hereby established as an institution outside the public administration as envisaged in section 195 of the Constitution.
104. The Municipal Financial Recovery Service:
on request by any municipality that is experiencing financial difficulties, must assist the municipality to identify the causes of, and potential solutions for, these financial difficulties;
on request by the provincial MEC responsible for Local Government or the Minister of Finance:
(i) must assist the MEC or Minister in identifying problems and proposing solutions for any municipality declared by the MEC or Minister to be under financial watch;
(ii) must develop a financial recovery plan for the municipality;
must perform the duties and may exercise the powers assigned to the Municipal Financial Recovery Service in terms of this Act;
may monitor the implementation of financial recovery plans;
may collect information on municipal financial problems and on best practices in resolving such problems; and
must prepare and submit annual reports to the Minister of Finance and the Minister for Provincial and Local Government on its activities.
105. The Municipal Financial Recovery Service may do all that is necessary or expedient to perform its functions effectively, which includes the power to:
determine its own staff and the terms and conditions of employment within a framework determined by the Minister;
obtain the services of any person, including any organ of state, by agreement to perform any specific act or function;
require that costs and expenses associated with the preparation and implementation of a financial recovery plan be paid by, or recovered from the municipality;
open and operate its own bank accounts, subject to the Public Finance Management Act;
perform legal acts, or institute or defend any legal action in its own name;
do anything that is incidental to the exercise of any of its powers.
Appointment and functions of chief executive officer
106. (1) The Minister of Finance, acting in consultation with the Minister for Provincial and Local Government, must appoint a person as the chief executive officer of the Municipal Financial Recovery Service.
(2) A person appointed as the chief executive officer holds office on terms and conditions set out in a written employment contract, which must include terms and conditions setting performance standards; for an agreed term not exceeding five years, but which is renewable.
(3) The chief executive officer manages the Municipal Financial Recovery Service and is responsible for the performance by the Service of its functions.
107. When the chief executive officer is absent or otherwise unable to perform the functions of office, or during a vacancy in the office of the chief executive officer, the Minister of Finance, acting in consultation with the Minister for Provincial and Local Government may designate another employee of the Municipal Financial Recovery Service, or a person seconded to the Municipal Financial Recovery Service, to act as chief executive officer.
108. (1) The staff of the Municipal Financial Recovery Service consists of
the chief executive officer of the Municipal Financial Recovery Service; and
persons in the service of or seconded to the Municipal Financial Recovery Service.
(2) An employee of an organ of state may be seconded to the Municipal Financial Recovery Service by agreement between the Service and such organ of state.
(3) Staff members referred to in subsection (1)(b) perform their duties subject to the control and directions of the chief executive officer.
109. (1) The funds of the Municipal Financial Recovery Service consist of
money appropriated annually by Parliament for the purposes of the Service;
any government grants made to it; and
any other money legally acquired by it.
(2) The Municipal Financial Recovery Service may accept donations but only with the approval of the Minister of Finance.
110. (1) The chief executive officer of the Municipal Financial Recovery Service may delegate powers or duties to a member of the staff.
(2) A delegation in terms of subsection (1)
is subject to the limitations or conditions that the chief executive officer may impose; and
does not divest the chief executive officer of the responsibility concerning the exercise of the delegated power or the performance of the delegated duty.
(3) The chief executive officer may confirm, vary or revoke any decision taken in consequence of a delegation in terms of subsection (1), but no such variation or revocation of a decision may detract from any rights that may have accrued as a result of the decision.