MEDIA RELEASE

DATE: 30 SEPTEMBER 2020

 

499 major Broad-Based Black Economic Empowerment (B-BBEE) transactions exceeding R25 million were submitted for registration to the B-BBEE Commission since 2017 to date, although it noted that parties often neglect to submit them within 15-days of conclusion, as per requirements of the B-BBEE Act. It is of the utmost importance that companies adhere to this to ensure that their transactions are assessed for compliance at the early stage of the transaction to prevent provisions and structures that could amount to fronting practices which is a criminal offence. This was said by the Acting Executive Manager for Compliance at the B-BBEE Commission, Ms Lindiwe Madonsela, during a webinar session with B-BBEE practitioners on testing B-BBEE ownership structures for compliance, which took place on Tuesday, 29 September 2020.

 

Madonsela outlined that the webinar engagement was necessitated by a need to have a session with B-BBEE practitioners involved in advising, negotiating and or drafting of structures and documents relating to these transactions, where discussions could be facilitated regarding requirements around ownership to achieve compliance. This is the first of the continuous engagements with B-BBEE practitioners that the Commission aims to have going forward.

 

“So it becomes imperative to lay-out that understanding, that what we see as documents being presented to the B-BBEE Commission, will be documentation that will translate to the actual ownership that the legislation seeks to achieve, or the transfer of ownership as provided for in the legislation,” she said.

 

She further stated that the status of submitted major B-BBEE transactions spanning from 2017 to date, totalled 499, 350 of which were successfully registered, 144 were rejected for non-compliance and 83 have since been referred for investigation. Although concerned about the late submission and high rejection number, the aligned transactions promise to transfer real ownership to black people, if properly implemented and monitored.

 

“In assessing the ownership structures we have identified the difficulty of tracing the actual real black beneficiaries in the number of transactions registered, most of the trusts presented did not satisfy the requirements of the ownership scorecard, the funding arrangements extended the control of the funders beyond what was reasonable to secure the funding, there was also an increased trend in limiting the ownership rights through the application of one-sided clauses and there were a litany of provisions that limited the flow of economic interest to black people,” said Madonsela.

 

“We found some structures that held shares through particular vehicles such as trusts, BBOS or ESOPS but with no black participants at all. Participants were only identified later on during the verification process and this is grossly flawed. Again we found that when it is these broad-based structures facilitates the black ownership, there was no exercising of voting rights in the measured entity, even when there may be participation at the trust level. The participation must flow through to the measured entity and that is the entity that recognises the level of black ownership,” she said.

 

Ms Erika Holmes, an attorney with Shepstone & Wylie Attorneys also expressed the importance of understanding the requirements for registration of major transactions and the role of the B-BBEE Commission. She also emphasised the offences outlined in the B-BBEE Act and addressed aspects relating to non-alignment against the offence of fronting practice.

 

Ms Holmes, went further to share some of the concerns that the B-BBEE Commission has expressed with particular reference to certain clauses that are considered standard to such transactions and that includes call options, pledges, one sided restraint of trade as well as board composition of measured entities that recognise the major B-BBEE transactions. She also added the concerns relating to Broad-Based Ownership Schemes and Employee Share Ownership Programmes, emphasising that parties to these transactions are not willingly seeking to dilute the black ownership, but that it is a confirmation that B-BBEE transactions require more than mere tokenism and should result in transfer of skills and sustainable businesses, also quoting the Swifambo case on fronting.

 

Echoing the sentiments expressed by Ms Holmes, Ms Amber Kardamilakis a Director with Norton Rose Fulbright South Africa noted that the language and wording of some of the clauses in the major B-BBEE transaction governing documents may bring about confusion and can in some instances be construed as the intention to circumvent the B-BBEE Act.

 

She further, emphasised the need for transfer of knowledge and skills, more importantly when it comes to post transaction implementation to ensure that both parties to the major B-BBEE transactions understand what is required and their respective responsibilities in ensuring compliance with the B-BBEE Act.

 

The South African economy has a special dispensation to facilitate economic transformation and the empowerment of black people and therefore, multinational corporations must be encouraged to understand the B-BBEE legislative framework and its importance, in order to ensure compliance with the laws of both the home country and South Africa, said Ms Kardamilakis. Thus education is critical and such similar continuous engagements between the B-BBEE Commission and those at the forefront of drafting and advising on major B-BBEE transactions is critical in building not only relations but to capacitate the practitioner on better understanding the B-BBEE Act.

 

Council Member for the Legal Practice Council, Mr Lutendo Sigogo highlighted the value of the session in providing insight to legal practitioners, more so the black practitioners as part of knowledge sharing and guidance on matters of transformation which is still lacking in the legal fraternity. He further expressed the measures that the Council had undertaken to advise tertiary institutions in terms of the fields which must be consolidated in order to produce quality legal practitioners as a means to transforming the legal profession with regards to B-BBEE ownership.

 

“It has planned to meet with the B-BBEE Commission in terms of ensuring that those who enter the profession are able to remain in the profession as well as to grow the profession. By growth we talk about ownership, and management control as envisaged in the B-BBEE Act. That is still a challenge to the profession because we know that mainly in ownership and management of law firms we find white males. So when we come in as the Legal Practice Council we want to balance the scales so that even black women and white practitioners find themselves in the growth path in the legal practice,” he said.

 

The B-BBEE Commissioner, Ms Zodwa Ntuli concluded by emphasising the importance of understanding what B-BBEE ownership is, in terms of the B-BBEE Act, also alluding that B-BBEE transactions are also commercial transactions, but it is the effect of the commercial arrangement on the ownership rights and benefits of black shareholders that is of importance to the assessment to ensure they are consistent with the B-BBEE Act.

 

Ms Ntuli concluded by thanking participants and panelists and added that the B-BBEE Commission is open and willing to engage extensively on the various aspects of the major B-BBEE transactions to help the country to deracialise the economy that has served a minority to the exclusion of the majority of this country, and in this regard, that it will continue to offer free advice and open its doors to all stakeholders, including practitioners that are involved in these transactions.

 

Click below link to access the recording of the session https://1drv.ms/u/s!AsaIGVL5wed9hmbo4iDJYJ0wS1DW?e=Q4sQgk