Since the inception of the B-BBEE Codes of Good Practice (COGP), at which stage provision was made for, amongst others, Broad-Based Ownership Schemes, Employee Share Ownership Programmes and Trusts (hereinafter referred to as “B-BBEE ownership schemes”) to legitimately form part of the B-BBEE ownership structure of any business, there has been a lot of confusion regarding the following aspects:
The discretionary powers of the fiduciaries of these B-BBEE ownership schemes;
The recognition of voting rights and economic interest within these B-BBEE ownership schemes;
The role of minors within these B-BBEE ownership schemes;
Whether B-BBEE ownership schemes with a social and educational objective qualify as a legitimate B-BBEE ownership scheme.
The above mentioned confusion has been laid to rest to a large extent by the publication of the Practice Note for Discretionary Collective Enterprises in Government Gazette 44591, on 18 May 2021.
1. With respect to the discretionary powers of the fiduciaries of B-BBEE ownership schemes, it should be noted that the COGP contains certain restrictions on these discretionary powers, as far as these discretionary powers may be applied to the identification of beneficiaries and the distribution of benefit. Some role-players within the B-BBEE industry applied these provisions of the COGP as a blanket restriction on fiduciary discretionary powers, in some cases to such an extreme extent that if the constitution of a B-BBEE ownership scheme conferred any discretionary powers on the schemes fiduciaries, the said scheme was immediately disqualified from recognition for B-BBEE ownership purposes. The Practice Note has cleared this up by expressly stating that as long as the constitution of the B-BBEE ownership scheme either identifies the beneficiaries by class or by name, the fiduciaries may exercise their discretionary powers within these bounds. Further, as long as the constitution of the B-BBEE ownership scheme either sets out the fixed percentages of benefit or contains a formula to calculate this benefit, the fiduciaries may once again exercise their discretionary powers within these bounds. Other than what has been mentioned above, is there no further restriction on the discretionary powers of the fiduciaries and is there certainly no blanket restriction. Any role-players within the B-BBEE industry that interprets the discretionary power restriction in any other way, will do so in contravention of the Practice Note.
2. A perception existed amongst certain role-players within the B-BBEE industry that the voting rights associated with the shareholding held by a B-BBEE ownership scheme had to be exercised by the scheme’s beneficiaries. The Practice Note makes it clear that this is not the case. The Practice Note stipulates that the rights of the beneficiaries are exercised by the scheme’s fiduciaries on their behalf and that the voting rights of the beneficiaries will be exercised by the fiduciaries. These voting rights must then be attributed to the race and gender of the beneficiaries and not the race and gender of the fiduciaries. With respect to the recognition of economic interest it must be noted that the Practice Note makes it clear that it is not the actual flow of money that determines the economic interest recognition, but rather the rights of the beneficiaries to receive such economic interest. Economic interest should further be attributed to the race and gender composition of the beneficiaries.
3. As far as minors are concerned, the Practice Note makes it clear that the only general requirement for B-BBEE ownership, in terms of the COGP, is that such ownership must be attributable to black people. There is no restriction on the age of such black people. As such, there is no restriction on minors being the beneficiaries of B-BBEE ownership schemes, whether they are part of a defined class of natural person or are identified individually.
4. Certain role-players within the B-BBEE industry have been averse to schemes with a social or educational objective legitimately taking part within the B-BBEE ownership structure of a business. In fact, these role-players have gone out of their way to discourage this. The Practice Note should put an end to this arbitrary and total illegitimate practice. The Practice Note makes it clear that benefit distributions from B-BBEE ownership schemes need not necessarily be in cash but may be in kind. The Practice Note expressly notes that often these types of B-BBEE ownership schemes pays for the skills development, education or training of beneficiaries or fund social interventions and development. The Practice Note determines that distributions of this nature do not disqualify such a B-BBEE ownership scheme from receiving recognition for B-BBEE economic interest.
Compliance Hub Consulting specializes in creating legitimate, fully compliant B-BBEE ownership structures. Should you require expert advice with respect to your B-BBEE ownership, please do not hesitate to contact us.
Corne Bester: Executive Consultant - Compliance Hub