The South African Department of Trade and Industry issued a notice on Tuesday 5 May 2015, relating to the Broad-Based Black Economic Empowerment (“BBBEE”) Act and stating that broad-based ownership schemes and employee share ownership programmes will no longer be allowed to contribute more than a maximum of 3 points of the total of 25 points on the ownership scorecard.  

The notice appears to apply to both existing and proposed broad-based / community ownership schemes and employee share ownership programmes.  On the scorecard, a maximum of 25 points can be earned for black ownership.  The notice proposes that broad-based and employee share ownership schemes can contribute only a maximum of three points.

As the ownership element is now one of priority elements, requiring an entity to attain a minimum of 3.2 points on the "Net Value" sub-element, all entities that are currently claiming all or most of their ownership points from either a broad-based scheme or an employee share programme would be discounted by 1 status level, in addition to losing most of the ownership points that they currently claim through such a scheme, if this notice is valid.

As per Section 9 of the BBBEE Act, before making changes to Codes of Good Practice, the Minister is supposed to publish a draft in the Gazette for public comment and grant the public a period of 60 days to comment.  In addition, the Act requires that the Codes must be in accordance with the Strategy Document, which requires the policy of BEE to be broad-based.  Neither of these requirements has been met by this notice. 

We recommend that entities do not panic about this notice as this attempt at policy change is clearly invalid. However it remains to be seen whether it will necessitate a court ruling for clarity or whether verification agents will simply view it with the  jaundiced eye that it warrants and continue to apply the policies contained in the Codes of Good Practice.

A spokesman for the DTI has stated that "ownership must be meaningful – there must be no more passive ownership. … The notice was a clarification issue and not a policy issue."  However, this makes little sense as all shareholding is passive ownership, regardless of the vehicle used.  Only directors of a company have an active role in managing the company.

The notice also sought to provide clarity around issues relating to the implementation date of the new Codes of Good Practice, which are effective from 1 May 2015, however, verifications done based on information pertaining to a financial year ending before 30 April 2015 can still be conducted using the old Codes of Good Practice.  Verifications done based on information pertaining to a financial year ending on or after 1 May 2015 must be conducted using the new Codes of Good Practice. 

Shepstone and Wylie will be sure to update you as this issue progresses.

For more information, please contact:

Erika Petersen-Holmes

Partner and BBBEE Specialist

petersen@wylie.co.za

+27 31 575 7410

082 453 8818