Dr Rob Davies, the Minister of Trade and Industry, announced in the Government Gazette dated 9 June 2017 that the threshold for major B-BBEE ownership transactions would be R25 million. Importantly, the manner in which the threshold is to be calculated will be significantly different than initially announced at the end of 2016.
According to Soria Hay, Head of Corporate Finance at Bravura, an independent investment banking firm specialising in corporate finance and structured solutions, this announcement is likely to be significant to the South African corporate sector. The threshold itself is lower than the R100 million threshold that was initially expected, but the manner in which it is calculated has been improved considerably.
Previously, it was announced that a major B-BBEE ownership transaction would be a transaction which equals or exceeds R100 million, calculated by either combining the annual turnover of both entities or their asset value. This definition has been updated. A Major B-BBEE Transaction is any transaction that has resulted or will result in a measured entity claiming ownership points in terms of the ownership scorecard of the applicable
BEE codes of good practice, and where the B-BBEE transaction value is equal or more than R25 million, excluding administration, professional and legal fees. Although the updated definition is welcomed, the R25 million threshold value would still require the majority of B-BBEE ownership transactions to be reported. The B-BBEE Commission’s capacity to handle large volumes of registrations will be put to the test.
The 9 June 2017 announcement has retrospective effect, as all major B-BBEE ownership transactions concluded on or after 24 October 2014, must be registered with the B-BBEE Commission within 60 calendar days of the final publication of the announcement. All parties to the transaction have a collective responsibility to register the transaction.
According to the regulations to the B-BBEE Act, the registration of a new B-BBEE transaction must occur within 15 business days of its conclusion. The prescribed registration form requires minimal information and no underlying transaction documents, so it is unclear on what information the Commission’s approval will be based. If approved, the Commission must issue a certificate of registration within 10 days of the application. Following this is a 90-day period in which the Commission can assess the adherence of the transaction in relation to the B-BBEE Act and advise transaction parties of any concerns. This is an indirect approval rather than a notification process as implied.
The regulations stipulate that transactions do not need Commission approval to commence with implementation but if remedial action is required once the transaction is in progress, this could result in severe time and cost implications. The regulations go so far as to advise parties to seek input from the Commission’s advisory opinion services prior to transaction conclusion. As a safeguard, transacting parties would be well advised to factor the 90-day period into their transaction implementation timelines.
Soria emphasises the importance of this development. “It seems as if there is a particular emphasis on ensuring that the B-BBEE ownership element is being adequately and sustainably addressed. The registration of major B-BBEE ownership transactions will effectively allow the Commission to vet the details of the transaction to ensure it demonstrates the required criteria. This clearly expresses a more pro-active intent on the part of the Department of Trade and Industry to monitor B-BBEE ownership transactions to ensure they meet with the spirit of the B-BBEE framework, with substance over form an important consideration. The areas that the Commission are likely to focus on include, but are not limited to, overly complex structures, lack of minority rights protection, corporate governance failures and third party facilitation.”
It is important for companies to scrutinise their current B-BBEE structures and address anything that is inconsistent with scorecard requirements, in order to avoid serious potential penalties. The stakes for new B-BBEE ownership transactions are meaningfully higher. The need to effectively structure and implement transactions that are fully compliant and that will meet with the approval of the Commission is obvious. This requires a clear and detailed understanding of the provisions of the relevant B-BBEE codes and policy documentation and a proactive approach to designing and engaging with structures that meet the requirements but also ensure that companies remain able to grow and thrive.
