I would like to briefly discuss 2 matters on the BEE scorecard. The first is the always topical and emotive matter of Ownership and the second is Employment Equity.
The ownership element on the BEE scorecard has a significant impact on the final score. Under the General Codes there are 25 points available and, as Ownership is a Priority Element, companies not meeting the 40% subminimum will be discounted a level. This means that the best companies with no Black ownership can score on their scorecards is a very expensive Level 6. Companies, especially those in the Auto Sector, are under increasing pressure to be a level 4. If shares are not readily tradeable what do we do?
We can use Statement 102 to the BEE Codes of Good Practice. This statement allows companies to recognise deemed ownership if they sell assets or businesses to black people. These assets or businesses must meet certain criteria such as the requirement for skills or productive assets to be transferred, with no buy-back requirements, and three-year valuations of the assets/businesses sold. The points are then allocated based on the value of the assets sold and the value of the selling company. I must emphasise that no equity in the company is sold, this is deemed ownership.
Obvious complications will include:
- Identification of the assets to be sold. Many companies do not have non-core or non-strategic assets they can sell off for such ownership to be recognised.
- Identification of the purchaser and funding of the purchase. This can be complicated by the amounts that we need to sell and finance to score meaningful points on the scorecard.
We have engaged with service providers who assist by creating the asset to be sold, normally a Photo Voltaic installation, and then funding the purchase of the installation. The seller will enter power off-take agreements with the purchaser and this is the source of funds for the black owner purchaser. The seller will have the following benefits:
- Seller obtains the required BBBEE Ownership Points
- Seller obtains Procurement points from a black owned business.
- No interference from external shareholders as there is no sale of equity
- Ownership scored in perpetuity after three years
- Enhanced Green credentials
There was an article in BusinessTech on 17 November 2021 entitled “Stricter BEE Laws planned for South Africa in 2022”. Reading the article showed no mention of BEE. All that was covered was proposed changes to the Employment Equity Act. The reference to BEE in the title was designed to attract reader attention.
These changes have no immediate impact on a company’s BEE. The BEE Codes and Act are separate from the Employment Equity Act, but once these changes are made to the Employment Equity Act, steps will be taken to ensure that the updated requirements are reflected in the BEE codes. The process laid down in the BEE Act and Codes of Good Practice for changing the codes must be followed. In summary these steps include:
- Gazetting proposed changes for a 60-day comment period
- Consideration of the impact of comments received on the proposed changes
- Gazetting of the final amendments
This process can take anything from months (YES) to years, the long awaited, still unfinalised amendments to the Transport Sector Codes.
We will need to take note of the provisions in the amended Employment Equity Act when Gazetted and determine how they will impact company’s BEE scorecards. The impact will not be immediate, but it will come.
If you would like to explore BEE Ownership through Sale of Assets or need any BEE assistance, please feel free to contact me at email@example.com or 083 440 2130. Alternatively please contact Rachel Anthony on firstname.lastname@example.org or 082 577 4603.