“Should your business consider an ownership transaction which may affect your ownership recognition for BEE purposes, it will be important to also consider whether this transaction will require registration with the B-BBEE Commission. In this article we briefly unpack what the requirements for registration of a major B-BBEE transaction are.”In terms of section 13F(1)(f) of the Broad-Based Black Economic Empowerment Act, 2003 as amended (“B-BBEE Act”), one of the functions of the Broad-Based Black Economic Empowerment Commission (“B-BBEE Commission”) is to receive and analyse major broad-based black economic empowerment (B-BBEE) transactions above a certain threshold, in order to promote good governance and accountability.
A major B-BBEE transaction is defined as any transaction that results in ownership recognition in terms of Statement 100 of the Codes of Good Practice (“B-BBEE Codes”). It is important to note that the definition does not provide that the transaction entered into must be for the specific purpose of obtaining or improving a company’s scoring on the ownership element of its B-BBEE scorecard. The definition of a major B-BBEE transaction is wide enough to include all transactions which are entered into, for any commercial reasons other than B-BBEE ownership recognition, but which nevertheless have this consequence.
On 9 June 2017, the Department of Trade and Industry published a notice stating that all major B-BBEE transactions with a transaction value equal to, or exceeding, R25 million should be registered with the B-BBEE Commission. For purposes of the B-BBEE Codes, the transaction value is the value of the asset, business or equity instrument sold.
In terms of the regulations to the B-BBEE Act (“B-BBEE Regulations”), a party who enters into a major B-BBEE transaction must, within 15 days of concluding the transaction, submit the transaction to the B-BBEE Commission in the prescribed form.
The following documents must be submitted to the B-BBEE Commission when reporting a major B-BBEE transaction:
- Form B-BBEE 18, which details the basic information relating to the parties and transaction value.
- A brief description of the major B-BBEE transaction.
- A copy of a signed sale agreement or similar agreement transferring the shares / interests / assets / business, as the case may be, from one party or entity to another.
- A copy of the signed shareholders’ agreements or similar agreements governing the relationship between holders of interest, in respect of the major B-BBEE transaction.
- A copy of the signed trust deeds, if the ownership structure of the major B-BBEE transaction includes a trust.
- A copy of the signed financing agreement relating to the transaction, irrespective of whether or not it was vendor financed.
- A schematic diagram of the ownership structure before and after the conclusion of the major B-BBEE transaction.
- A copy of a valid B-BBEE certificate or a B-BBEE affidavit of the measured entity involved in the major B-BBEE transaction.
- Any document that the parties or entities may deem relevant to the transaction.
The B-BBEE Regulations provide that upon receipt of the registration of a major B-BBEE transaction, the B-BBEE Commission must immediately acknowledge receipt of the registration in writing, and within 10 days issue a certificate of registration to the party that submitted the transaction if the requirements for registration have been met. From the B-BBEE Regulations it appears that the B-BBEE Commission has no discretion as to whether to issue a certificate of registration or not.
The B-BBEE Commission may then, within 90 days after the major B-BBEE transaction has been registered with it, assess the transaction to determine its compliance with the B-BBEE Act, and advise the parties that submitted the transaction in writing of any concerns the B-BBEE Commission has regarding the transaction. The party or parties must then take steps to address the B-BEE Commission’s concerns. Should they fail to do so, an investigation can be initiated by the B-BBEE Commission into the transaction.
Of importance is the fact that the B-BBEE regulations do not provide for any detail relating to the consequences of failing to submit such notification to the B-BBEE Commission, nor does it provide for any offence associated thereto. However, it is in our view prudent to rather comply with the requirements of the B-BBEE legislation in a timely manner and avoid lengthy consultation processes with the B-BBEE Commission in respect of non-compliance.
The process of registering a major B-BBEE transaction with the B-BBEE Commission can be complex and it may be advisable to require your transaction advisors to assist you also with this process.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).