B-BBEE Ownership Points (Sale of Assets, Equity Instruments and Other Businesses)

Reference Acts and Documents

BEE Act, as amended
Codes of Good practice, as amended

In this article we look at Statement 102 of the Codes of Good Practice and BEE ownership. The Codes of Good Practice (Generic Codes) provide an alternative form of ownership recognition in Statement 102 which relates to the sale of assets, equity instruments and other businesses.

The general principle is that a measured entity (seller) who has concluded a transaction involving a sale of asset, equity instrument or business of a separately identifiable relating business, may claim the benefits provided for in this statement in its ownership scorecard.

Where a seller has claimed benefits in terms of Statement 102 under its ownership scorecard it may not claim under the enterprise and supplier development element. This confirms the principle that you may not double count.

What is recognised under Statement 102?

A “qualifying transaction” is indicated as a transaction which may involve the sale of (a) an asset, (b) a business, or (c) Equity Instruments in an entity.

The term “Equity Instrument” is defined in the Generic Codes as “the instrument by which a Participant holds rights of ownership in an Entity”.

For ownership points to be recognised, the transaction:

  1. must result in the creation of viable and sustainable businesses or business opportunities in the hands of Black people; and
  2. result in the transfer of critical and specialised skills, managerial skills, and productive capacity to Black people.

A sale of asset, Equity Instrument and/or business must involve a separately identifiable related business which has:

  1. no unreasonable limitations or conditions with regards to its clients or customers;
  2. clients, customers or suppliers other than the seller; and
  3. B-BBEE shareholders, or their successors if the B-BBEE shareholding is the same or improved, holding the asset for a minimum of three years.

The term “separately identifiable related business” is defined as a “business that is related to the Seller by virtue of being a Subsidiary, Joint Venture, Associate, Business Division, Business Unit, or any other similar related arrangements within the Ownership structure of the Seller”.

Additional qualification criteria:

  1. any operational outsourcing arrangements between the seller and the separately identifiable related Business must be negotiated at arms-length on a fair and reasonable basis; and
  2. the transaction should be subject to an independent verification value by an independent expert.

The Generic Codes indicate that the following transactions do not constitute “qualifying transactions” and cannot be used.

These transactions include:

  1. transfers of business rights by way of license, lease or other similar legal arrangements not conferring unrestricted ownership; and
  2. sales of franchises by franchisors to franchisees (but a “qualifying transaction” will include sales of franchises from franchisees to other franchisees or to new franchisees do not qualify for recognition).

The Generic Codes also state that, “No Qualifying Transaction could be claimed as B-BBEE ownership if a repurchase transaction is entered into within a three year period after transaction implementation, even if [the repurchase] transaction implementation is deferred to after year 3.” A seller does not have any right to enforce such a repurchase.

The seller, when applying Statement 102, will need to comply with the sub-minimum requirement for ownership, being 40% of the Net Value points only to the extent of the transaction involving the separately identifiable related business and will only have to comply with all other priority elements as required by the Generic Codes.

For the first three years after the transaction, the seller will recognise the ownership points on the date of measurement in accordance with the (i) value of the seller and (ii) the value of the separately identifiable related business. This is done for each year of the 3-year period.

On each measurement date after the third year, the seller will recognise ownership points based on the ownership indicator percentages achieved in the third year after the transaction.

The transaction value is required to be reviewed by an independent expert, who is required to provide an opinion on the fairness of the transaction value. Going forward, the recognition is subject to the opinion of the independent expert supporting the transaction value.

Author Craig Tonkin

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