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Leniency Programmes and Reporting of Major B-BBEE transactions

On 01 April 2022, the annual B-BBEE Commission’s Conference was held. The conference included a presentation “Outcomes of the Impact Assessment Study on the Mandate of the B-BBEE Commission”. The main points of contention from the presentation is that adherence to the B-BBEE Act with respect to reporting of major transactions was still lacking. The score for this section (reporting of major transactions) was a dismal 0-32% (i.e. target not met).

Whilst the perception could be created that the BEE Commission has failed in its mandate this would clearly not be correct. The poor score can also be attributed to a lack of reporting from businesses to the BEE Commission. Only once major transactions have been reported can the Commission proceed with keeping an up-to-date summary of major transactions and thereafter produce meaningful reports of such transactions. The onus is upon industry sector players to provide information to the Commission as soon as such transactions arise. Should the Commission fail to record such transaction and produce the required reports only then could a poor score outcome be attributed to the Commission.

This article discusses application of the previous B-BBEE Leniency Programme which was a compliance mechanism used to encourage reporting of all major B-BBEE transactions prior to the promulgation of the amended B-BBEE Act, as well as promote adherence to the B-BBEE Act.

The B-BBEE Act in Section 13F(3)(b)(ii) permits the B-BBEE Commission to issue non-binding advisory opinion on any provision of the B-BBEE Act to any person who seeks advice on the nature of the identified B-BBEE initiative or structure.

The Programme assisted in aiding the B-BBEE Commission access to such transactions and also afford the opportunity to align such transactions to the B-BEEE Act in ensuring true and meaningful B-BBEE ownership.

The Programme was also necessitated by unwarranted ownership recognition points reflected on some of the B-BBEE certificates as a result of the lack of integrity in the verification industry, where certain verification professionals issue or recognise points for ownership even when the black ownership in question falls short of meeting the requirements of the B-BBEE Act or the verification professional had failed to apply the prescribed verification methodologies to verify black ownership.

The Programme outlined the requirements, procedures and implications for co-operation relating to reporting of major B-BBEE transactions concluded before 24 October 2014.

The previous granting of immunity was not to be interpreted to mean that the B-BBEE Commission would not initiate an investigation against misaligned transactions or that the victims of such transactions are prevented from lodging a complaint with the B-BBEE Commission in line with section 13F(1)(c) and (d) of the B-BBEE Act read with regulations 15 of the B-BBEE Regulations, or that the B-BBEE Commission condones any state procurement or economic activity which was awarded as a result of any misaligned ownership transaction.

Immunity from investigation was granted simply for reasons that the transaction by law is not required to be registered and that the party or parties to that transaction have voluntarily decided to report the transaction to the B-BBEE Commission, prior to the B-BBEE Commission calling for such transaction in terms of section 13F(1)(a) of the B-BBEE Act or having initiated an investigation.

Interpretation of the Leniency Programme

Section 1 of the B-BBEE Act applied to interpretation of this Leniency Programme.
Section 2 of the B-BBEE Regulations also applied to this Leniency Programme.

Reportable B-BBEE ownership transactions

The Leniency Programme applied to all ownership transactions (excluding Statement 103 which deals with recognition of equity equivalents for multi-nationals) concluded prior to 24 October 2014 from R25 million and above at the time of being concluded. The threshold was also aligned to the threshold determined by the Minister through Notice No. 551 in Government Gazette No. 40898.

The threshold is based on the value of the transaction excluding administration, professional and legal fees. For Statement 102, the value of the transaction means the value of the sale of asset/business/equity instrument.

Any party to the B-BBEE ownership transaction had to report the transaction to the B-BBEE Commission in the prescribed FORM B-BBEE 22 issued in accordance with 13F(1)(a) of the B-BBEE Act, within ninety (90) days from the effective date of this Leniency Programme.

Knowing that businesses had the opportunity in the past to use the Leniency Programme, one can only wonder how often this option was utilised or simply ignored.

With the Leniency Programme having expired, the current requirement when reporting a major B-BBEE transaction to the B-BBEE Commission is given below. Form B-BBEE 18 is to be completed when registering a major B-BBEE transaction.

Brief description of the major B-BBEE transaction.
Copy of a signed Sale Agreement, or similar agreement transferring shares/interest/assets/business, as the case may be, from one party/entity to another.
Copy of signed Shareholders’ Agreements, or similar agreement governing the relationship between holders of interest, in respect the major B-BBEE transaction.
Copy of signed trust deeds, if the ownership structure of the major B-BBEE transaction includes a trust.
Copy of a signed financing agreement relating to the transaction, irrespective of whether or not it was vendor financed.
Copy of a schematic diagram of the ownership structure before and after the conclusion of the major B-BBEE transaction.
Copy of a valid B-BBEE Certificate or a B-BBEE Sworn Affidavit, as the case may be, of the measured entity involved in the major B-BBEE transaction.
Any document that the parties/entities deem relevant to the transaction.

It goes without saying that business must register such transactions and be given the opportunity to align such transactions to the B-BBEE Act in ensuring true and meaningful B-BBEE ownership.

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