• New B-BBEE reporting requirement will shed light on true extent of transformation

There should soon be clarity on extent of transformation brought about by B-BBEE transactions with an ownership element.

26 June 2017

There should soon be more clarity on the extent of transformation brought about by broad-based black empowerment (B-BBEE) transactions with an ownership element. This follows the B-BBEE Commission’s decision that all such B-BBEE transactions with a value of R25 million and upwards must be reported and registered.

Jenni Lawrence, Managing Director: Verification Services at Grant Thornton believes this decision will enable the Commission to have a significantly better understanding as to the level of broad-based empowerment that has been reached.

The BEE Regulations were originally gazetted a year ago, with instructions that major transactions with an ownership element exceeding a certain threshold, would be required to be reported to the Commission. A draft notice a few months later suggested the threshold should be R100 million, followed by a final notice gazetted earlier this month, lowering the threshold to R25 million.

“The lower threshold means that more empowerment deals will come under scrutiny of the B-BBEE Commission, and this should give the public a better idea of the extent of empowerment in the economy,” she says.

According to the B-BBEE Commission, the rationale behind registering certain empowerment transactions is to allow for monitoring of compliance, the levels of transformation and the extent to which benefits of major B-BBEE transactions flow to the black people that are part of these deals.

“While there was initially some confusion as to how the value of deals will be determined, the Commission has since clarified that the transaction value excludes administration, professional and legal fees. The value therefore refers to ‘the value of the sale of asset, business or equity instrument’,” says Lawrence.

Any party that enters into such a transaction has to notify the B-BBEE Commission within 15 days of concluding the transaction.

“A very interesting element of this regulation is that it will be applied retrospectively to all major broad-based empowerment transactions that have been concluded on or after the B-BBEE Act was proclaimed (24 October 2014) and before the publication of the latest notice (9 June 2017).”

The parties to these past transactions will have 60 days to register the deals’ details with the Commission. She emphasises that this registration is not tantamount to seeking approval for a deal, but rather a notification of transactions.

“We do not foresee this decision resulting in more bureaucracy for those parties that have concluded empowerment transactions since 2014, as the Commission requires a basic form – that is contained in the Regulations – along with the documents the parties would have drawn up to conclude the transaction, to be submitted for registration purposes. This includes a brief description of the deal, legal agreements, such as copies of the signed shareholders’ agreements, as well as a schematic diagram of ownership before and after the transaction,” explains Lawrence.

She believes this should give the Commission and the public more insight into an area often criticised for being opaque.

“Over the past few years especially there has been a perception that broad-based empowerment transactions do not always comply with the goal of the legislation, and that there is still only a handful of real beneficiaries. The registration of more transactions should help to clarify this field and give policymakers an indication of the efficacy of the regulations,” she concludes.