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.
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