The Dept of Trade, Industry and Competition published a Practice Note in May 2021 regarding the rules of discretionary collective enterprises. The note provided clarity on the interpretation of the B-BBEE Codes regarding claiming points for ownership through ‘discretionary collective enterprises’.
The Practice Note seeks to provide certainty for those measured entities that made use of a collective enterprise and what will be required as satisfying the requirements for Black ownership in terms of the Codes.
According to the Practice Note, businesses only need to make use of a defined class of natural persons and that a list of individual beneficiaries of the scheme is not necessary.
Collective enterprises would normally allow the trustees to exercise their discretion to select individuals from a ‘defined class of natural persons’ as beneficiaries of the scheme and secondly to determine the amount of funds to be allocated to each beneficiary in accordance with the formula recorded in the constitutional documents of the scheme, or by determining the proportion of the entitlement of that particular beneficiary once selected from the ‘defined class of natural persons’.
To put the above mentioned into an example, let’s look at the powers granted to the trustees of a bursary scheme. The trust deed would identify the ‘class of natural persons’ of the scheme, for example ‘black female students studying engineering at a university’. Beneficiaries will then be selected from this defined class by the trustees. The trust deed may also grant to the trustees a discretion in terms of the value of the distribution to be awarded to each beneficiary. Once decided to pay out funds, the amount can be paid out to the beneficiary or on behalf of the beneficiary. Beneficiaries may also include minors as long as they comply with the ‘defined class of natural persons’
The Practice Note also clarified that the funds referred to above can be made in cash or in kind. This means that entities will be allowed to make payments directly towards the third-party providers, such as educational institutions, on behalf of the beneficiaries.
In the past, companies were penalised on the Ownership element when a measured entity was unable to pay dividends, whether it was due to solvency issues or it had elected to withhold dividends. The Practice Note has now clarified the position stating that the dividend attaches to the right to receive a dividend, not to the distribution itself. Such entities will not be penalised for this.
The Practice Note clearly stipulates that the constitutional documents are key in interpreting the evidentiary requirements. If the trust deed is clear on the race and gender composition of a defined class of beneficiaries, then the trust deed will serve as the written record of those facts. Should it not be clear from the face of the constitutional documents, then reliance may be placed on an independent competent person’s report estimating the rights of Black ownership in the scheme.
Finally, the Practice Note makes it clear that the voting rights exercised by the trustees, or the fiduciaries of a scheme, will be attributed to the race and gender of the beneficiaries of the scheme and not to the trustees themselves.
Please contact your nearest SEESA office for assistance with any B-BBEE related enquiries. Alternatively, please leave your contact details on our website.
About the author:
Ivan Husselman started his career at SEESA in 2017 and is currently a Labour and BEE Legal Advisor at SEESA’s Klerksdorp branch. He obtained his BCom Law degree from the North-West University Potchefstroom.
Resources:
- https://www.derebus.org.za/sanity-now-prevails-in-the-b-bbee-landscape/
- https://www.bowmanslaw.com/insights/mergers-and-acquisitions/south-africa-b-bbee-new-practice-note-on-discretionary-collective-enterprises/
- https://www.golegal.co.za/practice-note-bbbee/
- https://www.cliffedekkerhofmeyr.com/en/news/publications/2021/Corporate/bee-alert-19-may-Practice-Note-in-terms-of-B-BBEE-Act-2003-Rules-for-discretionary-collective-enterprises-published-on-17-May-2021-Practice-Note.html