In the case of Peel & Others / Hamon J & C Engineering (Pty) Ltd & Others (2012/00994) the South Gauteng High Court dealt with this issue amongst others.
For our purpose, we will only deal with the above issue.
Summary of facts:
- In order to improve its BEE scorecard to obtain a government tender, Hamon & Cie (“the company”) entered into a Shareholders Agreement with two black female employees.
- In terms of the Shareholders Agreement 13% shares were sold to each of the two employees (26% black shareholding in total).
- The company had made provision in the Shareholders Agreement to reclaim the shares at any time from the black shareholders on simple request, which had the effect of the shares being reclaimed without any value being transferred from the company to the black shareholders.
- In effect, the two black employees were shareholders on paper, but no shares were subsequently issued to them, they were never treated as shareholders and each of them received a “shareholders allowance” of R115.00 per week.
- Shortly thereafter the company was awarded a tender from Eskom and a few months later the shares of the black shareholders were reclaimed and taken back by the company.
- It is clear that the company’s conduct was in contravention with the Broad-Based Black Economic Empowerment Act 53 of 2003 (“the Act”) and that the sale of the shares to the black shareholders did not constitute proper BEE Empowerment as contemplated and intended in Section 1 of the Act, which defines broad-based black economic empowerment as follows:
“The economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socio-economic strategies that include, but are not limited to –
- increasing the number of black people that manage, own and control enterprises and productive assets;
- facilitating ownership and management of enterprises and productive assets by communities, workers, co-operatives and other collective enterprises;
- human resource and skills development;
- achieving equitable representation in all occupational categories and levels in the workforce;
- preferential procurement; and
- investment in enterprises that are owned or managed by black people.”
From the above-mentioned facts is clear that companies must ensure that should they proceed with Black Ownership that this is done in line with the B-BBEE Codes and that the Black Owner participates as a true owner in the business. In the abovementioned case, it is clear that the company was fronting and this can lead to further prosecution.
Kindly contact your SEESA B-BBEE legal advisor for more information or assistance with the above.
ABOUT THE AUTHOR
Cordieu Hamman is an admitted attorney who completed his BA Law and LLB degrees at the University of the North West (Potchefstroom Campus). Cordieu is currently a B-BBEE legal advisor at our Cape Town branch.