On 5 May 2015, the Department of Trade and Industry (DTI) issued a “clarification notice” regarding the implementation of the Amended Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice, which took effect on 1 May 2015 (Revised Codes).

The most far-reaching “clarification”, which in our view actually constitutes a fundamental amendment to the Revised Codes, states that Black Participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes holding rights of ownership in a measured entity may only score a maximum of 3 points on the ownership scorecard. 

This will negatively and severely impact all B-BBEE ownership transactions which involved the sale or transfer of shares or ownership stakes to broad-based charitable schemes, community, community schemes and employee share ownership schemes.

To the extent that existing B-BBEE ownership transactions are unwound, or restructured as a consequence of this fundamental amendment to the Revised Codes, one of the unforeseen consequences could be economic dilution for participants arising from tax liabilities that would need to be discharged.

Other issues “clarified” in the notice are as follows:

• All B-BBEE verifications conducted using the financial year ending before 30 April 2015 can be verified using the old codes of good practice. All non-sector specific B-BBEE verifications conducted using the financial year ending after 1 May 2015 must be verified using the Revised Codes.
• The transitional period for the alignment of the sector codes to the Revised Codes has been extended to the end of October 2015. Sector codes not aligned and ready for gazetting by the end of October 2015 may be repealed.
• All valid B-BBEE certificates issued under the old codes of good practice, as well as the relevant sector codes, will be valid until 30 April 2016. This means that businesses in possession of these certificates will be treated as empowering suppliers. For all Exempted Micro Enterprises certificates issued without Empowering Supplier Status, Exempted Micro Enterprises and Start-Ups are automatically recognised as empowering suppliers.

By referring to this notice as a “clarification”, the DTI has sought to avoid the provisions of the B-BBEE Act (as the empowering legislation) which requires that any amendments to the B-BBEE Codes must first be published in draft form and be open to the public for comment for 60 days.