On Friday 15 May 2015, the Department of Trade and Industry (the DTI) published a General Notice in Gazette Number 38799 (the Revised Notice) in which it withdrew the General Notice issued in Gazette Number 38764 on Tuesday, 5 May 2015 (the First Notice). 

The First Notice, entitled “Notice of Clarification”, was published by the DTI with a view to providing clarity in respect of a number of practical issues in relation to the new Broad-Based Black Economic Empowerment Codes of Good Practice (the New Codes), which came into force on 1 May 2015. Although the First Notice successfully provided clarity in respect of a number of aspects, for example, by providing that the transitional period for aligning all current sector codes with the New Codes will be extended until 30 October 2015. The First Notice, however, contained a highly controversial provision which had the effect of virtually abolishing the recognition of ownership rights achieved using broad-based ownership schemes and employee share ownership programmes (B-BBEE Schemes) when calculating a measured entity’s broad-based black economic empowerment ownership score. Clause 1(d) of the First Notice provided that “Black participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes holding rights of Ownership in a Measured Entity must only score points under paragraph 2.2.3 under the Ownership scorecard.”  This understandably caused some frenzy in business circles.

After releasing a media statement on 8 May 2015 indicating that this provision will not have retrospective effect and that B-BBEE deals concluded prior to 1 May 2015 will not be affected (i.e. that all deals going forward will be affected), the DTI has now published the Revised Notice, entitled “Revised Notice of Clarification”, in which it replaces and expressly withdraws the First Notice, which means that the First Notice shall no longer be of any force or effect. Clause 1 (d) of the First Notice (quoted above) has not been included in the Revised Notice. This means that the controversial provision will no longer apply to B-BBEE transactions concluded after 1 May 2015, notwithstanding the DTI’s media release. Except for these important amendments and some other minor amendments ostensibly made with a view to cleaning up the drafting of the notice, the Revised Notice is virtually the same as the First Notice.

Although the controversial provision of the First Notice has been done away with, the danger still looms, as the DTI indicated in its media release on 8 May 2015 that it will appoint a technical task team to explore the appropriate balance between active and passive ownership, who will report its recommendations to the Minister of Trade and Industry within 30 days. Upon receipt of the recommendations, the Minister will provide further guidance on the implementation of the ownership element and the rights of ownership based on B-BBEE Schemes.

Accordingly, we are clearly seeing a policy shift with regards to the recognition of ownership rights based on B-BBEE Schemes and one will have to carefully consider the implications for empowerment transactions going forward once the Minister’s guidance on this issue is published.

Written by Helgard van Rensburg, Adams & Adams