DTI Notice of Clarification on the New Revised B-BBEE Codes of Good Practice

On 5 May 2015, the Department of Trade and Industry (“DTI”) released Notice 396 of 2015 (“Clarification Notice”) to clarify the position of the DTI with respect to:

• empowering suppliers;
• the effective date of the Amended Broad-Based Black Economic Empowerment (“B-BBEE”) Codes of Good Practice (“Amended Codes”);
• the alignment of Sector Codes; and
• the points that can be attributed to Broad-Based Ownership Schemes (“BBOS”) and Employee Share Ownership Schemes (“ESOP”) in terms of the B-BBEE ownership scorecard.

Points attributable to BBOS and ESOPs

Regarding BEE points that can be attributed to Broad-Based Ownership Schemes (“BBOS”) and Employee Share Ownership Schemes (“ESOPs”) in terms of the BEE ownership scorecard.

The clarification notice effectively limits BEE ownership recognition via BBOS and ESOPs, and reduces the number of BEE ownership points that can be earned by BBOS and ESOPs to only 3 points out of the available 25 points.  This change removes any significant benefit of including employees, communities, or foundations in the Black ownership structures.  The majority of BEE ownership transactions involve BBOS and ESOPs. Accordingly, the consequences of the change is that most companies will see a significant reduction in their B-BBEE ownership points, and in terms of the Amended Codes of Good Practice, some companies may fall below the Net Value sub-minimum and accordingly drop a B-BBEE status level.  In addition, some of the largest, established Black broad-based ownership schemes that have either union members, or black community projects as shareholders, will receive limited Black ownership recognition.

In light of the far-reaching repercussions of the clarification notice, we will strive to engage with affected stakeholders, including the DTI.

If your business will be affected by the above DTI clarification notice, we would like to take the opportunity to meet with you and assess how we can best assist you moving forward.

The clarification notice provides that the Amended Codes became effective on 1 May 2015.

Accordingly, all BEE verifications conducted in respect of financial year ending before 1 May 2015 will not be impacted by this change, for those companies who did not renew their scorecard against the old codes before 1 May 2015, there is good news as entities with a financial year ending on or before 30 April 2015 can still be verified under the old Codes of Good Practice. All entities using a financial year end after 1 May 2015 will be verified under the Revised Codes.

Transcend can offer B-BBEE support services to ensure that you take advantage of this opportunity in a way that presents your data in the most accurate and beneficial way to the verification agent. This support includes many other services around audit preparation as well as helping your company to prepare against the Revised Codes of Good Practice.

Alignment of Sector Codes

The Clarification Notice has extended the transitional period for the alignment of Sector Codes to the end of October 2015.  Sector Codes that have not been aligned by the end of October may be repealed.

Empowering Suppliers

For the inaugural year, 1 May 2015 to 30 April 2016 of the Amended Codes of Good Practice, all valid B-BBEE certificates issued under the old Codes of Good Practice gazette No 29617, as well as the relevant Sector Codes should remain valid and should therefore be accepted and should be treated as empowering suppliers.

For all EME (Exempted Micro Enterprises) certificates issued without Empowering Supplier Status, the interpretation stated in the Amended Codes of Good Practice clause 3.3.1, Amended Code Series 400 Gazette No 36928 will be applied, which state that “Exempted Micro Enterprises and Start-Ups are automatically recognised as Empowering Suppliers.”

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