Following the release of the so called Notice of Clarification of 5 May 2015 and the anticipated and justifiable reaction to the impact of the Broad-Based Ownership Schemes (“BBOS”) and Employee Share Ownership Programs, (“ESOP”) The Department of Trade and Industry (“DTI”) has been forced to retract the Notice and reinstate the benefits associated to such schemes.
The coming into effect of the Codes of Good Practice for Broad-Based Black Economic Empowerment (“the New Codes”) on 1 May 2015, and the subsequent notices and statements published by the DTI, has resulted in much uncertainty for many entities.
To make sense of this, here is a timeline summary of events:
5 May 2015 – The “first” Notice of Clarification is published in Government Gazette 28764. This Notice stated that Black participants in BBOS and ESOP could only score ownership points under the specific section for Economic Interest. The maximum points that could therefore be scored are 3 points out of a total of 25 for ownership. This, understandably, caused an uproar from business, particularly from those entities that had already implemented BBOS and ESOP’s at great effort and cost in order to achieve their transformation targets and to earn the points available for such structures.
8 May 2015 - The DTI issued a statement noting the concerns relating to existing BBOS and ESOP’s schemes, and attempts to address the concerns by stating the following:
- The Notice of Clarification will not have retrospective effect. This means that B-BBEE deals where BBOS and ESOP’s were concluded prior to 1 May 2015 will not be affected, and will still qualify for full recognition;
- The DTI will appoint a Technical Task Team which will explore the appropriate balance between direct ownership and broad-based scheme ownership;
- This Technical Task Team will report to the Minister of DTI within 30 days;
- Upon the receipt of the recommendations, the Minister will provide further guidance.
15 May 2015 – The “second” Notice of Clarification was published in Government Gazette 38799, in terms of which the “first” Notice of Clarification is withdrawn in totality, and is replaced by the “second” Notice of Clarification. This “second” notice clears the air a bit in that this Notice is silent on BBOS and ESOP’s. Qualifying BBOS and ESOP’s are therefore no longer limited to only being able to achieve 3 points out of the 25 for the Ownership element.
We now await the recommendations and findings of the Technical Task team. There has been some speculation that the final outcome may be a recommendation to limit the ownership points attributable to BBOS and ESOP’s under the New Codes. Given what the DTI has had to endure in the last few weeks it is unlikely that any such recommendation will have retrospective effect. Unfortunately it still leaves a great deal of uncertainty which at this stage in our economy we cannot afford. Such uncertainty does not create confidence in the minds of investors.
Further clarification is once again eagerly awaited from the DTI.
Internal Audit Manager, Johannesburg