How more than half of trusts are not compliant
BUSINESS DAY / 27 OCTOBER 2017 - 05:58 / BEKEZELA PHAKATI
An early analysis and assessment has shown that more than 50% of trusts registered are not compliant with Broad-Based Black Economic Empowerment (B-BBEE) requirements.
Most of the trusts do not satisfy requirements of the ownership scorecard, Trade and Industry Minister Rob Davies says, because they are dedicated to skills development and community projects but not ownership, which means black participants are treated as beneficiaries and not shareholders.
Trade and Industry Minister Rob Davies. Picture: SUPPLIED
In August, the B-BBEE Commission announced that it was investigating a number of companies and entities for allegedly violating the B-BBEE Act.
Nokia Solutions and Networks SA would be investigated to determine whether the ownership transaction involving its employee trust and Sekunjalo Investment complied with the act. The transaction resulted in 26% black ownership and a subsequent change in black ownership, leading to 31.28% black ownership by Sekunjalo.
Netcare would be investigated to determine whether the B-BBEE ownership initiative facilitated through Health Partners for Life, comprising four trusts, met ownership requirements and complied with the act.
Responding to a written question in Parliament from EFF chief whip Floyd Shivambu, Davies said that in June he gazetted the threshold for major B-BBEE transactions that must be submitted to the commission in terms of the B-BBEE Act, as well as section 18 of the B-BBEE regulations for all transactions with a value that equalled or exceeded R25m, and further provided for the voluntary registration of transactions concluded before October 24 2014.
The commission is mandated to register such transactions. To date 210 such deals have been submitted for registration, 70 of which are related to trusts.
"Based on the analysis and assessment conducted thus far, over 50% of the trusts registered are not compliant with B-BBEE. This figure will be confirmed once final findings are approved for publication in this quarter," said Davies.
Where black shareholding was held through a trust, the codes required trusts to define participants and the portion of their entitlement to receive distribution of the economic interest, he said. In most instances, the trusts did not provide guidance on how they would record information relating to the identity of each black participant.
"The transactions are structured in a manner where the beneficiaries will only be selected each year to receive benefits for education, or it is stated that a portion of dividends will go towards projects."
The commission said it would look into issues such as fronting practices including the use of trusts in B-BBEE ownership structures.
LINK - https://www.businesslive.co.za/bd/national/2017-10-27-how-more-than-half-of-trusts-are-not-compliant/
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER