Comment on the BEE Amendment Act: Trumping Provision

Continuing our comment on the BEE Amendment Act, see our next article below highlighting some of the most important changes in the Act. To read the previous 2 articles, click here for Reporting Requirements and click here for Punitive Measures

This week’s comment: Trumping Provision

Section 10(3) of the Act now determines that an enterprise that falls within a sector in respect of which the inister has issued a Sector Code of Good Practice in terms of section 9, may only be measured for compliance in terms of that sector code.  This provision was inserted due to some confusion that existed with respect to the status of the sector codes vis a vis the general codes.  Although the amendment serves to clarify some of the confusions we cannot but wonder whether this amendment represents a missed opportunity to totally clarify the issues surrounding sector codes.  To explain -  in spite of the amendment two areas of uncertainty remain:

i)  The scope of application of the majority of thesector codesare not defined narrowly enough and in most cases attempts to cast the net wider rather than narrower, or in other cases are unclear as to its application. This often leads to the unintended consequence that businesses that do not naturally fall within the ambit of the particular sector find themselves measurable under a particular sector code.   This uncertainty on its own should have disbarred most of these sector codes from receiving final approval – but unfortunately did not.  In order to resolve some of these issues the Dti has attempted to introduce a rule of thumb which requires agencies to use the turnover of a business to determine whether the 'majority' of its business falls within a particular sector.  This 'rule of thumb' is however not gazetted and one would have hoped that the Dti would have made use of the process of amending the Act and in particular section 10 to deal with this.

ii) Section 10(3) also fails to address more complex group structures where a group of companies whose subsidiaries operates in diversified sectors, wishes to obtain a consolidated B-BBEE certificate for the group.  The question begs whether or not such a group is barred from including those subsidiaries that are governed by separate sectoral codes, into the consolidation and if not whether those subsidiaries are forced to then also have their own individualB-BBEE certificatesin terms of the particular sector code it falls under.  A pragmatic approach to this problem might be to allow consolidation of all subsidiaries in terms of the consolidation and to conduct the consolidation at the hand of the general or sectoral codes, whichever the case may be, that appears to be applicable after having applied the Dti's rules of thumb to the group as a whole.  We believe that even if consolidation is allowed in such cases that it would only be the holding company of the group and those subsidiaries that fall outside the scope of any particular sector code that would be allowed to furnish the consolidated verification certificate as proof of itsB-BBEE status(this of course assumes that the consolidation is done in terms of the general codes).  All subsidiaries that fall within the scope of a particular sector code would be in transgression of section 10(3) if it then furnishes the consolidated group certificate as apposed to its sector specific B-BBEE certificate.

In our view the Amendment Act could have done more to clarify the above matters, specifically as it was highlighted to the parliamentary portfolio committee during the commentary process.

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