Repeal of Sector Codes Not Aligned to the Amended Codes:

"Sector Charter Councils have until the 15 November 2015 to submit aligned Sector Codes for approval to Minister of Trade and Industry, Dr Rob Davies.

All existing Sector Codes that have not submitted application for approval to the Minister to be aligned with Broad-Based Black Economic Empowerment Codes of Good Practice will be repealed.

Once sector codes are repealed, entities operating in the affected sectors will use the Amended B-BBEE Codes of Good Practice for measurement.

The background to this action by Minister Davies is that on 15 May 2015, all the existing Sector Codes which were not aligned to the Amended Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice were given further extension to complete the alignment process by 30 October 2015. The extension was given through a Notice, Government Gazette Number 38799, which further stated that a consideration shall be made to repealing those sector codes that are not aligned and ready for gazetting by 30 October 2015."

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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.

Impact of Revised BEE Codes? Click Here for more info regarding our workshops

Last week we started our comment on the BEE Amendment Act with the 1st of 3 newsletters to highlight some of the most important changes - read previous article  here.

This week we look at:

Punitive Measures

Act 53 contained no express punitive measures for transgression of any of its provisions. The Amended Act expressly criminalises several offences and provides for harsh penalties of up to 10 years imprisonment and up to 10% of the annual revenue of the business involved or both. In addition to the above any person convicted of an offence in terms of the Amended Act may not for a period of 10 years from the date of conviction, contract or transact any business with any organ of state or public entity and must for that purpose be entered into a register of tender defaulters which the National Treasury may maintain for that purpose. 

Other than for the reporting obligations discussed above the Amended Act expressly provides that it is an offence to knowingly:

1. Misrepresent or attempt to misrepresent the B-BBEE status of an enterprise;
2. Provide false information to or misrepresent information to a B-BBEE verification professional;
3. Provide false information to or misrepresent information to a public entity or organ of state;
4. Engage in fronting practice.

The term 'knowingly' as defined in terms of the Amended Act does not mean that the individual involved had intent to defraud or misrepresent. If the misrepresentation happened negligently it would be sufficient to trigger the criminal offence that attracts the penalties referred to above. This places a significant onus on measured entities and verification professionals alike to ensure that the risk of misrepresentation is appropriately mitigated.

Look out for next week’s commentary: Trumping Provision

The Broad-Based Black Economic Empowerment Amendment Act, 2013 (the 'Amendment Act') was gazetted earlier this year on 27 January 2014 (Gazette 37271). This followed a year long public commentary process where interested parties were also encouraged to make submissions to the parliamentary portfolio committee on transformation.

The Amendment Act is an amendment to the Broad-Based Black Economic Empowerment Act 53 of 2003, which came into existence on 1 January 2004. Act 53 of 2007 was an enabling framework which gave wide powers and authority to the Minister of Trade and Industry to issue Codes of Good Practice, which currently contain the scorecards and calculation methodology companies use in order to measure their B-BBEE status. The Amendment Act must therefore not be confused with Revised Codes of Good Practice that were also gazetted recently on 11 October 2013.

Over the next 3 weeks we will highlight some of the most important amendments contained in the Amendment Act.