Call for Comments: How will B-BBEE Changes Effect You?

Call for Comments: How will B-BBEE Changes Effect You?

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On 7 December 2011, the Department of Trade and Industry (DTI) issued for public comment the Broad-Based Black Economic Empowerment Amendment Bill 2011 (the “Bill”) and called upon interested persons and the general public to submit comments on the Bill before 9 February 2012.

Companies required to comply with BEE will therefore need to understand the material changes to the current BEE Act as contemplated in the Bill.  Below is a brief summary of such material changes brought about by the Bill.

B-BBEE as defined

The Bill introduces the concept of sustainability in the definition of “Broad-Based Black Economic Empowerment”.  Therefore, when structuring a BEE transaction, the sustainability of the transaction and its impact particularly on women, workers, youth, people with disabilities and people living in rural areas will have to be borne in mind.

Local Content

The Bill requires that preferential procurement should include the promotion of local content.  The concept of local content refers to locally produced goods, services or works or locally manufactured goods which satisfy a stipulated minimum threshold for local procurement.

This requirement is in accordance with the regulations passed in terms of the Preferential Procurement Policy Framework Act.  Currently, the list of products that will require a minimum level of local content include power pylons, rolling stock, buses, canned vegetables, clothing, textiles, footwear, leather products and set-top boxes.

Fronting Practice

The subject of fronting is extensively dealt with in the Bill.  There is a new definition of “Fronting B-BBEE Practice” which is spelled out widely to capture even the most sophisticated and complex arrangements of fronting.  The common fronting arrangements such as those arrangements which do not benefit black people as may be contained in relevant transaction agreements are also captured.

Most importantly, companies should note that fronting practices will now be criminalised and may attract punishment by imprisonment for a period not exceeding 10 years or a fine of 10% of an enterprise’s annual turnover or both imprisonment and fine.

Cancellation of Contracts and Authorisations

The Bill reasserts the common law remedies for misrepresentation as it provides that any contract or authorisation awarded on the basis of false information in respect of an enterprise’s B-BBEE status may be cancelled at the sole discretion of the organ of state or public entity.

Establishment of the B-BBEE Commission

The establishment of an ombudsman in the form of the B-BBEE Commission is also envisaged in the Bill.  The function of the B-BBEE Commission will, generally, be to monitor compliance with the B-BBEE Act and to investigate complaints relating to B-BBEE.  Companies listed on the JSE will be required to provide to the B-BBEE Commission reports on their B-BBEE compliance as contained in their sustainability reports and any other prescribed information.

The Bill empowers the B-BBEE Commission to join forces with other government investigative institutions such as the Special Investigation Unit and it is required to refer to the National Prosecution Authority matters which involve a criminal offence (e.g. fronting).

Regulation of verification agencies

Finally, the Bill requires that B-BBEE verification exercises be carried out by persons registered by the verification agency regulator and/or the South African National Accreditation System.  The Bill further contemplates the establishment of the Independent Regulatory Board of Auditors as the official regulator of B-BBEE verification agencies.  Accordingly, it is advisable that companies should ensure that agencies that they engage to conduct B-BBEE verification exercises are duly accredited as required by the Bill.

Isaac Fenyane
Isaac Fenyane is an attorney practicing as a senior associate at Edward Nathan Sonnenbergs Inc (ENS). He specialises in corporate law, mergers and acquisitions, corporate finance and general commercial law. He has extensive experience in project managing transactions and commercial projects, negotiating and drafting various commercial agreements and advising clients on a wide range of corporate and commercial law issues. For more information visit www.ens.co.za