2019-05-28

THE BBBEE COMMISSIONER IS NOT OPPOSED TO TRUSTS AS OWNERSHIP

Don’t dump your trusts - it needs to be in line with exactly what the BBBEE Codes require.

BBBEE Commissioner Zodwa Ntuli is opposed to Trusts which do not operate withing the objectives and requirements of the BBBEE Act and Codes.  One of the key principles in the Codes of Good Practise is that substance takes precedence over legal form.  Ntuli stressed that the BBBEE Commission has never issued a statement disputing that Trusts are not recognisable forms of Black ownership.  She has criticised their substance: the way the Trusts exist and operate.  The Codes clearly allow for the existence of Trusts and details the substance of those Trusts.

Her comments about the Trusts referred specifically to transactions worth more than R25 million which are required to register with the Commission.  The Commission said that the majority of the broad-based ownership structures, including Trusts, did not meet the rules within the codes and objectives of the Act, and therefore could not be recognised as ownership.

The objectives of the BBBEE Act must reflect in the Trust.  Taking a closer glance at these relevant objectives it is clear where the objections come from:

* Meaningful participation of Black people in the economy.
* Substantial change in the racial composition of ownership.

It is important to note that the BBBEE Act specifically wants to increase the extent to which communities, workers, cooperatives and other collective enterprises own and manage businesses.  It must, however, be balanced with meaningful participation of the beneficiaries represented by their trustees for economic interests and voting rights.

Founder’s power.

Removing from the Trust Deed all provisons that give power to the founder to the control the Trust.  Clearly there would be an absence of meaningful participation if the power within the trust and its assets reverts to the founder only.  Effectively there would be little, or no, real change to the racial composition of the ownership of the company, lacking the control over the shares and management of those shares by the trustee representing the Black beneficiaries.

Trustee to sit on the board.

A trustee, representing the Black beneficiaries, should have a place on the board of the company in which the Trust owns shares, to allow for meaningful participation and control over the economic interest and voting rights.  Without a trustee on the board it would be difficult to state that the Trust, and therefore the beneficiaries, had any meaningful participation or control of the shares owned by the trust.

List of beneficiaries.

There needs to be an identifiable list of beneficiaries, but the Codes also state that the Trust Deed can be based on a class of beneficiaries (For instance: the beneficiaries of the Trust could be  Black South African Women under the age of 35).  It is difficult to show meaningful participation if the beneficiaries are nameless and faceless.  The concept of a class of beneficiaries has not been shot down - but there must be an identifiable list of beneficiaries at any one time.

Skills Development of charity-based beneficiaries of a Trust.

The overlap of Ownership, Skills Development and Socio-Economic Development has been criticised.  The Commission has stated that it cannot be expected to accept as compliant the schemes that meet the Skills Development, or Socio-Economic Development rules as Ownership schemes when they fail to pass the Ownership test first.  It does not state that the Trust cannot be Skills or Socio-Economic Development based, but it must first comply with the rules of Ownership, before any other consideration.

There is no problem with Trusts as BBBEE Ownership.  The Commission is more concerned if those trusts create meaningful participation of Black people in the economy, as per the objectives of the BBBEE Act.

While discounting one BBBEE Level for Ownership might not be the case if the Trust’s shares are sufficiently unencumbered, it could mean the forfeit of as  many as 17 points on your final BBBBEE score.

Mark - 08:07 @ common, B-BBEE

 
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