BRENTWOOD

2021-05-20

DTI Minister clarifies the misinterpretation of Trusts, NPC’s, Broad Based Schemes and Employee Ownership Schemes.

The BBBEE Commissioner has over the last few years put limitations on these kind of structures (Discretionaly Collective Enterprises.)
The Minister has finally clarified the misinterpretation – the BBBEE Commissioner will not be happy.

Q&A Summary
- Does BBBEE support indirect ownership? Yes. They create broad based participation of Black citizens in the economy, and contribute  to  addressing  poverty,  inequality  and  unemployment .

- What are collective enterprises?  Broad-Based Schemes, Employee Share Ownership Programmes, Trade Unions, Not  for  Profit  Companies (NPCs) and  Trusts, etc.

- “Discretionary” means that  fiduciaries can  decide  on  the  pay-out  of  the  funds,  without deviating from the founding documents. 

- Do the participants (beneficiaries) need to be personally identified? No. There can be the description of a class like “Black South African Female Citizens in tertiary institutions”, for instance. That’s enough.

- Does every person in the class have to receive the money? No. For instance in the class of “Black South African Female citizens in tertiary institutions”: not all of them will receive money.  The fiduciaries will decide who in this class will receive money, and how much.

- Don’t all the participants have a right to the money? No. Their right is that they are entitled to the money, not that they get the money. Those selected have to get the money. The ownership points lie in their right to get the money, not actually getting the money.

- Can minors be participants: Yes.

- Can fiduciaries select different beneficiaries? Yes, but within the class.

- Can the beneficiaries change at the will of the fiduciaries? Yes, but within the class.

- Can the fiduciaries decide how much of the available funds go to each selected beneficiary? Yes, but within the class.

- Can the fiduciaries change the proportion of payment participants? Yes.

- Does this not contradict the BBBEE Codes requirement that they fiduciaries have no discretion to choose and what proportions will be paid out? No, as long as it is within the class and does not exceed the money entitled to the participants as a class.

- Can the fiduciaries decide what the purpose of the money is? Yes, as long as it’s within the class. It can be for skills  development, education, training  or facilitate access to funding, fund social or community interventions or developments, etc for the benefit of the participants who are in the class.

- Must money be paid out? No. Cash or kind is acceptable. Kind can be payment for education, etc

- If dividends are paid into the Discretionary Collective Enterprises, do they have to be paid out? No. Those ownership points are attached to the right to get the money, not receiving the money.

- Can you be penalised on your scorecard for not paying the beneficiaries? No. The funds cannot, obviously, be paid to anybody other than those in the class.

- Does there have to be an Annual General Meeting? Yes.

- Do all the Participants have to be at the AGM? No.

- Can the trust/NPC, etc specify that it is specifically for educational, developmental and community upliftment, etc? Yes.

- Must the Employee Share Ownership Scheme have a date or event where all the accumulated funds are paid out to the beneficiaries? No, as long as it provides to pay put all the accumulated funds when the scheme winds up.

- Must there be a list of beneficiaries with their race and gender? No.  If the class is documented in the Memorandum of Incorporation/Trust Deed, that is all that is needed.

- What if the Memorandum of Memorandum of Incorporation/Trust Deed does not define a class adequately? (For instance: it makes reference to Black People, with no reference to gender.) Use an independent competent person’s report estimating the rights of ownership.

- If a school is a beneficiary do you need the names of the individuals who have benefited? No. You can use the school enrolment records.

- If a community is a beneficiary do you need the names of individuals who have benefited? No. You can use publicly available municipal records or South African census reports.

- Do participants of an NPC, for instance, have to have ownership rights in the company in which the NPC has invested? No. They are involved in the company via the NPC, which acts on their behalf.

- Do beneficiaries have any voting rights? No. Their voting rights are exercised by the fiduciaries.

- Is it the fiduciaries or the participants that determine the race and gender of the voting rights and economic interest? The participants.

This is a clarification that has massive repercussions to indirect ownership.  It almost a reset to the default settings of the codes.

If you need any more clarification contact me or Melanie Nortier
- mark@brentwood.co.za and melanie@brentwood.co.za