Family trusts, business trusts, property trusts, employee share trusts and even unit trusts – a trust is an age-old vehicle used for various purposes around the world. So why the large-scale speculation whether a trust can be used as an investment vehicle in B-BBEE equity transactions? The reason, in my opinion, is that trusts are often misunderstood as to their legal status and trustees are often not ‘trusted’ (excuse the pun) as being genuinely independent and acting in the best interests of the trust beneficiaries and not themselves.
Let’s remind ourselves of the following definition in the Trust Property Control Act 57 of 1998:
[Trust] means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed –
- to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or
- to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument, but does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estates Act 1965 (Act 66 of 1965) …
The Amended Tourism B-BBEE Sector Codes, gazetted by the DTI on 20 November 2015 (Gazette 39430), clarifies this aspect as follows:
The discretion to the fiduciaries referred to in 7.3.1. above, must be exercised in accordance with the terms of the constitution, MOI or trust deed. Subject to compliance with the remainder of the rules and additional rules as embodied in Annexe TSC100 B, C and D, such discretion will not disqualify the juristic person from qualifying for recognition under the Ownership Scorecard …
Yes, if we all respect the legislation governing trusts, a properly drafted and implemented trust deed has the power the result in genuine broad-based empowerment.
Author: ManagingIt is vital to note that, from a B-BBEE perspective, most trusts will have to meet the rules for broad-based based ownership schemes and employee share ownership programmes outlined in the B-BBEE Codes of Good Practice to be recognised as a qualifying black shareholder in a company. For this reason, it is important that the objectives of the trust be properly considered and the wording in the trust deed fully meet these rules. Implementation of the provisions of the trust deed is obviously the most important!
Director of NetValue™ Equity Partners