In terms of the amended codes, an exempt micro enterprise (EME) only has to provide a sworn affidavit to substantiate its B-BBEE status, which is an automatic Level 1, 2 or 4 depending on the level of black ownership.
This provision has also been extended to qualifying small enterprises with an annual turnover between R10 million and R50 million in terms of the generic codes if such entity is ‘at least 51% black-owned’.
In such case, the entity automatically qualifies for Level 2 and should it be 100% black-owned it would be automatically deemed Level 1. Note that some of the sector codes have different turnover thresholds than the above.
The codes time and again reiterate that laying down a false affidavit is, as we all know, a criminal offence in itself. I am of the opinion that many will inadvertently be laying down false affidavits, and for two main reasons:
Definition of ‘51% black-owned’
First, the codes define ‘51% black-owned’ as an entity where at least 51% of the effective economic interest and at least 51% of the effective voting rights are in the hands of black people. It also requires that such entity must have scored ‘full points’ for net value. Net value relates to outstanding acquisition debt in the hands of the black party.
What I foresee happening is that shares will be sold to a black party on loan account and sworn affidavits will be issued with no consideration given to determining whether such entity would have scored ‘full points’ for net value were it to be measured in terms of the scorecard.
The calculation is quite complex and most will not even know that if the level of debt in too high such entity would not have scored ‘full points’ for net value and therefore, by definition, will not be 51% black–owned, which effectively will render the sworn affidavit false.
The question is, when the facts are checked, will ignorance be a valid excuse?
The second reason is we are already seeing numerous sworn affidavits provided by EMEs that are invalid as such entities trade in a sector for which there is a sector code.
If such a sector code has not yet been aligned to the amended generic codes, such entity may not yet provide a sworn affidavit as it is currently still subject to the relevant ‘old’ sector code.
Only once the relevant sector code has been aligned and published by the DTI may such entities start issuing sworn affidavits as proof of their B-BBEE status.
The codes of good practice are cluttered with a lot of complicated detail. Don’t get bogged down by this. Try and understand the basics. Try and find a single solution under each of the scorecard areas that will have a high impact in terms of scoring points and that ideally also make business sense. Start implementing these solutions now for the current financial year. Know the things that are pre-requisites for scoring points such as WSP and EEA compliance, empower supplier status, etc.
Author: Anton de Wet CA(SA) is Managing Director of Net Value Holdings