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Why the DTI's recent BEE Revised Codes Clarification Notice made things more complicated

by , 27 May 2015
You already know that the Revised BEE Codes of Good Practice ('Revised Codes') were implemented on 1 May 2015.

Because of the large number of uncertainties that needed to be clarified on these issues, the DTI issued a Notice of Clarification ('Notice') on 5 May to shed light unto the uncertainties surrounding the Revised BEE Codes of Good Practice and its relationship with Sector Codes.

But far from being what most businesses expected, the recent notice has only added more mystery to the new revised codes.

Below, we quote Danie Krige for Phinc.co.za on why the Notice confused the current legal context even more.

Five reasons the recent BEE Revised Codes Clarification Notice has confused the matter further

Let's look at all of Krige;s arguments:

a)    The Notice confirms the fact that the Revised Codes were implemented starting with 1 May 2015. It also argues that all verifications conducted using a financial year end ending before 30 April 2015 may be verified in terms of the Old BEE Codes ('Old Codes') except for the Sector Codes".

As Krige states: The explanation seems to extend the grace period for companies not falling within a specific Sector Code by at least a year or two.

He says, the revision makes it seem that a company can apply for a BEE certificate during June 2016 based on its February 2015 financial statements and can have a valid BEE certificate in terms of the Old Codes until June 2017. If, however, you read this paragraph with paragraph (c) of the Notice, it may be that Old Code certificates will only be valid up until 30 April 2016 which is the end of the inaugural year of the Revised Codes. This will mean that if a company's BEE certificate is issued on 1 February 2016 the certificate will only be valid for 3 months.

He also explains that Sector Codes are specifically excluded from this provision, adding that such companies must be verified in terms of their current Sector Codes until such time as the Sector Codes are aligned with the Revised Codes.

b)    Another alteration refers to the fact that the Notice extends the period for the relevant Sector Codes to be aligned with the Revised Codes to 31 October 2015. The Notice states that those Sector Codes aligned by 1 November 2015 will be effective by 1 November 2015 and those not aligned will be under consideration for repeal.

In his argument, Krige says that this means that Sector Codes should be aligned to the Revised Codes by 31 October 2015 and effective from 1 November 2015, without mentioning the 60 day notice period for public comment as necessitated by the BEE Act.

"What is meant by 'repeal' and which codes will apply to companies whose Sector Codes are repealed? Will they be verified in terms of the Revised Codes?" Krige asks.

c)    Moreover, according to the same source, the Notice states that for the inaugural year of the Revised Codes all BEE certificates will remain valid and will be treated as empowering suppliers.

Given the fact that the inaugural year of the Revised Codes ends on 30 April 2016, Krige brings to our attention a problem that seems to appear once again: "The validity of all BEE certificates issued in terms of the Old Codes will cease on 1 May 2016?"

Moreover, he wonders whether clients could "still use these Old Code certificates for procurement purposes after 30 April 2016 and how could companies afford to continue to make use of suppliers with Old Code certificates when they could be running the risk of making use of a BEE compliant supplier for 12 months only to at the end lose procurement points because of an 'invalid' certificate that cannot be recognised for procurement purposes"?

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d)    Then, there's the explanation through which the Notice argues that EME or start-up companies will receive automatic empowering supplier status even if same is not stated on the BEE certificate.

While Krige admits this is a positive alteration, he explains that the fact that it refers to BEE certificates issued for EME companies, whereas the Revised Codes make no express provision for BEE certificates to be issued for such companies. Thus, he explains that the Revised Codes refers to a sworn affidavit to prove EME status.

e)    Finally, the document also states that black broad-based schemes and employee ownership programs can only score points under the net value indicator.

Such a statement, according to Krige, will mean companies that make use of a broad based or employee ownership scheme will only score a maximum of 3 points out of a possible 25 points for the ownership element.

This happens in the context that "a large number of South African companies have opted for this form of ownership to address their ownership element based on the perception that this was a preferred form of ownership as it makes provision for broad-based empowerment at ownership level".

In conclusion, according to the same source, the Notice of 5 May only complicated things more. It didn't make it easier for companies to apply the new regulations.

He advises that "companies should consider adopting the safest possible plan of action after consultation with their BEE advisors and verification agencies as there will surely for some time be many varying interpretations of this Notice and its implications."

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