The criteria in question are set out in Annex 100B to Statement 100, which is part of B-BBEE Code Series 100, covering criteria pertaining to the ownership element of the generic B-BBEE scorecard.

 

In terms of Annex 100B, all of the following requirements must be met if any ownership points are to be awarded:

 

·         the constitution of the scheme (the trust deed) must define the participants and their proportionate entitlement to distributions

·         the participants may be identified either by name, or by virtue of membership of a defined class

·         proportionate entitlements may be determined either by way of fixed percentages, or by the use of a formula

·         the fiduciaries (trustees) of the scheme are to have no discretion in regard to (a) the identification of the beneficiaries or (b) their proportionate entitlements

·         the black participants in the scheme must participate in the appointment of at least 50% of the fiduciaries (trustees) of the scheme

·         the black participants must 'participate in managing the scheme at a level similar to the management role of shareholders in a company'

·         the constitution (trust deed) must be available to participants at their request, in an official language with which they are familiar

·         all accumulated 'economic interest' must be payable to participants at the earlier of a date or event specified in the constitution, or upon termination of the scheme

·         the fiduciaries must present the financial reports of the scheme to participants at an annual general meeting.

 

It should be clear that a trust deed will not comply with the criteria in Annex 100B if any benefits are to be allocated at the discretion of the trustees. If the trust deed were, for example, to provide that the trustees might, on an application by an employee, pay children's school fees or other study expenses, this would introduce a prohibited element of discretion into the powers of the trustees.

 

It would also offend against Annex 100B if the trust deed were to provide for the income of the trust to be applied towards the training of black employees. This is partly because it would be difficult, if not impossible, to spend funds in such a way that each employee derives a proportionate benefit, as required by Annex 100B.

 

If the trust deed is to comply with Annex 100B, it will in practice be necessary to limit the purposes of the trust to the distribution of cash amongst employees, either by reference to fixed entitlements, or a formula.

 

We generally recommend that the black beneficiaries of the trust be limited to black employees of the company during the currency of their employment.  This approach obviates any need to fund the 'exit' of beneficiaries. We also generally recommend that beneficiaries' entitlements be established by reference to a simple formula, turning upon length of service, and accordingly rewarding stable and loyal employees.

 

It is advisable to have the draft trust deed presented for review prior to execution, in order to ensure compliance with Annex 100B.  Existing trust deeds may also have to be reviewed for compliance, particularly where the trusts were established prior to promulgation of the B-BBEE Codes.

 

END

 

Wouter Scholtz

Director

wouter.scholtz@mazars.co.za