Your BEE to-do list during the COVID-19 pandemic

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Your BEE to-do list during the COVID-19 pandemic

Your BEE to-do list during the COVID-19 pandemic

The impact of the global COVID-19 pandemic on the Broad-Based Black Economic Empowerment (BEE) status of businesses is a question that many business owners are raising. Here are 10 things a business must do in relation to BEE and COVID-19:

1. Continue with BEE verification

The outbreak of the COVID-19 made it impossible for Verification agents to continue conducting on-site assessment as usual. In response to this challenge, an interim measure has been put in place in order to continue servicing clients by implementing the remote assessment technique during this COVID-19 outbreak until such time we deem it safe to revert back to the preferred on-site assessment technique. The South African National Accreditation System (SANAS) issued a revised notice giving verification agents guidance on how to continue to conduct their BEE verifications without having to perform an onsite visit. The guide contains 10 FAQs’ to clarify the verification process.

2. Manage your verification process online  

The SANAS notice allows for documents to be viewed and interviews to be conducted electronically through video conferencing forums. Video sessions must be recorded and kept on file by the verification agent. Confidentiality concerns can be addressed through clear communication up front that neither confidentiality nor privilege is waived through the disclosure of information.

3. Monitor your annual turnover

It is really important for EME’s, QSE’s and GEN’s to analyse and consider COVID-19’s effect on annual turn-over, especially for entities that have annual turn-overs close to the thresholds. The thresholds are: Exempted micro enterprises (having an annual turnover of less than R10 million), Qualifying small enterprise (having an annual turnover of between R10 million and R50 million), or large enterprises (having an annual turnover of more than R50 million). Close consideration of turn-over is key because it would ensure that the entity is measured in terms of the appropriate regulatory framework; and it may allow the entity access to BEE advantages that may not otherwise have been available to them.

4. Engage with BEE shareholders

Clear communication with shareholders during this time is critical, especially where BEE shareholders are employees. Any distribution forecasts should be updated and changes in values clearly communicated. By clearly communicating to shareholders, expectations regarding distribution values can be managed. In addition, this communication constitutes as written evidence to verification agents. Any queries arising from analysis and communication in respect of economic interests of the ownership scorecard can therefore be clarified. Clear communication also mitigates the risk that any concerns or allegations of fronting and misconduct are raised due to a misunderstanding or miscommunication.

5. Consider your Net value

Many businesses have seen the COVID-19 pandemic greatly impact the value of their business, it’s shares and the proportion that acquisition debt should decrease not in proportion to that required.  Acquisition debt is the value of the debt incurred by the BEE shareholders to acquire the shares of the business. It is therefore critical for businesses to consider their net value. When calculating net value, BEE shareholders’ shares and acquisition debt is taken into account, so the net value calculations are a means to ensure that the acquisition debt is decreased in sufficient proportions over time and value is transferred to the BEE shareholders. Businesses must note that net value is the priority element of the ownership scorecard. It is critical that business achieve at least 40% of points allocated to net value (which is 3.2 points). Should a business not achieve at least 40%, it could lose BEE points and also have its BEE level discounted by one level.

6. Consider COVID-19’s impact on net profit after tax-based targets

The sad reality is that the COVID-19 pandemic will have a negative effect on the net profit after tax (NPAT) of many businesses. Where spend targets are based on NPAT forecasts, i.e. supplier development spend targets, enterprise development spend targets and socio-economic development spend targets, businesses must review their initial forecasts and reconsider their planned initiatives. Why is it so important? It will ensure that a business does not over commit to initiatives and does not overspend to achieve the required points.  

7. Implementation your skills development initiatives during lockdown via e-learning

The lockdown period presents unique opportunities for skills development. By carefully selecting your training service providers, who have already adjusted their training approach to accommodate online (e-learning) or blended learning (webinars), employers can empower their employees to complete various skills development initiatives, learnerships and short courses. Now is a perfect time to train.

8. Expect delays in the processing of applications to regulators

The COVID-19 pandemic will affect the operations of many regulators, including the Master’s Office and the Companies and Intellectual Property Commission (CIPC). When they re-open, it is anticipated that there will be a backlog of applications and processing thereof. The creation of new companies and the amendment of memoranda of incorporation (which would include the creation of new share classes) will be affected. There will also be a delay in the registration of new trusts, changes of trustees (by the update of letters of authority) and the amendment of trust deeds. The implementation of new BEE ownership transactions will therefore be affected. The delays will also prevent existing BEE shareholders being compliant with their obligations if they cannot take required administrative actions.

9. Continue with all BEE initiatives

Businesses might be tempted to suspend BEE initiatives due to the effect of the COVID-19 pandemic. It is however highly unlikely that BEE will be suspended as a whole or suspended indefinitely because of COVID-19. There is an expectation that certain leniencies may be introduced, but it is critical for businesses to still conduct themselves in accordance with their BEE policies and BEE plans.

10. Pro-actively consider the consequences of not re-assessing your BEE obligations

It will be sensible for business owners to do a full BEE analysis in relation to the effects of COVID-19 on their business. The risk of ignorance could be quite devastating. What are some of these risks? Incurring penalties, breach of contractual obligations, contract termination, dealing with fronting or misconduct concerns or allegations, possible reputational damage. It is a long list. Take the necessary time and steps to reduce the risk and remain compliant to all obligation.

Contact our team experts for any advice and guidance relating to BEE consulting and skills development.

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