DFFE PUBLICATION OF FIRST 3 SOCIO ECONOMIC ASSESSMENT SYSTEMS (SEIAS)


Dear Clients

On Friday 14 May 2021 the Department of Forestry, Fisheries and Environment (DFFE) circulated the initial phase of the Socio-Economic Impact Assessment Systems (SEIAS) for three sectors coming up for reallocation in FRAP 2021. The three sectors were:

  1. Demersal Shark;
  2. Hake Longline: and
  3. Hake Deep sea Trawl.

The SEIAS are a legal requirement mandated by Parliament and must be undertaken before the rights allocation process can take place. They are developed in order to assist the delegated authorities in making their decisions, providing guidance towards the intended outcomes. Allocations made in FRAP 2021 that do not align with the SEIAS may well be open to challenge. The SEIAS are, therefore, very important documents that should be scrutinized by all parties with an interest in the industry and FRAP 2021.

Along with the SEIAS was an invitation to all stakeholders to provide any written comments they may have on the documents by 16H00 Thursday 24 May 2021. Clients are strongly advised to consider the SEIAS and, if necessary, submit comments.

Should you require copies of SEIAS please contact rafeeka@dawsons.co.za and should you require any assistance in considering the SEIAS or in submitting comments please contact any director at Dawsons or email info@dawsons.co.za .

Yours faithfully

Grant Clark

Director



AMENDMENTS TO EXEMPTION CONDITIONS


Dear Clients

Please see the link below to public notice published by the Department of Forestry, Fisheries and the Environment (“DFFE”) this morning. The attached notice effectively amends the conditions under which Exemption Holders are permitted to operate (“exemption conditions”), particularly as they relate to the transfers of shares / members interest in Exemption Holders. In summary the amendment to the exemption conditions effectively reiterate what was stated in the public notice published on 20 April 2021 and in fact have gone further and stated categorically that no shares / members interest may be transferred within exemption holders during the exemption period except under two very limited circumstances and subject to compliance with the Policy for the Transfer of Commercial Fishing Rights 2009:

  1. The conversion of CC’s to private companies but only where such conversion is not accompanied by a change in shareholding / members interest;
  2. The death of a member / shareholder and subsequent transfer of the deceased estate’s members interest / shareholding. A notification / section 21 application submitted pursuant to a transfer of shares / members interest from a deceased estate will however not be considered if submitted within 3 months of the due date for submission of long-term rights applications as part of the Fishing Rights Allocation Process 2021 (a date which has yet to be confirmed).

Unfortunately the attached notice still leaves critical questions unanswered particularly as they relate to the transfer of shares / members interest within entities that are both exemption holders and the holders of commercial fishing rights that have not yet expired. As such we would advise any entity currently operating under an exemption to contact us for advice before concluding any transaction relating to the transfer of shares / members during the period of validity of the said exemption.

If you have any questions or queries in relation to the above please don’t hesitate to contact us.
https://mcusercontent.com/d9a16200101e0d8e94629d980/files/0c2afe66-4dab-8985-27af-0bc60bc61777/10may2021mlra_commercialfishingrights_exemptions.pdf

Kind regards

 

Nicholas Britz

Director



SHAREHOLDERS RIGHTS OF PRE-EMPTION – MAKE SURE THERE IS CLARITY


Dear Clients

A shareholder’s rights of pre-emption, or pre-emptive rights as they are more commonly referred, in essence refers to a shareholders right of first refusal to be offered another shareholders shares in the event that such shareholder should wish to dispose of his / her shares. By way of example, if a shareholder should wish to sell his / her shares, the remaining shareholders would have a pre-emptive right to be offered the selling shareholders shares pro rata to their shareholding in the company. If none of the shareholders follow their pre-emptive rights and accept the offer to purchase the selling shareholders shares, the selling shareholder shall then have the right to sell their shares to a third party at a price and on terms no more favorable than those offered to the remaining shareholders.

Following the enactment of the Companies Act 71 of 2008 many private companies adopted new Memorandums of Incorporation (MOI) and shareholders agreements so as to ensure that their MOI’s and / or shareholders agreements were not in conflict with the provisions of Companies Act 71 of 2008. In this regard companies either adopted the CIPC standard form MOI’s or alternatively companies adopted customized MOI’s. One of the many deficiencies of not only the CIPC standard form MOI but also many customized MOI’s and accompanying shareholders agreements is that they do not adequately deal with the pre-emptive rights of shareholders, that being the shareholders pre-emptive right to be offered a shareholders shares should they wish to dispose of their shareholding for any reason. This issue is further compounded by the fact that unlike the now repealed Companies Act of 1976, the new Companies Act 71 of 2008 only deals with the pre-emptive rights of shareholders when the Company issues new shares, there are no provisions in the Companies Act 71 of 2008 governing the pre-emptive rights of shareholders in respect of the disposal of a shareholders shares. The result is that many private companies either have no provisions in their MOI’s and / or shareholders agreements dealing with pre-emptive rights or have very basic pre-emptive rights provisions in their MOI’s or shareholders agreements which are wholly inadequate in a number of respects, including:

  • Insufficient detail with regard to the procedure that should be followed in respect of the offer of shares to existing shareholders should a shareholder wish to sell their shares;
  • No mechanism to determine the purchase price for the shares;
  • No provisions dealing with the death or insolvency of a shareholder and the pre-emptive rights of shareholders to be offered their shares:
  • No provisions dealing with the change of control of a shareholder and whether this should trigger an offer of their shares to the remaining shareholders.

With inadequate provision in a company’s MOI or shareholders agreement dealing with the above matters it is not difficult to imagine how this could lead to shareholder disputes and ultimately litigation.

In light of the above it is essential that private companies review their MOI’s and shareholders agreements to ensure that the pre-emptive rights of shareholders are clearly and comprehensively dealt with. For a review and assessment of your company MOI or shareholders agreement please don’t hesitate to contact nicholas@dawsons.co.za .

Kind regards
Nicholas Britz
Director



CLAIMING BLACK OWNERSHIP THROUGH TRUSTS – THE POSITION OF THE B-BEE COMMISSION


Dear Clients

Family Trusts have come under increasing scrutiny by the Broad-Based Black Economic Empowerment (“B-BBEE”) Commission (“the B-BBEE Commission”) who seem to take a dim view on Trusts when it comes to claiming black ownership recognition under the B-BBEE Act and B-BBEE Codes of Good Practice (“the Codes”). For those who are not familiar the B-BBEE Commission is a statutory body governed by the B-BBEE Act and Regulations and the primary function of the B-BBEE Commission is to curb fronting, including misrepresentation and other practices that undermine the objectives of the B-BBEE Act. In carrying out its functions, the B-BBEE Commission must maintain a register of major B-BBEE transactions (these are transactions that exceed R25 million and result in black ownership recognition under the Codes); receive and analyze reports on compliance from entities as listed in the B-BBEE Act, receive complaints relating to B-BBEE; make findings on fronting practices and conduct investigations either on its own initiative or in response to a complaint.

In recent dealings with the B-BBEE Commission it has become apparent that the B-BBEE Commission has taken an overly broad / draconian interpretation of the Codes and the criteria that need to be met in order for Trusts to qualify for black ownership recognition. Below is a summation of some of the more material assertions the B-BBEE Commission has made in respect of Trusts and black ownership recognition:

  • The principle that seems to underpin the B-BBEE Commissions assessment of Trusts is that black participants (i.e. beneficiaries of Trusts) must be viewed as indirect shareholders in the measured entity and therefore must satisfy the ownership recognition criteria in Statement 100 of the Codes in order for the Trust to qualify for black ownership recognition, that being exercisable voting rights and an economic interest.
  • Therefore as indirect shareholders in the measured entity, the beneficiaries of a Trust must firstly have the capacity to exercise voting rights. The Commission has interpreted this to mean that minor beneficiaries (i.e. those under the age of 18) who do not have legal capacity and therefore cannot exercise voting rights cannot receive black ownership recognition. Concerningly the Commission have in fact gone even further and advised that Trusts that include minors in the ranks of their beneficiaries cannot receive black ownership recognition at all and must amend their Trust Deeds to exclude minors in order to qualify for black ownership recognition This interpretation is in our view quite clearly flawed on the basis that the  definition of “black people” in the B-BBEE Act does not exclude minors and in fact one of the primary objectives of the B-BBEE Act is to promote black youth participation.
  • The Trust Deed must clearly define the beneficiaries. Despite the fact that the Codes specifically state that a defined class of natural persons satisfies this requirement the Commission has advised that if a defined class of natural persons potentially includes minors or persons who are not yet in existence ( i.e. descendants that have not yet been borne) then the Trust cannot receive black ownership recognition at all as according to the B-BBEE Commission only adult black persons alive at the date of assessment can receive black ownership recognition.
  • The Trust Deed must define the portion of the beneficiaries entitlement to receive dividends which can be expressed as a formula and the Trustees must not have a discretion to vary the proportion of entitlement to receive benefits.
  • Beneficiaries must have full discretion with regards to the economic benefits / distributions they receive and beneficiaries should have the same rights that shareholders have to dividends declared by a company. The Commission has interpreted this to mean that a Trust set up for the purposes of education for example would not satisfy the requirement and would therefore not qualify for black ownership recognition on the basis that beneficiaries are forced to use the benefits they receive for education purposes and therefore the beneficiaries do not have full discretion with regard to how they may utilize the economic benefits they receive.
  • As indirect black participants in the measured entity the beneficiaries must agree to any amendments to the Trust Deed;
  • On winding up of the Trust all economic benefit must be transferred to the beneficiaries or an entity representing the beneficiaries.

While the B-BBEE Commissions interpretation of the Codes as it relates to Trusts is in our view not legally defensible, the B-BBEE Commission are unfortunately not particularly open to discussion or considering alternative interpretations of the B-BBEE Act and Codes and in the event that one does not comply with the B-BBEE Commissions “recommendations” the B-BBEE Commission has advised that they will launch an official investigation for fronting. It is important to note however that the B-BBEE Commission findings pursuant to such investigation must be made an order of Court in order for the findings to have any force or effect. Notwithstanding the fact that the B-BBEE Commission has no inherent powers to enforce any of its findings most do not have the appetite to challenge the findings of the Commission in Court and tend to comply with the Commission’s recommendations despite the obvious legal flaws.

In light of the above, if one is claiming black ownership recognition for Trusts, Broad-Based Black Ownership Schemes or Employee Share Ownership Schemes it is essential that the Trust Deeds meet the requirements of the B-BBEE Act and Codes or else one could run the risk of facing an investigation for fronting. In this regard for an initial assessment of your Trust Deed and advice regarding compliance with the B-BBEE Act and Codes please don’t hesitate to contact me at nicholas@dawsons.co.za .

Kind regards

Nicholas Britz
Director



CURRENT POSITION ON TRANSFERS OF FISHING RIGHTS


Dear Clients

As you are all aware, as of 31 December 2020 commercial fishing rights allocated in terms of section 18 of the Marine Living Resources Act 18 of 1998 (MLRA) in the following sectors expired and have reverted back to State: Hake Deep Sea Trawl, Small Pelagic, South Coast Rock Lobster, KZN Prawn, Hake Longline, Tuna Pole-Line, Squid, Demersal Shark, Tuna Longline, Traditional Linefish, Hake Handline, Oyster and White Mussel.

As a result of the significant delay in the Fishing Rights Allocation Process 2020/21 on the 25th of November 2020 the Department of Environment, Forestry and Fisheries ( DEFF) published a notice advising all holders of Commercial Fishing Rights whose rights expired on 30 September 2020 and / or 31 December 2020 that as of the date of expiration of their commercial fishing rights, right holders in these sectors would be exempted in terms of section 81 of the MLRA from the provisions of section 18 ( 1 ) of the MLRA which requires one to hold a commercial fishing right granted by the Minister in order to engage in commercial fishing. Accordingly, on the 30th of November 2020 DEFF published a further notice advising that all holders of Commercial Fishing Rights whose rights expired on 30 September 2020 and / or 31 December 2020 that as of 11 December 2020 a moratorium would be placed on the submission of all notifications and applications in terms of section 21 of the MLRA in order to allow all notifications and section 21 applications to be processed by the 31 December 2020 (“the moratorium”).

As right holders in the aforementioned sectors are no longer the holders of commercial fishing rights allocated in terms of section 21 of the MLRA this raised the question of the applicability of section 21 of the MLRA and the Policy for the Transfer of Commercial Fishing Rights 2009 (the Transfer Policy) to those currently operating under an exemption from the provisions of section 18 (1) of the MLRA (Exemption Holders)? At face value the answer to this question may seem obvious in that section 21 of the MLRA and the Transfer Policy are only applicable to the holders of commercial fishing rights allocated in terms of section 18 (1) and as Exemption Holders are not the holders of commercial fishing rights allocated in terms of section 18 (1) of the MLRA it stands to reason that section 21 of the MLRA and the Transfer Policy are not applicable to Exemption Holders. As a result Exemption Holders may be under the impression that owing to the fact that section 21 of the MLRA and the Transfer Policy is not applicable to Exemption Holders that Exemption Holders are permitted to transfer shares or members interest in an Exemption Holder without either notifying DEFF or seeking DEFF approval.

However, Exemption Holders are required to apply for a catch permit in terms of section 13 of the MLRA and the said catch permit is issued under certain permit conditions. In this regard, it is notable that the 2021 Permit / Exemption Conditions include the following provision:

TRANSFER OF FISHING RIGHTS

16.1The Exemption Holder may only transfer the long-term commercial fishing right allocated to it in terms of section 21 of the MLRA read together with the Policy for the Transfer of Commercial Fishing Rights (Gazette No 32449).

16.2 Any transfer of shares or sale of shares and/or or membership interest that results in a change in control or ownership of the Exemption Holder must be approved by the Department in terms of section 21.

16.3 Failing to comply with 16.1 and/or 16.2 may lead to the initiation of further legal proceedings including but not limited to proceedings in terms of section 28 of the MLRA.

It is evident from the wording of the above condition that this is clearly a hangover from the 2020 Permit Conditions when the now Exemption Holders were the holders of commercial fishing rights. This is evidenced by the fact that condition 16.1 states that the Exemption Holder may only transfer long-term commercial fishing rights allocated in terms of section 21 of the MLRA and the Transfer Policy. This is clearly an error on DEFF’s part as Exemption Holders do not hold long term commercial fishing rights and the MLRA does not permit one to transfer an exemption. Notwithstanding this obvious error, this does raise the question of the applicability of condition 16.2 which states that any transfer of shares / members interest that results in a change of control or ownership of the Exemption Holder must be approved by the Department in terms of Section 21? We have accordingly requested DEFF’s official position in respect of transfers of shares / members interest in exemption holders post 31 December 2020 and, in this regard, DEFF have advised the following:

  1. An exemption is a special exceptional authorisation and as such cannot be used outside the legal framework.
  2. The exemption issued was only an exemption from section 18 of the MLRA and not from any other provision of the MLRA.
  3. One of the general conditions of the exemption is that a section 13 permit must be obtained. These permits have been issued subject to conditions which include section B General conditions. These conditions clearly state that the permit is issued subject to various laws and policies including the Transfer Policy. As such, the permit and therefore the exemption, cannot be transferred without following the provisions of the Transfer policy.
  4. In addition, the MLRA and its policies as they relate to the allocation of rights are structured in such a way to ensure transformation of the industry. It is not consistent to therefore argue that an exemption holder can simply change shareholding without any permission and operate outside the legal framework and the objectives of the MLRA.
  5. It is therefore the view of the Department that exemption holders who change minority shareholding should notify the Department as required by the Transfer policy and that any exemption holder/permit holder who wishes to change majority shareholding should follow the provisions of the Transfer policy and apply for permission to transfer.

DEFF have further advised that they will be amending the 2021 permit / exemption conditions to make the said conditions subject to the provisions of the Transfer Policy.

In light of the above DEFF have essentially advised that transfers of shares / members interest in Exemption Holders are permissible but subject to compliance with the provisions of section 21 of the MLRA and the Transfer Policy. As such if an Exemption Holder transfers shares or members interest then one is either required to submit a section 21 application in respect of a transfer of shares / members interest that amounts to change of control or a reduction in black ownership or one is required to submit a notification in the prescribed from in respect of a minority transfers of shares / members interest that does not result in a reduction in black ownership.

Finally, this leads one to the further question of the effect of the moratorium placed on section 21 applications and notifications? In this regard DEFF have advised that the moratorium on section 21 applications and notifications was only applicable in the aforementioned sectors before 31 December 2020, when the commercial fishing rights in the aforementioned sectors were still valid. As such, as of 1 January 2021 the moratorium on section 21 applications and notifications is no longer applicable to Exemption Holders.

In light of the above we would strongly advise all Exemption Holders to seek legal advice regarding compliance with section 21 of the MLRA and the Transfer Policy before implementing any changes of shareholding / members interest so as to ensure compliance.

If you have any questions, please do not hesitate to contact us.

Kind regards

Nicholas Britz