PRE-FRAP 2020 RESTRUCTURING – FISHING INDUSTRY NEWS (APR 2018)


PRE-FRAP 2020 RESTRUCTURING – SOONER RATHER THAN LATER

 

2020 marks the next significant set of fishing rights allocations with the all-important Hake Trawl and Small Pelagic sectors now eventually coming up for re-allocation.

If anything FRAP 2015/2016 has been an indication that the Department (DAFF) is looking to shake things up particularly in that “category B & C” new entrants appear to be the flavour of the day. Category B new entrants have rights in other sectors whereas category C new entrants are not rights holders at all. In the 2006 long term rights application process despite the terms of section 18(5) of the Marine Living Resources Act (MLRA) – which obligated the Minister to have “particular regard to the need to permit new entrants”, in many of the main line commercial sectors the DAFF did not allow for any new entrants simply stating that the sectors were already oversubscribed.

 

Section 18(5) appears to be the main justification now for DAFF’s policy swing towards the admission of new entrants. During FRAP 2015/2016 this policy shift towards new entrants was even at the expense of 100% black owned existing rights holders who had performed and invested. Nevertheless their allocations were cut to accommodate new entrants who in turn were meant to bolster empowerment. This is certainly an anomaly which DAFF needs to carefully consider in future allocations. They should be promoting performing transformed applicants who have invested rather than penalising them.

The bottom line is that those rights holders and the groups to which they belong need to carefully consider the lessons learnt in the FRAP 2015/2016 process – which hasn’t actually been finalised yet with certain appeals still outstanding – and if necessary to effect restructuring to place them in the strongest possible position for the 2020 rights allocations. Although 2020 is the D-date for the expiry of rights it is important to note that the process for new rights allocations will most likely start very soon with the publishing of draft sector policies which will culminate in the invitation for applications for rights possibly as soon as 2019.

Re-structuring can take various forms and depending on the rights holder or the group can be complex or simple. However there are certain key steps which will consume time and hence the need for haste if a restructure decision has been taken:

 

  • Attorneys and accountants will have to be consulted with regard to the preparing of the necessary agreements and giving of the necessary financial/tax advice;
  • There may be pre-emption rights in terms of the relevant shareholders agreements which need to be complied with;
  • If the right is being transferred from one entity to another or there is a change in control or empowerment within a rights holder a section 21 application will have to be prepared and submitted, and a decision awaited – these decisions can take up to six months;
  • Depending on the size of the transaction Competition Commission approval may be required which can also take a number of months to obtain and will also require the briefing of specialist attorneys;
  • Other technical provisions which may need to be complied with are the notification provisions under the Insolvency Act as well as under BEE legislation.
  • If vessels or immovable property are being transferred there is the necessary paper work and registration processes required to implement these transfers – if vessels are bonded then banks will have to be approached to cancel and reregister bonds;
  • If there are employees involved and the employer’s identity is to be changed there are certain notifications also to be given in terms of labour legislation and in certain instances employment contracts may need to be revised;
  • If assets or changing ownerships insurance brokers will have to be approached to amend existing policies;

 

It is also important that the new structure has some time to operate commercially to form a track record prior to the expiry of the current fishing rights.

 

If you intend restructuring or making changes within your group prior to FRAP 2020, the message is clear, these need to be done sooner rather than later.