Sales of Assets: Grey Area of Interpretation

Sale of assets is a recognized avenue to facilitate ownership within B-BBEE ownership deals. Is there a grey area of interpretation of how the sale of assets should be calculated?

The requirements for a sale of an asset to qualify for ownership, is that for an on-going business to be recognized as an ownership deal:

Must result in a sustainable business,

No unreasonable limitations can be placed on the business, and it

Must be at arms-length to avoid fronting.

Sale of machinery is not recognized.

The codes are clear “transfer of business rights by way of license, lease or other similar legal arrangements not conferring unrestricted ownership; and sales of franchises by franchisors to franchisees, but includes sales of franchises from franchisees to other franchisees or to new franchisees do not qualify for recognition”.

Debate

Should the value of the business assets minus liabilities be taken into consideration as the value of the business or rather should it be the value of the shares in the business?

For example, company A has a market value of 50 million rand and they have a maintenance department worth 5 million rand. The value of company A shares, which are unlisted on the JSE, is approximately R500 000 making up 500 000 shares. Should the company want to sell their maintenance department as part of a sale of assets ownership deal, what factors should be taken into consideration in calculating the value of the sale of assets and its equivalent in terms of black ownership?

Keep in mind that for black ownership to qualify, the maintenance business must be sold at a minimum to a 51% black ownership company.

What is the true value of Company A?

One school of thought would argue that the value of Company A should be calculated solely on the market value of the business which is 50 million rand.

Another school of thought would argue that the value of business should be calculated using an equation that takes into account the value of the business, as well as the value of the unlisted JSE shares.

With EconoBEE being one of the oldest consulting firms specializing in BEE, Employment Equity and Skills Development, guidance is given by our team of highly qualified consultants in the sale of asset ownership deals to ensure compliance.

To help you further understand the above, we have the following upcoming workshops on BEE:

Title: Full-Day B-BBEE workshop

Date: 08 October (JHB), 09 October (CPT), 13 November (DBN)

Duration: 09h00 to 17h00

Price: R3 913.04 Excl VAT (50% discount for our Managed Service Clients)

Venue: Johannesburg – 435 Rugby Avenue, Ferndale, Randburg, Durban – The Circle, Douglas Drive, Ballito, Cape Town.

To book please email us on pheliswa@econobee.co.za or call us on 011 483 1190

Click here for more information on the various workshops we hold.