For approximately 14 years, a company relied on a black shareholder to meet its B-BBEE requirements and secure work in the mining sector. When it sought to improve its B-BBEE score, it attempted to replace him with a black woman, whom it believed would better satisfy its B-BBEE objectives. In Johannes v Waterzone, the Mpumalanga High Court reinforced that ownership on paper is not empowerment and ordered the company to open its books.

The facts

Waterzone operated in mining. Johannes joined about 14 years ago to meet its B-BBEE requirements and win work. He was granted a 26% membership interest in the close corporation, which later became a 26% shareholding when the entity was converted into a private company.

Around February 2020, after certain contractors considered the company’s B-BBEE status insufficient, the parties entered into a Share Option Agreement. It would have let Johannes buy an additional 25% and become a 51% majority shareholder. The option was never exercised, no price was paid, and the additional shares were not transferred.

In August 2024, Johannes was told to give up his shares and resign so the company could replace him with a black woman and improve its B-BBEE score. The company denied only the added detail that she should preferably be disabled. He refused and faced a disciplinary process. During that process, the parties signed a mutual separation agreement terminating his employment. The contentious issue was whether the agreement included the option to purchase the shares.

What the court found

The court found that the only reasonable inference from the evidence was that Johannes had been used primarily for his B-BBEE status to secure work, without meaningful involvement in the company’s business and financial affairs.

He was a shareholder and director in name, but the company kept him out of management and denied him financial statements, share registers, minutes, and other company records. The company treated him as replaceable the moment a better-scoring candidate appeared.

The court held that B-BBEE is not about transferring shares on paper. The B-BBEE Act aims to share not only ownership but knowledge, experience, business skill, and real economic opportunity. In the court’s words, the Act was not enacted or intended solely for historically white-owned companies to hand over money to black individuals, thereby entitling such companies to continue securing contracts because they had now met certain compliance requirements.

Although the court did not formally find that Waterzone had committed the statutory offence of fronting, it repeatedly criticised what it described as an irregular application of the B-BBEE Act. The court held that B-BBEE is intended to facilitate not only the redistribution of wealth, but also the transfer of knowledge, experience, business acumen, and meaningful participation in economic activity.

Johannes was not blameless. For 14 years, he took advantage of the arrangement. Nevertheless, the court held that, as both a shareholder and director, he remained entitled to obtain corporate and financial information, and criticised the respondents’ continued refusal to provide it. The court ordered the company to furnish the requested records.

The Rectification Defence

Waterzone argued that the separation agreement should also cover the sale of  Johannes’s shares and asked the court to rectify it on that basis. The court set out what rectification requires: a genuine common intention, a mistake in how the agreement was recorded, and clear evidence of both.

Although Waterzone indicated that it intended to seek rectification, it never brought a counterapplication for rectification and relied on the proposed rectification merely as a defence to the relief sought by Johannes.

The court held that Waterzone could not show a common intention that the agreement also dealt with the shares. The court held that the respondents had failed to establish a bona fide and sufficiently substantiated defence based on rectification.

The separation agreement therefore remained enforceable in its existing form and dealt only with the termination of Johannes’s employment, not the disposal of his shares. The court ordered the company to hand over the records that Mr Johannes had required.

Why it matters, and what to do.

The message to business is direct. A B-BBEE structure that gives a black shareholder equity, but no information, no role, and no security is exposed on two fronts: it may attract allegations of fronting or non-compliance with the objectives of the B-BBEE Act, and it invites minority-shareholder and oppression claims.

Four practical steps follow:

• Give empowerment shareholders real participation. A genuine role, access to financial and corporate information, and a say in decisions. Paper ownership is a risk, not a shield.
• Keep records current and available. Directors and shareholders are entitled to them, and refusing to produce them reads badly in court.
• Write agreements that say what they mean. If a settlement is meant to cover shares as well as employment, the document must say so. You cannot fix that later by arguing about intention without proof.
• Do not treat empowerment partners as interchangeable. Replacing a shareholder to lift a score is the conduct the court criticised.

This judgment serves as a reminder that B-BBEE ownership structures must be more than a compliance exercise. Where black shareholders are excluded from information, decision-making, and genuine participation, the arrangement may face legal scrutiny and undermine the very objectives that the B-BBEE Act seeks to achieve.

Businesses should therefore review empowerment structures to ensure that they reflect meaningful participation rather than ownership on paper alone.

If your business has a B-BBEE ownership structure, contact Riona Kalua to review whether your arrangements are aligned with the objectives of the B-BBEE Act and to help you navigate potential legal risks.

Written by Riona Kalua and Nqobile Dlamini. This article is general information and reflects the law at the time of writing. It is not legal advice. For advice on a specific matter, please speak to us.