Liquidators’ fees amounted to more than double their entitlement
Here’s a story that probably tells you all you need to know about what’s really been going down in major commercial law firms when it comes to their relationship with friends in the (equally greed-driven) liquidation business.
Asch Professional Consultants was founded in 1995, with offices in Cape Town and Johannesburg, providing consultancy and project management in the area of structural, civil and transport engineering. One of the founders was Hassen Adams, a businessman, professional technologist and structural designer whose name and activities have graced the pages of Noseweek almost as often as those of attorneys Edward Nathan Sonnenbergs (ENS).
|Hassen Adams: allegations of fraud again|
So when Noseweek came across a 2010 Western Cape High Court file containing an affidavit by Adams in support of an application for the company’s liquidation, we were naturally curious. It all revolved around a dispute between the director-partners.
In professional firms of lawyers, accountants, architects, doctors and the like, the partners – apart from being directors – usually hold equity in the company in the form of shares. And so it was with Asch. From 1995 to 2010 various partners joined and left the firm. By 2009 the directors were Hassen Adams, Mogamat Samaai, Gavin Cooper as CEO, Ganief Fish, Omar Jakoet, Yousuf Ismail and Bruce Erlangsen.
It was allegedly decided in 2006 that Samaai of Cape Town would replace Cooper of Johannesburg as CEO. In his affidavit, Adams gives a long and detailed explanation as to why the change of CEO was necessary. In brief, there were two camps in the firm: the “Cooper Camp” in Joburg, which was comprised of Cooper, Jakoet and Fish (they held 57% of the shares), and the smaller “Adams Camp” in Cape Town, consisting of Adams and Samaai (they held 43%). Ismail and Erlangsen had not yet acquired shares, so they enjoyed the luxury of sitting on the fence, so to speak.
Adams alleges in his affidavit that the relationship between the two camps had irretrievably broken down, therefore it would be “just and equitable” for Asch to be wound up. In terms of the Companies Act this is sufficient reason for a company to be liquidated. It need not be insolvent. In fact, Asch had about R14.5 million in the bank at the time, plus a healthy debtor’s book and only a few trade creditors.
Judge André Blignault acceded to the request and placed Asch under provisional liquidation on 13 July 2010.
The liquidation vultures were already circling. Within no time the Master of the High Court had appointed Christopher Peter van Zyl, Natasha Amanda Sansom and Rene-Lynne Barry-Kleynhans as provisional liquidators of the company.
A month later, while they were still just provisional liquidators – in effect, temporary caretakers of the business – they approached the court asking to be granted astonishingly wide powers to do various things; powers that would be regarded as downright improper even if they’d been granted to final liquidators who actually had the job of winding up the business.
Judge Jimmy Yekiso granted the order as they requested. Perhaps in the rush of motion court proceedings (a written request asking the court to take a specific action) he failed to notice just how out-of-the-ordinary was the draft order put before him.
The order commences: “Having heard counsel for the applicants and having read the documents filed of record, it is ordered that…” Had the judge actually read paragraph 2.3 of the draft order presented to him by counsel before he endorsed it?
It reads: [The provisional liquidators have the power to appoint attorneys and/or counsel, and] “to agree with such attorneys and/or counsel on the tariff or scale of fees to be charged by and paid to such attorneys and/or counsel for the rendering of services to Asch and to conclude written agreements with attorneys and/or counsel on the basis that the costs incurred by the applicants... shall not be subject to taxation by the taxing master if the applicants have entered into a written agreement in terms of which the fees of any attorneys or counsel will be determined in accordance with a specific tariff, provided only that no contingency fee arrangements shall be entered into without prior written consent of the creditors”.
In plain English: the liquidators could agree to pay their lawyers any fee, no matter how exorbitant or outrageous, with no legal restraint – they would not face the risk of having these bills checked (“taxed”) by the court officials normally appointed to the task. They were asking for – and got – license to pillage the company they were supposed to be liquidating in the interests of its creditors and shareholders.
And pillage it the liquidators and their appointed attorneys appear to have done – apparently without having to account for it. The status of the three provisional liquidators changed to that of final liquidators on 20 December 2011. By May this year, less than five months later, they were ready to wrap up the liquidation. They filed their final liquidation and distribution (L&D) account with the Master for official approval on May 3.
Noseweek has had sight of the liquidators’ final accounting of their administration and some of the vouchers filed in support of it. By our reckoning, they don’t always tally.
The documentary evidence shows the liquidators transferred R14,418,525.88 from the bank accounts of Asch to the liquidation bank account for distribution to the creditors. According to the prescribed tariff, liquidators are entitled to charge a fee equal to 1% of the value of such “liquid” assets – which, by the book, in this case should have amounted to R144,185.26. Then there’s the money recovered from the Asch’s debtors.
This appears to Noseweek to have totalled R13,411,621.12. On this type of collection the liquidators are entitled to 10%, being R1,341,162.11. Add the two, and the total liquidators’ fee should have been R1,485,311.47 – fair recompense for six months’ pretty ordinary admin work. But, according to the L&D account that they filed with the Master, the liquidators’ fees amounted to R3,109,349.32 – more than double the amount they were entitled to charge, by our calculation.
In the L&D account, their explanation of how their fees were calculated appears to be at odds with the supporting documentation. It reflects R26,341,147.00 as “debtor collection” on which a 10% fee can be charged – and only R1,500,000.00 as “pre-liquidation current account” on which the fee is just 1%. (R1,500,000 is a peculiarly round figure for a trading company’s bank account, but perhaps not glaring enough to raise the Master’s auditing antenna?)
Next item to attract Noseweek’s attention was the amount of fees charged by ENS, bespoke law firm to liquidators. For their – on the face it, simple – non-litigious work in advising the liquidators of Asch, they charged an astounding R2,256,742.29. But then maybe that’s the sort of fee you’d expect ENS to charge, given the invitation held out by the “pillage clause” in Judge Yekiso’s authorising order. (Was it drafted on ENS’s advice? – Ed.)
Noseweek will have a look in future editions at all the other snouts that were in the Asch feeding trough.
Meanwhile, what were the “Cooper group” of shareholders making of all this? It transpires that throughout the liquidation process they were in the dark. They were told and knew nothing about an L&D account having been filed until July last year, and before they could do something about it, the liquidators’ accounts had been approved and confirmed by the Master of the High Court in Cape Town.
How come they did not get to check the liquidators’ L&D account in time? They say it was not shown to them and they were not told it was open for inspection at the Master’s office.
It transpires that all the liquidators did to comply with the strict letter of the law was to advertise the account for inspection... in one issue of the Government Gazette published in June last year.
(The Gazette is, of course, what we all read every morning, cover to cover, over breakfast. You missed the ad? Why, it appeared at the bottom of page 130. Obviously. – Ed.) No courtesy phonecall, no letter, no email to all creditors and shareholders advising them that the final L&D account was open for their inspection – what one might have termed fair and transparent administrative action. (Shareholders too: they had a direct financial interest in how the liquidation was managed, since the company was not insolvent.)
On 5 December last year, they addressed a letter to the liquidators and on 13 December, another to Mrs Zureena Agulhas, the chief Master [“Mistress”?] of the High Court herself, demanding answers and explanations from all of them.
The liquidators immediately handed the letter to their extremely well-paid attorneys, ENS, for reply. ENS director in the insolvency department is Juliette Langford. Here follow two extracts from her arrogant reply:
“The liquidators were not under any obligation to provide [you] with notice that the account was lying open for inspection other than the requisite advertising of same, which was duly attended to. [You] have only yourselves to blame if you did not inspect the account.”
(Common sense, let alone courtesy or a sense of justice are clearly not part of the corporate culture at ENS. “What’s the Bill of Rights got to do with it?” Noseweek hears them ask.)
“The liquidators are not required to tax bills of costs in regard to their fees or to submit same to the Master to justify legal costs. Our clients obtained leave of the court to engage the services of attorneys and counsel on the tariff of fees to be charged and paid on the basis that such costs would not be subject to taxation if the liquidators entered into an appropriate written agreement.”
The second sentence reads like obfuscating gobbledegook – and probably had Judge Yekiso foxed – but the first is clear enough: We were free to charge what we liked, so you can eff off.
If ENS are correct in their contention that Judge Yekiso dispensed with their having to account to the Master, then there is an interesting conundrum: a High Court Judge, or a civil servant – the Master – effectively condoning pillage of a company in liquidation.
If there is no accountability, why bother to have Masters of the High Court involved in the liquidation process? Of course! It disguises and legitimates the pillage!
Which clearly suits the likes of the liquidators, ENS and the firm’s insolvency director, Langford. Could they be among those who believe that money sitting in an insolvent estate’s bank account ought never, ever to be wasted on creditors or shareholders?
The Master (Agulhas) responded that she was regrettably functus officio – a Latin legal phrase meaning that the person or body who made the decision (to approve the L&D account) was legally unable to revisit it.
The only route open to the Cooper Camp was an appeal or review application to the Western Cape High Court.
All this is explained in papers filed in the court on 27 March of this year in support of their application, in which they question the figures and the liquidators’ conduct and ask for the Master’s approval of the L&D account to be set aside.
Their contention is summed up in the words of Omar Jakoet: “I respectfully state that the only reasonable inference to be drawn from all the above facts and circumstances, is that the misrepresentation by the liquidators to the Master in the L&D account was deliberate and wilful, and was in the circumstances fraudulent.”
Cooper’s affidavit handed to the Master is equally forthright: “In the light of the evidence… I hereby require criminal investigation against the joint liquidators for fraud, theft and corruption. The liquidators knowingly and intentionally defrauded the estate as they were not entitled to payment of these fees amounting to R3,013,224.82, amongst others, as they did not collect the money.”
He notes further, “The inescapable inference and conclusion is that the misrepresentations were made with the purpose of achieving payment to the liquidators of a fee/remuneration to which they were not entitled.”
At the time of going to press, the Master filed a notice at court indicating that she would not oppose the application. The liquidators had yet to file their answering affidavits.
Previously seen in Noseweek:
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