Public Protector orders liquidation law reforms – thanks to a dispute between some pretty shady characters.
On 19 December 2018 Public Protector, advocate Busisiwe Mkhwebane released a report which requires changes to the regulations that determine how liquidators of insolvent companies are chosen and appointed, the time frames for this to happen and, importantly, the methods by which they can be removed from office.
Mkhwebane came to her ruling thanks to (1) a BEE junior coal miner, (2) a convicted child pornographer and a disbarred solicitor-turned-thieving banker-turned-unscrupulous-miner; and (3) a liquidator best known for saying “I looove money”.
Notably, she put an end to the “48-hour notice rule” as she found it “unfair, unjust to creditors and susceptible to abuse by (drum roll) …unscrupulous lawyers and liquidators”.
The rule, as explained to Noseweek by CEO of the South African Restructuring and Insolvency Practitioners’ Association René Bekker, gives creditors just two days or 48 hours, to file their claims against a company being placed under provisional liquidation – that’s assuming the creditors all knew about the pending liquidation. If you are an ordinary run-of-the-mill creditor, it is most unlikely that you would have known in time to file your claim and attend that vital meeting of creditors where the provisional liquidators are nominated and elected.
The creditor with the biggest claim gets pro-rata the most votes. Unless you are in on a privately arranged prior deal between a group of creditors in the know, the creditor that swings it is almost invariably a bank – which is as likely the liquidating creditor in control of events. The fact is, in the majority of cases a bank gets to nominate and elect its favoured liquidator who is likely to prefer the bank’s interests (and the bank’s lawyers’ interests), with little regard for those of lesser creditors.
“The notice period of 48 hours is too short, unreasonable, and improper and prejudicial and it was not documented in the policy or regulations determined by the Minister or the Chief Master’s directives”, said Mkhwebane.
Mkhwebane ruled that the 48-hour rule be abolished and the Minister of Justice and Correctional Services must within six months determine (fairer) policy regulating the appointment process of the provisional and final liquidators and also regulate the process for the removal of the provisional and final liquidator by a Master of a High Court.
The Public Protector’s ruling has serious ramifications for the liquidation industry which in the main, is governed by the ancient Insolvency Act of 1936 and pretty much operates as a law unto itself controlled by a select group of corporate law firms, liquidators and Masters who have either been “co-opted” by them or, by now, just couldn’t care less.
The Protector’s call on minister Michael Masutha comes after the ministry’s attempt to change the policy governing the appointment of liquidators was struck down by the Constitutional Court in July 2018, after it was challenged by the Restructuring and Insolvency Practitioners’ Association among others, predominately over claims that the appointments were to be made using uncoordinated and racebased lists that would be open to manipulation.
Questions will likely be raised as to the timing of this report, with Mkhwebane’s history of meddling in affairs not her own. It is seven years since the complaint was lodged and might be considered convenient by some, considering the ConCourt ruling.
|Public Protector Busisiwe Mkhwebane|
But what were the circumstances surrounding the ruling?
It all began in the heydays of New Order mining rights, the rise of BEE deals and a buoyant economy in the early 2000s led by “quiet diplomacy” president Thabo Mbeki.
Businessman Sipho Dube was the owner of Endulwini Resources (Pty) Ltd and riding the wave of BEE deals being sought by foreign mining capital all looking for an “in” to the lucrative South African coal mining industry.
He had the pick of partners to choose from, the support of the Department of Mineral Resources, and a penchant for claiming he had “political” clout.
But, as reports reveal, he also had a nasty habit of extracting money from foreign investors and then falling out with them.
In about 2004/5 Endulwini had been brought in as a BEE partner with a 37.5% stake in the Black Wattle Colliery in Mpumalanga; London- based Bisichi Mining was the controlling shareholder.
In June 2005 Bisichi and Endulwini entered into another agreement – this time to buy the Pegasus Coal Reserve near Witbank from BHP Billiton’s Ingwe Collieries. They formed a joint company called Ezimbokodweni Mining, 51% owned by Endulwini and 49% Bisichi.
Endulwini was also the beneficiary of a lucrative 250,000 tonnes-perannum export quota from Richards Bay Coal Terminals allowing them access to the export market. This was part of the “Quattro programme” which mandated that space be given to black coal miners, with lower barriers of entry, to export coal.
Between 2005/2006 Dube got reacquainted with an old business contact – a former banker who he knew when he did business with Mercantile Bank called Rob Lowe who had “recently returned” to South Africa after a stint abroad.
As Noseweek readers will know, Lowe (noses85, 126 & 218) not only spent time in a UK jail for possession of child pornography in the early 1990s, was barred from working as a solicitor in the UK and defrauded a Mercantile Bank customer of his life savings to the sum of R20.9 million before skipping the country in 1998- 99. He is also currently trying to help an Australian mining firm that is keen on mining coal in the waterscarce region of Waterberg, Limpopo.
“If I had read Noseweek at the time he was around I would not have worked with him further,” Dube would tell Noseweek.
Through his vehicle Altius Investment Holdings (Pty) Ltd, Lowe bought a 15% stake in Endulwini Resources Ltd for R11 million. As Lowe would later say in papers filed for the liquidation: “The rationale for the investment was that the Endulwini Group, as a black-owned mining group, would be the beneficiary of mining opportunities in South Africa”.
Lowe then brought in Dr Anwah Nagia, chairman at Element Investment Managers (Pty) Ltd with whom he had worked in the past. Nagia is best known for being chairman of the District Six Beneficiary and Redevelopment Trust. Together they formed Africa Commodities Group Resources (Pty) Ltd which according to Nagia was to provide “management support, advice and funding”.
But in 2008 the relationship between Endulwini and Bisichi Mining unravelled. Bisichi’s MD Andrew Heller was so eager to see the end of Dube he paid him R10m in “travel money”. Bisichi ended its BEE agreement at Black Wattle Colliery with Dube and signed up a new BEE partner in Vunani Mining shortly thereafter.
There was also ongoing strife at Pegasus. Bisichi wanted to buy the mine but Dube had told Fin24 in 2008: “One thing is for sure. I will not allow them to continue mining there”. He also wanted the mine.
Neither got it.
Bisichi Mining lost £1.8m (R31.7m), with little hope of recouping it.
But in 2009 Dube and Lowe wore rose-tinted glasses. A buck was to be made and Dube’s BEE status was to be leveraged.
That year, according to CIPC records, Noble Resources Group Limited (nose128) which is listed on the Singapore Stock Exchange but domiciled in the mining mecca of Bermuda, took a 60% shareholding in Africa Commodities Group Resources (Pty) Ltd. The newly formed company was also keen on resurrecting the Pegasus mine deal, with or without Bisichi, as the mine was known to have high value coal deposits, valued in 2011 between the range of R593m to R946m.
Lowe, Nagia and the Noble Group, which has a subsidiary based in Stellenbosch, injected R20.4m into Endulwini and its coal subsidiary to develop coal assets. They entered into a coal supply agreement with the Bisichi-owned Black Wattle Colliery and, then using Endulwini’s entitlement at Richards Bay Coal Terminal (RBCT), started exporting coal.
But by 2011 the deal had soured.
Lowe enlisted Chris van Zyl (noses8, 141, 152, 157, 160, 164 & 166) liquidator extraordinaire, known for results and making a quick buck while he is at it and once telling a hapless director being liquidated: “I love money. I luuurve money. I looooove money.”
Van Zyl would later tell creditors in February 2014 that Endulwini collapsed because of “complete mismanagement on the part of the directors of the company”.
Dube told Noseweek that was rubbish, and that Lowe and Van Zyl engineered the crisis by seizing control of the company’s cash flow.
Lowe accused Dube of making “unilateral decisions”, ripping him off and failing to pay the logistics provider at RBCT, leading to reduced loads being delivered and some coal being seized “to rectify a shortfall in the common stockpile allegedly caused by Endulwini… selling the same consignment of coal twice, to different buyers”.
During this period Dube, without the knowledge of Lowe and Noble, tried to offload his 51% stake in Pegasus Mine, as well as the debt, to the aptly named shelf company called Hasty Shelf Trade and Invest 17 (Pty) Ltd – better known as HSTI 17 (Pty) Ltd which in turn was to be bought be Wescoal Holdings Ltd. HSTI 17 was owned by Muthanyi Ramaite – who was and still is Wescoal chairman – and Wiseman Khumalo who was at the time a non-executive director at Wescoal. An insider deal if there ever was one – except this deal also fell through.
At one point a senior official of the Department of Mineral and Resources tried to buy Endulwini’s stake in Pegasus too.
On 16 November 2011 Endulwini was placed under provisional liquidation. A month later Van Zyl approached the court for further powers and took control of Endulwini’s subsidiaries and the bank accounts, which just happened to include the bank account Dube was using to pay legal fees to fight the liquidation.
Dube would later complain to the Public Protector: “They went on closing accounts, intimidating service providers and failing to make payments to service providers, including staff salaries, while hogging our monies as well as accounts frozen. I… request that the Master correct this abnormality by immediately removing this Provisional Liquidators” said Dube in a letter.
The company was wound-up in January 2012 with creditors eventually paid out in 2014.
Dube, who called Lowe a “professional conman” told Noseweek that the whole ordeal cost 700 people their jobs and even accused Lowe and Nagel’s company Altius as being an empowerment front, an accusation they deny.
“When Van Zyl got appointed as a provisional liquidator I told him to go to hell. Van Zyl will need to explain in an orange jacket what happened to all the money. I want him in jail,” said Dube. And Van Zyl said in reply: “I take it from whence it comes.”
Lowe and Nagia, in a written response dismissed the “conman” slur as “defamatory” adding that when the going was good, Dube had declared of Lowe at a public gathering in September 2010: “He is a person of the highest integrity… [and] no one can take that integrity away from him.”
They said that despite their directly paying Dube R9m for equity in Endulwini and a further R20.4m in loans, Dube was found to be selling preference shares on the side for R6m and raising a “US$1m” loan for Endulwini. In fact he had pocketed the money himself.
“We got zero back in the final liquidation,” they said in a written response.
Dube told Noseweek he now intends to use the findings in the Public Protector’s report to overturn the liquidation of Endulwini.
Contacted by Noseweek, Van Zyl said that Dube told “deliberate lies” and accused him of hiding assets. He said the cost of the liquidation came to a total of R4.8m, including legal fees. Van Zyl said that Lowe, Nagia and Noble did get something back – a mere R122,229.14. [A fair indication of who benefits most from liquidations as the system currently operates. – Ed]
He said the 48-hour rule – which he claims was not used in this matter – is “faithfully followed by insolvency practitioners”. He said he was busy with submitting a charge sheet in terms of the Companies Act against Dube and his co-directors and officers of the company, with the recommendation that they be prosecuted.
It is worth noting that Dube once put in a bid for what would become the infamous Gupta-owned Optimum mine in August 2015. According to Business Report at the time, Dube had put in a “firm offer of US$200m” (approximately R2.5bn at the time). It would later be revealed that Dube’s offer was for only R1.5bn – and that the offer was conditional, unsecured and “not credible”, with “no real prospect of implementation”. The Gupta’s bought the mine for R2.15bn.
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