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Ten directors who were at the helm when African Bank Investments Limited (Abil) failed, plus its auditor Deloitte, have their backs against the wall and are caught in the crosshairs of thousands of enraged African Bank BEE shareholders who want their money back.
At a meeting in Pretoria on Friday, the shareholders of Hlumisa and Eyomhlaba, which are both in business rescue, backed three resolutions that will see the directors and Deloitte sued for more than R2 billion.
After the vote, Desmond Lockey, chairperson of Hlumisa, said: “This is a victory for those shareholders who want justice. We are going to pursue the legal path. We hope to get our day in court soon.”
Lockey said that mainly poor black people had lost money and they were victims who had been shoved to the sidelines with almost nothing.
“This is a serious case of black people being screwed,” he said.
The 10 former directors are Leonidas Kirkinis, Nithiananthan Nalliah, Mojankunyane Gumbi, Morris Mthombeni, Mutle Mogase, Nomalizo Langa-Royds, Nicholas Adams, Samuel Sithole, Antonio Fourie and Robert Symmonds.
The extravagant “glass house” in the Western Cape owned by Kirkinis, African Bank’s former CEO, and which has been on sale for as much as R70 million, will this week be auctioned off.
The more than 13 000 empowerment shareholders, who put R268 million in their savings, including pension money, and invested R700 million in dividends into Abil, will be emboldened in their second legal battle by the fact that last year they won a court case prohibiting Abil business rescue practitioners from selling the insurer Stangen to the “new” African Bank, which now holds the former’s bank good debt and was launched in early April.
Lockey and other shareholders expressed disquiet at the more than R20 billion in cash that the “new” African Bank has in its coffers as an indicator of the extent of the good book and assets the new bank inherited.
Adding to shareholders’ confidence will be the report this year by the Myburgh Commission of Inquiry – headed by Judge John Myburgh and appointed to investigate the collapse of African Bank – which concluded that the bank was negligently run, but that there was no intentional fraud.
The directors were collectively “in breach of their fiduciary and other duties to the bank”, the inquiry found.
African Bank was also found to be “reckless” for bailing out furniture retailer Ellerines with a R1.4 billion loan. The directors should have realised they were not going to get that money back, but made the loan anyway, the inquiry found.
That was in breach of section 45 of the Companies Act, which forbids directors from undermining their company to help another company.
Lockey said that following Friday’s vote, the court papers would be refiled within two weeks, after the Myburgh commission report had been scrutinised, to amend and strengthen their existing case.
“We have been working on the court papers while we have been waiting for this meeting,” he said, adding that two advocates had been contracted to lead the case.
There was a general sense at the meeting that having lost hundreds of millions of rands, most of the shareholders felt it was worth going for broke rather than taking a tiny dividend from the R7 million left in the kitty.
Lockey said: “The dividend is minimal – lets go for litigation.”
A shareholder at the meeting, who wished not to be identified, said Eyomhlaba shareholders would get 11c per share, while Hlumisa shareholders would get 9c per share, plus there would be a 15% dividend tax on whatever dividend was paid out.
Another idea was that they wanted to set a precedent and send a strong message that company directors could not be reckless with shareholder money and get away with it.
The move to sue was made by the directors of Hlumisa and Eyomhlaba. The vote on Friday follows a settlement between Abil and the two empowerment entities, when Abil wrote down R164 million in debt it owed and then bought 75 million shares held by the empowerment companies.
As part of the settlement, Hlumisa and Eyomhlaba agreed to put a vote to their shareholders about whether to continue the court action or to take a dividend.
Hlumisa investors passed the three resolutions in favour of going to court by between 76% and 79%, while Eyomhlaba shareholders backed the resolutions by between 57% and 69%, according to Connie Myburgh, the business rescue practitioner for Hlumisa and Eyomhlaba, who chaired the meeting.
“Many, many people have voted. People have sent their votes through by fax and email,” he said, without saying how many shareholders from both companies had voted.
Hlumisa and Eyomhlaba shareholders were tied into holding their Abil shares for 10 years – ending December 2015 – but the SA Reserve Bank placed Abil into curatorship in August 2014 after it suffered billions in losses.
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