Another legal tussle is brewing for Old Mutual after a minority shareholder in one of its subsidiaries accused SA’s third-largest insurer by market value of prejudicial conduct in a cost recovery dispute that dates back to 2014.
The privately owned Business Doctor Consortium (BDC), based in the Isle of Man, is seeking relief from the high court in Cape Town after Old Mutual Finance allegedly refused to recover nearly R600m from Old Mutual Life Assurance Company SA (Omlacsa), the group’s main operating company.
The little-known BDC, led by CEO Philip Vermeulen, holds 25% in Old Mutual Finance, which owns and operates Old Mutual’s retail branch network in SA. The other 75% is held by Old Mutual.
BDC is asking the court to declare that Old Mutual and its subsidiaries acted oppressively, unfairly and prejudicially against it in terms of section 163 of the Companies Act, which deals with minority oppression.
In a case that is scheduled for September, BDC argues that Old Mutual Finance significantly undercharged its costs, implying that BDC as a minority shareholder was in effect subsidising Old Mutual. This was after Omlacsa placed its in-house advisers at each Old Mutual Finance branch, from which to operate and provide specific services such as the sale of insurance and savings policies, BDC claims in court papers.
In return for providing these services, which included servicing insurance policies and providing marketing material, Old Mutual Finance was to recover its costs on an agreed margin from Omlacsa. It alleges that Old Mutual Finance has failed or refused to recover nearly R600m from Omlacsa for the period November 2014 to December 2020.
BDC claims Old Mutual Finance and Omlacsa have dragged their feet in settling the matter, which it initially raised in 2018. According to BDC, the Old Mutual Finance board and management have acknowledged a portion of the under-recovery of costs (R183m) and consequently issued invoices to Omlacsa in April 2021. But Omlacsa has allegedly refused to pay to date, and Old Mutual Finance has since impaired the invoices, meaning it has not made provision for recovery.
Old Mutual Finance’s subsequent attempts to institute legal proceedings to recover the money were blocked by its largest shareholder, according to BDC. It wants the court to authorise and direct Old Mutual Finance to institute legal proceedings against Omlacsa within 30 days to recover payment in respect of the under-recoveries to the extent necessary. It also wants the courts to remove Clarence Nethengwe as director and chair of Old Mutual Finance because of a conflict of interest. Nethengwe is also MD of the Mass and Foundation Cluster franchise, a division of Omlacsa.
Old Mutual Finance was created in 2008 by Old Mutual in a 50/50 joint venture with BDC, and the former subsequently increased its holding to 75%.
"This is not an action in terms of which BDC is claiming monies back from any of the Old Mutual entities," Vermeulen said in a statement. "BDC is compelled to protect itself and its employees, who are members of the Old Mutual Finance employee share incentive scheme, from prejudice and protect their interests in Old Mutual Finance."
Old Mutual said on Sunday it would file respective opposing affidavits by the end of this month. "All the respondents are opposing the application … It would be disrespectful to the court process to anticipate the contents of the affidavits in opposition, save to say that the application brought by the applicants is fraught with inaccuracies," Old Mutual said.
"All the Old Mutual companies deny having committed
any act or omission that was oppressive or unfairly prejudicial to the applicants."
The latest developments come two weeks after Old Mutual won a legal battle against its erstwhile CEO, Peter Moyo, who claimed R250m in damages from the insurer, stemming from an apparent conflict of interest related to NMT Capital, the investment firm Moyo helped found and in which Old Mutual was a 20% shareholder.
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