The provisional liquidators of African Global Operations, formerly Bosasa, have scored a victory over the company’s directors after the Supreme Court of Appeal (SCA) ruled that the liquidation of six subsidiary companies which secured unlawful contracts from the state can proceed.
The court also held that an auction of assets of the six companies, which raised about R113m, was lawful, rejecting the directors’ argument that they hadn’t given their consent.
The rulings will allow the liquidation process to continue, including an inquiry into who benefited from, and who should be held to account for, the millions of rand involved in Bosasa’s corrupt dealings with the government. Among the departments involved in the graft were the departments of social development and correctional services and Airports Company SA.
According to evidence at the Zondo commission of inquiry senior ANC officials, including minerals minister Gwede Mantashe, former health minister Zweli Mkhize and president Cyril Ramaphosa’s son, Andile, may have been involved.
Others in the spotlight are former Bosasa COO Angelo Agrizzi and relatives of late Bosasa CEO Gavin Watson, who have been waging a “litigious battle” with the provisional liquidators.
SCA acting judge Piet Meyer, who penned the recent judgment, with four of his colleagues concurring, said the revelations at the state capture inquiry had led to Bosasa’s banking facilities being withdrawn.
After Bosasa failed to find another bank, the directors of Africa Global Holdings and Africa Global Operations (a subsidiary) resolved to voluntarily wind up Operations and its 10 subsidiaries.
A flurry of litigation ensued, mainly by the liquidators who wanted to sell the assets of six of the companies, “the backbone of the group”, at public auction in December 2019.
Meyer found it that the provisional liquidators and the directors of the companies agreed the assets needed to sold expeditiously after the liquidators were advised that cabinet had resolved that all service level agreements between departmental and state-owned companies and any companies related to the African Global (Bosasa) group must be terminated.
The contracts secured by the six Bosasa companies had since been terminated but they were still paying expenses, including monthly insurance charges of R150,000. Without the power to sell the assets, the companies would have to keep paying for these substantial assets.
Before their permanent appointment, and before a meeting of creditors, the liquidators applied to the court for an extension of their powers to allow for the sale of assets. The directors agreed, on condition that they be consulted and approve of any such sale.
They argued in their court papers that they had not given consent for the sale.
The directors then instituted proceedings the day before the auction to place the companies in business rescue, which would have enabled them to trade their way out of trouble, and which, if approved, would nullify the liquidation proceedings and the auction.
Much of the argument in the SCA turned on the interpretation of when a business rescue application is “made”.
Meyer said while there were conflicting versions, “I subscribe to the interpretation that [an application] must be issued, served on the company and each affected person to trigger the suspension of liquidation proceedings that have already commenced”.
“Each affected person, a shareholder or a creditor of a company, a registered trade union and individual employees, is entitled to oppose or support the business rescue application,” Meyer wrote.
“It cannot be said, on a proper conspectus of the papers, that even now there has been compliance or even substantial compliance with the service and notification prescripts.
“It is common cause the Bosasa Group had about 4,500 employees. This was reduced to 50 employees after the voluntary winding up.”
On December 3 2109 only 29 employees were notified by electronic means of the business rescue application, Meyer said.
He said the application to stop the auction also ought to have been served on each of the joint liquidators of each of the six companies.
“I conclude the business rescue application was not ‘made’ within the meaning of the Companies Act and the suspension of the liquidation proceedings, including the public auction and subsequent sales, were not triggered.”
Regarding the assertion that the provisional liquidators did not have the power or consent to proceed with the auction, he said the liquidators’ powers had been extended by court.
“It could never have been the intention of the court hearing that application to have ordered the liquidators never to sell the assets without consultation or consent of the directors. Such a conclusion would be absurd. It would ignore the extended powers granted to the liquidators.”
The rulings also pave the way for the continuation of a behind-closed-doors section 417 inquiry, headed by retired judge Meyer Joffe, into the finances of Bosasa and to probe allegations of wrongdoing by its directors.
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