A voyage of discovery towards accountability

Jonathan Faurie
Founder: Turnaround Talk

When South Africa became a democracy in 1994, there was a euphoria around the nation with a lot of hopeful hearts that this regime change will usher in an age of accountability that this country desperately needed. We were entering into the New South Africa.

When Nelson Mandela was released and the momentum towards 1994 began in earnest, I was a naïve 11-year-old perplexed about the exact date that this New South Africa would arrive. As a 40 year old, I now realized that it arrived with Mandela and his fastidious view on accountability. This continued with Thabo Mbeki and other struggle veterans such as Desmond Tutu.

However, this accountability was cast aside over the years and South Africa has somewhat ignored it since Jacob Zuma’s first term as President. This has proliferated into many of the country’s key institutions and companies. One of the reasons of South African Airways financial distress was gross mismanagement and the lack of accountability within the upper echelons of the company. We all know of the similar challenges at Eskom prior to Andre de Ruyter’s arrival.

Accountability is a major contributor of financial distress. This cannot be denied. This has been pointed out on numerous occasions during the Optimum Coal business rescue and the legal battles that have come along with the rescue.

An article by the Daily Maverick gave some key insights into the challenges surrounding the rescue. As a leading business rescue practitioner told me on the weekend, this legal battle could have major ramifications for the business rescue profession.

See you in court
The article points out that the Investigating Directorate (ID) of the National Prosecuting Authority filed two High Court applications for preservation orders under the Prevention of Organised Crime Act this week.

One seeks to grab the Gupta family’s shares in Optimum Coal Mine and Optimum Coal Terminal, following their controversial acquisition – allegedly funded with the proceeds of State Capture crimes – just over five years ago.

The State contends that cash from Transnet, the Transnet Second Defined Benefit Fund and Eskom was mobilised and channelled through, among others, Albatime, Trillian Capital Partners and Centaur Mining to help the Guptas pay for the 2016 purchase.

Optimum Coal has seen its fair share of drama
Photo By: Getty Images

The article adds that the second is a parallel application to preserve a R1.3-billion creditor claim held by Templar Capital, a Bermuda company through which Daniel McGowan – a former Gupta business associate – now stands to acquire the business of Optimum.

Affidavits filed by Hermione Cronje, the outgoing head of the ID, set out details of the State’s double legal bid in anticipation of forfeiture applications likely to follow in the coming months.

Both applications are premised on the State’s contention that the deals – the original Gupta acquisition of the Optimum package and the latest being driven through business rescue proceedings – are tainted by the proceeds of crime.

Smoke and mirrors
The Daily Maverick article points out that the Optimum deal was signed in December 2015 amid a national storm around the firing of former Finance Minister Nhlanhla Nene and subsequent reports of former Mining Minister Mosebenzi Zwane’s trips to Zurich, allegedly to help seal the deal for the Guptas.

The Guptas hurriedly left South Africa several years ago and law enforcement is awaiting a decision on its application for Interpol Red Notices for four members of the family. Brothers Ajay, Atul and Rajesh as well as their former kingpin, Salim Essa, are also the subject of financial sanctions imposed by the United States in 2019.

With this case the NPA seeks to have forfeited to the State the proceeds of one of the “primary criminal schemes” identified in former public protector Thuli Madonsela’s 2016 State of Capture report, Cronje says.

The article adds that indications are that this will be one big fat clash. Three sets of business rescue practitioners (BRPs) – those of Optimum Coal Mine (OCM), Optimum Coal Terminal (OCT) and the BRPs responsible for Tegeta Exploration and Resources – have refused to grant the NPA section 133 consent for the applications filed at the High Court in Johannesburg on December 8 2021.

(This section of the Companies Act dictates the limits within which legal proceedings may be brought against companies in business rescue).

Cronje, in court papers, said this was unfortunate but hoped that the BRPs would come round.

She warned that some of them may be guilty of an offence under the Prevention of Organised Crime Act (POCA) should they proceed with implementation of the OCM rescue plan and thereby give effect to the debt-to-equity deal.

The NPA requires the court’s leave to proceed with the applications filed.

Mitigating an immediate risk
The article points out that, while concerned about the dissipation of assets, Cronje says the immediate risk has been mitigated by an undertaking from the BRPs to give the State notice of circumstances that may lead to the imminent implementation of the business rescue plan.

The NPA’s applications come just six months after Paul Holden of Shadow World Investigations, testifying at the Zondo Commission, urged authorities to attach Optimum.

It is also mere weeks before Deputy Chief Justice Raymond Zondo, who heard extensive evidence about this transaction, is scheduled to hand a report to President Cyril Ramaphosa.

Sibusiso Tshikovhi, a chief financial investigator attached to the ID, says there are reasonable grounds to believe the Gupta’s shares in OCM and OCT – held via Tegeta – are the proceeds of unlawful activity.

The Daily Maverick article adds that Tshikovhi says, are the creditor claims of Centaur Ventures Limited (CVL) against OCM and if not, they are the instrumentality of the offence of money laundering. CVL’s claim was ceded to Templar in June 2020. McGowan controls both companies.

Tshikovhi’s affidavit was submitted in support of both applications.

The article points out that while McGowan contends that his creditor claim is in respect of coal pre-payments, Tshikovhi says most of the payments relied on should rather be seen as money laundering transactions.

Those, Tshikovhi says, were transactions by which the Guptas allegedly laundered the proceeds of crimes committed against organs of state and then used it to prop up the finances of their other entities in South Africa.

“At the very least, R1.3-billion that underpin CVL’s (now Templar) claim against Optimum are the proceeds of crime,” Tshikovhi says.

Accountability is something South Africans should embrace
Photo By: Canva

His affidavit contains an illuminating analysis of multiple transactions executed to help the Guptas mobilise cash to pay for Optimum in 2015/16, as well as several others, to cast doubt on the validity of Templar’s creditor claims. 

The article adds that the payments in respect of Optimum included Eskom’s R659-million pre-payment for coal; an R104-million “loan” from businessman Kuben Moodley’s Albatime to Tegeta; another R152-million “loan” from Trillian Management Consulting; as well as an R842-million “loan” put up by Centaur Mining SA.

Without the cash put up by these various parties, the Guptas’ Optimum deal, then hinging on a payment deadline of 14 April 2016, would have collapsed, court papers state.

Two affidavits submitted by Cronje say the State has clear evidence that the creditor claims held by Templar – currently the largest independent creditor of Optimum – are the proceeds of crime.

“The funds underlying the CVL claims are funds that were advanced to CVL by the Gupta family’s Dubai company, Griffin Line Trading LLC, a company nominally controlled by Ajay Gupta’s son, Kamal Singhala.”

And, McGowan has himself stated under oath that money CVL received from Griffin Line was “money stolen from the South African government and laundered via Singhala on behalf of his father and wider family members”, Cronje says.

The article points out that although the NPA believes it was entitled to bring the Templar application ex parte, it has been brought with full notice to parties, as the NPA does not believe there is a risk of dissipation, at least not just yet.

Purpose of the order
Cronje says the purpose of the preservation order in respect of Templar’s claim is to preserve the property. This is pending the outcome of an application for a forfeiture order that must be brought by the NPA within 90 days of securing the initial order being Gazetted, failing which it would lapse.

The article adds that the criminal taint to Centaur/Templar’s claim has implications for Optimum Coal Mine’s business rescue plan. This is because the plan adopted in September 2020 resolved to allow Templar – a company controlled by McGowan – to use the CVL claims to acquire equity in Liberty Coal for McGowan’s benefit, Cronje says in her affidavit. 

Cronje says the BRPs would be committing a criminal offence if they were to proceed with the debit-to-equity deal involving Templar. The rescue practitioners of OCM, according to Cronje, have known since at least February 2019 that there was reason to believe that Centaur’s creditor claims were not based on authentic coal contracts but that they were devices used to launder offshore Gupta cash to prop up their local operations.

“It is hoped that by the time this application is heard, the BRPs will have reflected on their duties not to commit money laundering crimes and will have furnished their written consent for these proceedings to continue.

“In the unfortunate event that the BRPs remain steadfast in their refusal to consent to this application, the Applicant (NPA) submits that there is an overwhelming case for these proceedings to be granted under section 133,” Cronje says.

Massive problems
The above article was written on 9 December and was almost a Hollywood Styled Trailor into the legal battles we are currently seeing.

As pointed out before, a timeous resolution to any business rescue/liquidation is the path of least resistance and is the preferred course of action. Nobody benefits from a drawn out process where the success rate, and the integrity, of the profession is (unfairly) questioned by the public.

There was always going to be a drama associated with Optimum Coal. We need to find out where the accountability in the matter lies and resolve it before any more innocent victims are negatively impacted by the drama.