CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

Deloitte & Touche was in the spotlight this week, fac­ing le­gal ac­tion for its al­leged role in the col­lapse of African Bank and par­ent com­pany African Bank In­vest­ments Lim­ited (Abil). Deloitte, the for­mer au­di­tor of African Bank and Abil, was joined in the Pre­to­ria High Court by the le­gal rep­re­sen­ta­tives of 10 for­mer African Bank and Abil di­rec­tors.

Two sep­a­rate yet re­lated cases – against the au­dit­ing firm and the di­rec­tors – have been brought by the share­hold­ers of the Hlu­misa and Ey­omh­laba schemes, which were the two em­pow­er­ment part­ners of African Bank.

The for­mer di­rec­tors filed three ex­cep­tions against the case brought by the plain­tiffs – and in its re­sponse, Deloitte filed two ex­cep­tions against the plain­tiffs’ case.

The ex­cep­tions are aimed at try­ing to block the sum­mons served on them by the plain­tiffs from get­ting a full court hear­ing – and are also aimed at de­lay­ing the case.

The share­hold­ers of Hlu­misa and Ey­omh­laba are seek­ing to claim nearly

R2.1 bil­lion from Deloitte and the for­mer di­rec­tors of African Bank, which failed in Au­gust 2014.

Chris Lox­ton, the ad­vo­cate rep­re­sent­ing the for­mer African Bank and Abil di­rec­tors, ar­gued that a com­pany suf­fers a loss and not its di­rec­tors – and, as such, share­hold­ers can­not sue di­rec­tors, as the com­pany is sep­a­rate from its share­hold­ers.

The for­mer di­rec­tors of Abil and African Bank who are be­ing sued are for­mer African Bank CEO Leon Kirki­nis, along with Nithi­anan­than Nal­liah, Mo­jankun­yane Gumbi, Mutle Mo­gase, No­ma­l­izo Lan­gaRoyds, Ni­cholas Adams, Sa­muel Sit­hole, An­to­nio Fourie, Robert Sym­monds and Mor­ris Mthombeni.

Mthombeni is cur­rently the di­rec­tor of African Phoenix In­vest­ments, which is the name adopted by Abil for its re­launch in April 2016.

Mike van der Nest, the ad­vo­cate rep­re­sent­ing Deloitte, said there was no ev­i­dence to back up the al­le­ga­tions by the for­mer African Bank em­pow­er­ment part­ners to use sec­tion 218 of the Com­pa­nies Act – which states that a di­rec­tor can be held civilly li­able for dam­ages – to sue for the losses they had sus­tained.

“The loss is the com­pany’s loss, not your loss,” said Van der Nest. “The loss caused to third par­ties is Abil’s loss.” Van der Nest added that there was no case for the use of sec­tion 218 of the Com­pa­nies Act by the for­mer African Bank em­pow­er­ment part­ners, adding that he would never have guessed that this would be the route that the plain­tiffs would have taken.

Van der Nest said the claim by the for­mer em­pow­er­ment part­ners was a delict­ual claim for “pure eco­nomic loss”. Delict is a le­gal term for a civil wrong of in­ten­tional or neg­li­gent breach of duty of care that in­flicts loss or harm – and trig­gers le­gal li­a­bil­ity for the wrong­doer.

“The plain­tiffs’ case is mis­con­ceived,” he added. How­ever, Jose Brett, the ad­vo­cate for Hlu­misa and Ey­omh­laba, said the plain­tiffs’ claim against the di­rec­tors was not delict­ual in na­ture.

“The plain­tiffs’ cause for ac­tion against the di­rec­tors is squarely rooted in the rem­edy pro­vided for by the pro­vi­sions of sec­tion 218(2) of the Com­pa­nies Act, which pro­vides a new rem­edy which did not ex­ist un­der com­mon law,” Brett said.

“Sec­tion 218(2) of the Com­pa­nies Act pro­vides a gen­eral rem­edy to any per­son, and ren­ders peo­ple who con­tra­vene any pro­vi­sion of the Com­pa­nies Act li­able for any loss or dam­age suf­fered as a re­sult of the con­tra­ven­tion.

“A third party can there­fore hold a di­rec­tor per­son­ally li­able in terms of the Com­pa­nies Act.”

Lox­ton and Van der Nest cited the 2016 judg­ment in the case of Itzikowitz vs Absa Bank as back­ing their po­si­tion re­gard­ing whether a share­holder of a failed com­pany could sue a third party for losses over the col­lapse of the com­pany.

Van der Nest said Deloitte was be­ing sued by a “re­mote plain­tiff”.

“The claim is un­sus­tain­able,” he added. “Our ex­cep­tions should be up­held.”

In March 2016, the Supreme Court of Ap­peal (SCA) handed down judg­ment in the Itzikowitz vs Absa Bank case about whether a share­holder could sue for the diminu­tion in value of shares as the re­sult of a wrong com­mit­ted against a com­pany.

Re­fer­ring to this, Brett said the court had ruled in favour of a flex­i­ble ap­proach, in terms of which there was no sin­gle cri­te­rion.

“The ba­sic question is whether there is a close enough re­la­tion­ship be­tween the wrong­do­ers’ con­duct and its con­se­quence for such con­se­quence to be im­puted to the wrong­doer in view of the pol­icy con­sid­er­a­tions based on rea­son­able fair­ness and jus­tice,” Brett said.

“The au­di­tors, much like the di­rec­tors, place much reliance on the SCA judg­ment. How­ever, the Itzikowitz judg­ment said no more than that a share­holder must have been in­de­pen­dently wronged in or­der for such a share­holder to claim dam­ages against such a wrong­doer for a share­holder’s loss.”

Brett said all the ex­cep­tions brought by the for­mer di­rec­tors and Deloitte should be dis­missed with costs.

Des­mond Lockey, the chair­per­son of Hlu­misa, said the court bat­tle against the for­mer African Bank di­rec­tors was be­ing fought on a “shoe­string” bud­get.

Lockey said that, in ad­di­tion to the funds re­main­ing in the Hlu­misa and Ey­omh­laba schemes, he was con­tribut­ing a “con­sid­er­able amount” of his own money to the le­gal bat­tle.

“We are com­mit­ted to see­ing this through to the end,” he added.

“If this case suc­ceeds, you need to be very care­ful when you are a di­rec­tor of a com­pany.”

On Thurs­day, Judge Let­tie Malope re­served judg­ment in the mat­ter af­ter hear­ing ar­gu­ments on Wed­nes­day and Thurs­day.

Do you feel that di­rec­tors should be held li­able for the fail­ure of a com­pany?

SMS us on 35697 us­ing the key­word BANK and tell us what you think. In­clude your name and prov­ince. SMSes cost R1.50.

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