Lewis directors under fire
From an individual company perspective, Dave Woollam might qualify as the shareholder from hell. From a broader governance perspective he is more likely to qualify for the title of leading angel.
Woollam, an executive director of Summit Financial Partners, which is driving a campaign to clean up the unsecured lending industry (see page 40), has just taken his battle against unsecured lender Lewis Group up several notches. He has initiated a section 165 derivative action.
In layman’s language, he has obliged the Lewis board to inquire into the conduct of its directors and determine whether they are delinquent.
The move has potentially devastating consequences for the named directors, who face the risk of personal liability, and for the company. The directors at the centre of Summit’s latest action are CEO Johan Enslin, CFO Les Davies, chairman David Nurek and chairman of the audit & risk committee Hilton Saven.
The company says it has sought legal advice and been told Woollam’s demands are “frivolous, vexatious and without merit”.
In terms of the Companies Act (2008) Lewis has 15 business days from May 20 to apply to a court to set aside the demand. The onus is then on Woollam to satisfy the court that he has a case.
Old-style corporate lawyers, accustomed to passive levels of shareholder engagement, may be tempted to dismiss Woollam’s chances of success.
Academic Maleka Cassim, writing in Contemporary Company Law, hopes the courts adopt “a permissive approach that will make section 165 more accessible and will promote its use”.
Cassim says good and effective legal protection for minority shareholders is fundamental to a developed corporate law system.
Clark Gardner, CEO of Summit, says they want the four directors to be declared delinquent. “These directors are paid significant amounts to ensure Lewis conducts its business in line with relevant laws and regulations and in a manner that is in the best interest of the shareholders. We believe they have breached their duties.”
Gardner says the directors have not performed their duties and Summit wants to ensure they are held personally accountable. He hints at the wider implications of this firstever section 165 action to be taken against a listed company, saying it is time to start ensuring personal accountability where companies break the law.
Woollam’s latest move follows his recent court action against Lewis for reckless and abusive lending practices. Summit, which undertakes regular “mystery shopper” exercises to check on the practices of unsecured lenders, has also lodged hundreds of complaints against Lewis with the national consumer regulator.
In response to an investigation of some of these complaints Lewis was forced to commit to refunding R67.1m to customers for the cost of loss-of-employment insurance that was wrongly sold to them.
Woollam, a shareholder, says over the past 18 months he has raised issues relating to a lack of corporate governance, breaches of the National Credit Act and financial statements that do not conform with international standards. Lewis was trading at R47 this week, against its January 2015 level of R90.