Is a healing deal on the way?
THREE YEARS AFTER new boards of directors were appointed at JCI and the plundered Randgold & Exploration (R&E) – following the death of Brett Kebble – there’s a glimmer that a settlement might be reached. But wary minority shareholders aren’t holding their collective breath.
Kebble was forced to stand down as CEO of both R&E and JCI in August 2005, a little more than a month before his death, amid allegations of stolen and misappropriated investments from R&E (mainly shares) that could total as much as R14bn. R&E minorities want some of that to be recovered and returned but say they’ve been frustrated by “conflicted directors” on the boards of both companies.
“This is the biggest fraud that’s ever taken place in South Africa, where shareholders – including a number of foreign shareholders – have been stolen from. But what have the authorities, Government and the JSE done? Nothing,” alleges David Palmer, who together with Patrick Smyth heads a group of “concerned shareholders” in R&E.
However, since the resignation of former R&E director Peter Gray and R&E chairman and JCI director David Nurek last month, attempts to reach a settlement seem to be speeding up. Gray remains CEO of JCI ( Finweek, 31 July).
Marais Steyn has stepped in as acting CEO of R&E and David Kovarsky as acting chairman. They seem to be driving the possible settlement process, though neither was willing to comment at the time of writing.
Disclosure has improved. In a statement R&E alleges to have been the victim of “widespread frauds and thefts, unprecedented in South African commercial history”. It’s tabled 15 separate claims against JCI and its previous board of directors “under the leadership of the late Brett Kebble”. It’s also pursuing claims against third parties and persons (see table). The claims are contested by JCI. The statement reads that on 21 July 2008, R&E and JCI concluded a memorandum of understanding to try and conclude a “binding settlement agreement” within 21 days. However, that self-imposed deadline passed has been enriched to the extent of more than R1bn and it hasn’t tried to settle that in three years.” He contends JCI is insolvent and, depending on how you view the claims against the company, it could be.
According to R&E, its claims against JCI “before interest” are close to R14bn. JCI’s estimated net asset value at 31 March 2008 was R2,03bn. Were only some of R&E’s claims to be successful, JCI would therefore be insolvent. However, R&E also lists the “alternative claims on an enrichment basis” amounting to R1,77bn, before interest.
The difference apparently relates to a forensic report that claims cash of R1,77bn went into JCI’s bank account. The full nearly R14bn includes listed shares and other investments that somehow vanished through various conduits, with no money apparently but was extended to Monday, 25 August. A spokesman cited that as a reason Steyn and Kovarsky couldn’t comment “at this stage”, saying both were engaged in intense efforts to reach a settlement deal.
Palmer isn’t impressed. “For us there’s no change at this stage. They have just extended the amount of time. My problem is that JCI coming back.
It’s not hard to see why any settlement between R&E and JCI – even with the “new boards” – has been so difficult up to now. Joint directors at both companies represented severe corporate schizophrenia. “How could a director on the board of both companies make a decision?” asks Palmer.
But the departure of Nurek, connected to Investec and possibly watching its interests, as well as the resignation of Gray from R&E, may have cleared the way for a settlement to be reached.
Palmer says his group hasn’t yet made any decisions on what to do next. “We have a couple of choices. We could apply under Section 258 of the Companies Act for an investigation into R&E, JCI – and Western Areas as well.”
However, Palmer also believes “something could be achieved” through summonses against individuals being issued. Much could come out in court about events in the murky Kebble era but would probably also drag on for a long time. Less painful would be a realistic settlement between JCI and R&E.
Summons to be served on his fellow directors. The late Brett Kebble