Cor­po­rate schizophre­nia

Is a heal­ing deal on the way?

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS shaunh@fin­

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

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