Trust lessons learned from the Jooste saga

THE Steinhoff scandal has become a well-known topic in South Africa. As summarised on the back cover of Rob Rose’s book Steinheist: Markus Jooste, Steinhoff and SA’S Biggest Corporate Fraud, the “Steinhoff crash wiped more than R200 billion off the Johannesburg Stock Exchange, erased more than half the wealth of tycoon Christo Wiese and knocked the pension funds of millions of ordinary South Africans”.

Little (clearly) has been said to date about the family trust, the Silver Oak Trust (formerly known as the Markus Jooste Kindertrust) that was registered back in 1990. About a month ago the bomb exploded when the South African Reserve Bank (SARB) secured a court order to attach assets linked to Jooste (even “his” trust, as referred to in the media), as Jooste and the other respondents are suspected of having contravened exchange control regulations according to the preservation order documents.

The assets seized include Jooste’s Lanzerac wine farm in Stellenbosch, his Hermanus property and other assets registered under the Silver Oak Trust, valued at R1.2bn. The trustees of the trust, Jooste’s son Michael, Gary Harlow and Rian du Plessis, are the first, second and third respondents in their capacities as trustees.

Trust assets are not protected at all costs

In South Africa, family trusts are typically used to protect personal and business assets and to preserve wealth. One of the most important reasons to consider a trust is because it will help you to separate your assets from your property investment debt, your business interests, and/or your other financial risks. This form of protection is especially beneficial in the event of subsequent liquidation, sequestration or divorce.

Assets owned by a trust do not form part of an insolvent’s estate, and, therefore, cannot be attached by creditors. However, it is possible (in limited circumstances) to penetrate the assets held in trust. In this case it was argued that Steinhoff contravened the law and Jooste, or any of his family (directly or indirectly as beneficiaries of the trust) benefited from this alleged crime. Therefore the SARB can attach those assets.

The Notice of Attachment in terms of Exchange Control Regulation 22C(1) (whereby someone is on reasonable grounds suspected to have benefited or to have been enriched as a result of the contravention or failure to act) was issued by the SARB on September 1. This notice listed the following assets to be attached, as reflected on the audited financial statements of the trust of 2019 (interesting that reliance was placed on such old statements):

1. Art with a realisable value of R99 million.

2. Other financial assets with a realisable value of R1.2 billion.

3. Loans receivable to an amount of R131m.

The court also ordered the trustees to declare assets acquired after the 2019 financial year and they were interdicted from removing or selling such assets.

Do not do your friend a favour to be trustee

Reports in the media reflect that Jooste appointed his two friends as trustees along with his son and they did not even charge trustee fees. Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as outlined in the trust instrument. It will be interesting to watch how the episode with the trustees unfolds (with them being on the spot).

Many people accept trusteeship but claim ignorance when things go wrong. A “silent”, “sleeping”, “absent”, or “puppet” trustee will not be tolerated (Slip Knot Investments 777 (Pty) Ltd v du Toit case of 2011). As a general rule, trusteeship should not be accepted unless the trustees can act 100% independently from the direction of the person who asked them to become a trustee. In practice that happens infrequently. Even though it may appear from the outside that most trustees are “independent trustees”, some trustees’ behaviour may prove otherwise.

Trustees should ensure that the trust complies with the Trust Property Control Act and all other applicable legislation, including but not limited to the Income Tax Act, Tax Administration Act, Banks Act, Value-added Tax Act, Financial Institutions (Protection of Funds) Act, Prevention and Combating of Corruption Act, Financial Intelligence Centre Act and The National Credit Act. If a trustee acts in breach of a statutory or common-law duty, such trustee acts wrongfully, and there can be personal recourse against such trustee.

Can you just resign as trustee of a troublesome trust?

In terms of the Trust Property Control Act, a trustee can resign at any time. Generally speaking, a resigning trustee should remember that they will be held accountable as trustee for the period that they served as trustee until such time as the Master of the High Court issues new Letters of Authority removing such trustee. Exiting trustees are bound by all their statutory and common-law duties until such time of their removal.

Harlow said that while he would like to resign from the trust, he is not sure he can. He said “I mean, obviously, I’d love to, but I think it would leave a trust without trustees, and you must face up to it and do what you’ve got to do, what’s right.” He said that he and fellow trustee Rian du Plessis had spoken and agreed that they needed to see through their fiduciary duties.

Even though you may resign as a trustee, a trustee can be held liable for his or her personal actions or inaction while acting as a trustee. Trustees may be held jointly and severally liable for damages. This means that damages may be recovered from a single trustee, more than one trustee, or all the trustees. Criminal liability may be imposed upon a trustee who commits a crime during the course of the trust’s administration – for example, through theft or fraud.

Reputational harm may also be experienced if trustees are rightly or wrongly implicated in any wrongdoing. Harlow has already resigned from his directorships in large companies.

Conclusion

Accepting trusteeship has to be carefully considered at all times.

Phia van der Spuy is a Chartered Accountant with a Master’s degree in tax and a registered Fiduciary Practitioner of South Africa, a Chartered Tax Adviser, a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a digital trust solution.