Ayo, PIC fight compliance order
THE Public Investment Corporation (PIC) and Ayo Technology Solutions Group are taking the Companies and Intellectual Properties Commission (CIPC) to court.
At the end of last month, the CIPC issued a compliance notice to the PIC directors demanding they recoup R4.3 billion the PIC invested in Ayo and six months’ interest on the amount.
There was a threat of criminal prosecution if the PIC did not comply within 15 days (due this Thursday).
But the PIC and Ayo have hit back, asking the North Gauteng Court to intervene on an urgent basis and declare the notice unlawful.
Xolani Mkhwanazi, deputy chairperson of the PIC board, said in an affidavit Ayo was confident the shares the PIC bought were valid. As a result, he said it would be “objectively impossible” for the PIC to recover the money.
He added that the notice was “irrational and unreasonable” and that the process followed was “procedurally unfair and unlawful”.
Mkhwanazi said the PIC would suffer irreparable harm if the court did not set aside the CIPC’S notice.
“The consequence of non-compliance with a compliance notice is that the PIC and its board are non-compliant with the Companies Act. The PIC manages almost R21trillion in investments mostly on behalf of the Government Employees Pension Fund. Its holdings constitute 12.5% of the JSE market cap.
“A finding that the PIC is acting contrary to the Companies Act would affect the reputation and credibility of the PIC as an investor and could have wide-ranging negative consequences for South African markets.”
Mkhwanazi also said it would be impossible for the PIC to comply with the notice because it required an outcome – the recovery of the funds – without indicating the legal basis on which such a recovery could occur or what steps were to be taken or were required to reach the stipulated outcome within the period prescribed.
Had the CIPC given notice of its intended findings and decision before issuing the notice, he said, the PIC would have advised it of the “correct facts” and processes under way, which should have materially influenced its decision.
Mkhwanazi said the notice was based “on a material error of fact” predicated on non-compliance by PIC board members with their fiduciary duties – in approving the share price – when the decision was taken by former PIC chief executive Dan Matjila without the knowledge and approval of the board, in line with his delegated authority.
On Thursday, Ayo also launched an urgent application in the North Gauteng High Court. It cited the CIPC, the minister of trade and industry and the PIC as respondents.
Ayo chief executive Howard Plaatjes asked the court to interdict and restrain the CIPC from enforcing the compliance notice. Ayo also brought an application to review the CIPC notice and set it aside.
Plaatjes said Ayo had grown its business in South Africa and abroad and was well positioned for further growth.
“The effect of this directive, if enforced, is that Ayo must return R4.3bn to the PIC, notwithstanding the fact that it has acquired those funds pursuant to a valid transaction and the effect of returning it, at this stage, is to do untold harm to the business of Ayo and the investment of its shareholders.
“Despite these dire consequences for Ayo, it was neither consulted nor afforded a hearing before the notice was issued.
“Surprisingly, in its letter of February 27, the CIPC takes the view that because the notice was issued to the PIC, it bore no obligation to afford Ayo a hearing. It is contended that the PIC should make contact with Ayo. I am advised the CIPC’S view is plainly wrong as a matter of law.”
The matter is to be heard on Tuesday. At the heart of the battle is the PIC’S R4.3bn investment in Ayo on December 14, 2017.
The asset manager had bought a 29% stake in the technology firm at R43 a share at listing. Media reports later alleged the share price was inflated, prompting questions from the JSE, Financial Sector Conduct Authority, the PIC and CIPC.
On February 21, the CIPC issued an unprecedented compliance notice ordering the PIC to recoup its investments in Ayo – in what has been seen in some quarters as part of a “co-ordinated attack” on the Sekunjalo Group, which owns Ayo, and Independent Media, which publishes the Sunday Tribune, among other newspapers.
Legal expert Zwakele Madonsela of BZH Madonsela Attorneys said the matter represented a potential reputational management disaster for the CIPC.
“It’s clear from the papers that the CIPC has overstepped the mark and did not apply their minds to the facts. They did not seek opinion from the PIC or Ayo and acted irrationally. Those are the facts according to both sets of papers.”
He said the CIPC’S move resulted in massive reputational harm to Ayo.
“This smacks of possible collusion between someone from the PIC and the CIPC. Any investment in SA can no longer be considered safe if the regulator can overstep its boundaries for no good reason without a court case or hearing the other side of the story.”
The CIPC could not be reached for comment.