AFRICAN Bank Investments Limited’s (Abil’s) black economic empowerment (BEE) shareholders are suing directors of the failed company, as well as auditing firm Deloitte, for about R2bn, claiming they were reckless.
The action could become a test case for suing directors in their personal capacity under the Companies Act of 2008.
Should the matter go to court, a petition is likely to be presented for the release of the report commissioned by the Reserve Bank into the business, trade, dealings, affairs, assets and liabilities of African Bank after it went into curatorship.
The report arising from the investigation that was led by Advocate John Myburgh has been kept under wraps by the Reserve Bank for almost a year.
In a summons issued on December 17, BEE shareholders of the Hlumisa and Eyomhlaba schemes say they lost R729m and R1.3bn, respectively, in shareholder value.
They argue in the court papers that between December 2012 and December 2014, the directors "were knowingly parties to the carrying on of the business of Abil in a manner which was reckless".
The alleged reckless decisions included one by Abil directors to advance R1.4bn to its furniture subsidiary Ellerine Holdings "without making provision for security" and in "circumstances where there was no reasonable prospects of the loans being repaid".
Ellerine Holdings was a struggling entity and is seen as a contributor to the misfortunes of Abil and its biggest subsidiary, African Bank.
Ellerine Holdings CEO Antonio Fourie was retained as an Abil director when the R1.4bn loan was advanced, which the BEE shareholders say was a conflict of interest.
They further took issue with the appointment of the late Thami Sokutu as African Bank’s chief risk officer, implying he was unfit for the job.
The BEE shareholders also allege that Abil directors "failed to make prudent provisions for the losses sustained due to bad business decisions".
The Abil directors are accused of signing off and publishing financial statements that were misleading.
The BEE shareholders claim this led to their shareholder value diminishing from about R2bn in April 2013 to zero.
The Abil directors listed as respondents are former CEO Leon Kirkinis, former finance director Nithia Nalliah, non-executive directors Mojanku Gumbi, Morris Mthombeni, Nomalizo Langa-Royds, Nicholas Adams, Mr Fourie, Sam Sithole, Robert Symmonds and chairman Mutle Mogase.
On Monday, Mr Mogase and Mr Nalliah said they had not seen the court papers, while Mr Kirkinis could not be reached.
The BEE shareholders say it was "false" of auditing firm Deloitte to note that in its opinion the financial statements fairly presented the financial position of African Bank. "The auditors were aware or should have been aware that Abil was concealing nonperforming loans by making new loans to the same debtors to service old loans for the sole purpose of making collections look good when they were not," the summons noted.
The BEE shareholders alleged that Abil was not employing generally accepted accounting practices.
"The auditors failed … to indicate … the true state of affairs and the unorthodox accounting practices employed by Abil, and when this practice was finally reversed in 2013, the effect was a R2.1bn reduction in assets."
Deloitte Africa CEO Lwazi Bam said the firm subscribed to the highest standards of ethics, integrity and professionalism.
"We are confident in the sufficiency and completeness of our audit procedures and quality reviews, and stand by the quality of our work.
"A company’s management has the responsibility for the preparation of financial statements in compliance with relevant accounting standards and as auditors, we have a responsibility to independently audit and report on those statements," Mr Bam said.