Financially troubled JSE-listed investment holding company Afristrat, previously known as Ecsponent Limited, has an exposure of R1.2 billion to the MyBucks Group, which has been liquidated and is currently in the process of being wound up.
The R1.2 billion amounts to about 70% of the investable funds of Afristrat.
This is disclosed in an answering affidavit by Afristrat CEO George Manyere to an application by preference shareholder Jienie-Michelle Dreyer to provisionally liquidate the company.
Dreyer, who has also launched a civil case in an attempt to recover her investment in Afristrat, alleges the directors of Afristrat have acted in a manner that has been “fraudulent or otherwise illegal”, alternatively that Afristrat’s assets “are or have been misapplied or wasted”.
Manyere said Dreyer’s allegation of fraud and/or misappropriation of funds is without merit and lacks the necessary documentary evidence to support these allegations.
“Consequently, these allegations are reckless and most certainly not in the interest of the majority of shareholders of the respondent [Afristrat] who voted for a recapitalisation initiative as opposed to the liquidation of the company,” he said.
Dreyer further claimed Afristrat has received and apparently invested “well in excess of R2.3 billion” in funds from mainly elderly pensioners and has made various representations about guarantees and surety, with 100% capital returns for shareholders and holders of securities, “none of which have materialised in the last several years”.
Dreyer said a provisional liquidator will be best placed to make all the necessary inquiries into Afristrat’s assets and liabilities and report to the court on the best interests of the many vulnerable pensioners whose funds have been placed into Afristrat.
Manyere denied that Afristrat ever guaranteed 100% returns on investor funds, adding that all investments embarked upon by Afristrat were done strictly in accordance with JSE rules and with the approval of shareholders, as obtained at extraordinary general meetings of shareholders.
He said the content of the programme memorandum relating to preference shares clearly states the terms and conditions upon which Dreyer acquired the preference shares and, in particular, the absence of any guarantee on the performance of the preference shares.
Manyere said Afristrat’s memorandum of incorporation and the preference share programme memorandum provide for a mandatory conversion of the preference shares into ordinary shares if Afristrat fails to rectify a default event in respect of any class of preference shares.
Dreyer, through an independent financial broker/advisor, on 13 September 2015 and 1 June 2016 acquired preference shares to the value of R6.5 million.
Ecsponent’s default puts R2bn in preference shares at risk [Feb 2020]
Ecsponent defaults on pay-out to preference shareholders [Feb 2020]
Red flags as Ecsponent faces ‘default event’ [Feb 2020]
FSCA inquiry into Ecsponent Financial Services [Apr 2020]
Manyere said Afristrat released an announcement on the JSE Stock Exchange News Service (Sens) on 11 February 2020 advising security holders that the company, after assessing its solvency and liquidity, expected that it would not be in a position to settle its obligations as they became due.
This in particular related to the redemption of the preference share obligations, as due in March 2020, and its ongoing dividend payment obligations on its various classes of preference shares.
“Accordingly, the board of directors of the respondent [Afristrat] expected a default event to occur on its March redemption obligation and ongoing dividend obligations,” he said.
But Manyere said the programme memorandum provided for this event and makes provision for repayment of these investments in the form of a share conversion from preference shares to ordinary shares of equal value.
Manyere said every preference shareholder, at the time they invested in the preference share instrument, agreed to the terms and conditions of the programme memorandum.
He said Dreyer’s preference shares were duly converted to ordinary shares in accordance with the programme memorandum and by agreement between the parties in March 2020.
Forcing a ‘different course of action’
“The mere fact that the respondent [Afristrat] executed the terms and conditions of the programme memorandum, caused the applicant [Dreyer] to embark on an initiative [to] force the respondent [Afristrat] to follow a different course of action as the one agreed upon between the parties as recorded in the programme memorandum,” he said.
Manyere said Dreyer had elected to pursue the Afristrat liquidation application in the absence of the support of the majority of shareholders, whose rights and investment will no doubt be materially influenced should the relief in the liquidation application be granted.
He said Dreyer failed to provide any explanation why the relief sought in this liquidation application should be considered, as opposed to pursuing her right to call an extraordinary general meeting of shareholders and to deal with her alleged concerns through the participation of all shareholders.
Manyere further claimed Dreyer’s application is not one of urgency and should be struck from the roll on this basis alone, adding that Dreyer failed to submit any reasons why this liquidation application was not brought on an urgent basis in May 2020 when Dreyer instituted her civil claim “on the very same subject matter and allegations as set out in the founding affidavit”.
Recovery and accountability
Manyere said Afristrat’s board of directors has, and still is, doing its utmost to ensure that the company’s investment in the MyBucks Group is thoroughly investigated and that all irregularities and possible fraudulent transactions with the MyBucks Group are dealt with properly to ensure that the persons involved are held accountable.
“The only hope for the respondent company [Afristrat] to recover and yield positive returns for its investors over a period of time requires from the respondent [Afristrat] to conduct these investigations, together with the JSE authorities and not to liquidate the company,” he said.
Manyere added that Dreyer had “made vindictive attempts to discredit” Afristrat by lodging complaints to the ombud, the JSE and the South African Police Service (SAPS), but failed to disclose to the court that neither the ombud nor the JSE found any merit in the allegations of either fraud or misappropriation of funds.
“Equally, SAPS, after due consideration of all the relevant facts, failed to institute any criminal action against either the respondent [Afristrat] or any of its directors,” he said.
Manyere further questioned Dreyer’s authority to depose the founding affidavit for the liquidation application on behalf of 58 “purported shareholders” of Afristrat.
He said these names are of individuals who are not party to the liquidation proceedings.
Dreyer failed to give any reason for not citing the purported shareholders as interested parties to the proceedings and did not disclose sufficient information to properly identify these individuals and to determine if they have a material interest in the relief sought in this application, he said.
Where things stand now
The liquidation application was partially heard in October last year but deferred for hearing at a later date to, among other things, allow Afristrat to lodge its papers and answering affidavit opposing the application.
Judge J Mokose also referred the matter to the Office of the Deputy Judge President, for the preferential allocation of a date for hearing on an urgent basis by another court.
A meeting of the parties with the Office of the Deputy Judge President is scheduled to take place next month.
Trading in Afristrat shares was suspended by the JSE on 8 August 2022 because of the company’s failure to publish its provisional annual financial results within three months of the end of its financial year.