RECKLESS TRADING OR SHANANIGANS A “GUNG-HO ATTITUDE TO PENSIONERS INVESTED FUNDS???

“Whether it is called common law fraud, fraudulent misrepresentation, or intentional misrepresentation, the elements of the claim are the same – Fraud! “During the last two decades Companies have committed the worst accounting scandals in history. Companies are guilty of manipulating Balance Sheets or Interim Results, these can include delaying the results inappropriately, adjusting expenses around the time of an acquisition or merger, or potentially overstating contingent liabilities for the purpose of adjusting then in the future as an increase in assets, or to turn debt into equity”.

“Ecsponent Limited or Afristrat Investment Holdings” The company Limited Registration Number 1998/013215/06, a public company duly registered and incorporated under the laws of South Africa and listed on the on the JSE having its registered address at Acacia House, Green Hill Village Office Park, Car of Nontaboo and Bootstrapper Street, The Willows, Pretoria East; and its subsidiaries from time to time

“Afristrat Investment Holdings” or the “Company”: The company Afristrat Investment Holdings Limited (formerly Ecsponent Limited), a public company duly registered and incorporated under the Laws of South Africa, with registration number 1998/013215/06, the issuer and listing company of the Ordinary Shares, of which are listed on the Exchange; Hybrid and Preference Shares, including the Notes Program that are not listed on the Exchange -the company and its subsidiaries from time to time.

SECTION 19 (1) OF THE COMPANIES ACT 2008 DEFINES AS:

From the date and time that the incorporation of a company is registered, as stated in its registration certificate, -

(a) The company is represented as a “Juristic Person”, which exists continuously until its name is removed from the companies register in accordance with this Act; - this will include any name changes under the said registration number of that company.

(b) The company from date of incorporation has all of the legal powers and capacity of an individual.

One of the benefits that the company enjoys as a result of its separate “Juristic Personality”, is limited liability. All directors are somewhat protected and can ‘hide’ behind the company, acting as it’s altered “ego”. The actions of the directors are seen as the actions as those of the company. However, it should be noted as a juristic person, the company cannot form any intent to commit an act, criminal or civil. This is because does not have a mind of its own. The company is represented as a juristic person, not a natural person with a mind nor conscience.

As a legal persona, the company is distinct from its members, it is therefore important to note that the incorporator, shareholders or directors are not liable in their ‘own capacity” for the liabilities or obligations of the company. Similarly, directors do not act “personally” when fulfilling their directorial responsibilities. Such is for the benefit of the incorporated formed with limited liability. The company itself is the only Juristic Person who can sue.

Likewise, when the company is defrauded by insiders of an executive positioning, once again it is the only “Juristic Person”, the company who can sue.

When those directors holding all the power are themselves the wrongdoers toward the company and the preference shareholders, the remedy to rectify the situation is almost impossible. Should a board meeting be held, they will not authorise proceedings to be taken by the company against themselves. Should a general meeting be called, they will vote down any suggestion that the company should sue them. Yet the company is the one person who is damnified. In one way or another some means must be found for the Preference Shareholders to hold the directors legally liable, “OR” a means found for the company to sue. Otherwise, the law would fail in its purpose. Injustice would be done without any form of “redress.”

‘Lifting or Piercing the corporate veil’ as meaning “That although has been formed as a separate “Juristic personality”, the court needs to look behind the legal personality to the real controllers.”

Directors’ Duties in terms of the Common Law

The Companies Act, 2008 defines a director as:

“A member of the board of a company ...., or an alternate director of a company and includes any person occupying the position of director or alternate director, by whatever name designated”. The Companies Act, 2008 (the Act) contains a number of provisions that will directly impact all directors and the prescribed officers. The provisions relate to:

All directors’ and or without exclusion to the major shareholder Mr George Manyere who have or has had significant influence over the dealings of the company, including the auditor of the company, who failed in their relative fiduciary duties as listed in The Companies Act, 2008 (the Act) should be held accountable for their actions:

Directors are given wide powers to effectively manage a company for the benefit of the shareholders and other stakeholders. However, these powers are not absolute and they are compelled to act within the powers granted by and their fiduciary duties. The duties imposed upon directors are categorised into fiduciary duties and the duty to act with the necessary care, skill and diligence.

Section 76 addresses, to a very large extent, the standard of conduct expected from directors. Section 76(3) states that a director of a company, when acting in that capacity, must exercise the powers and perform the functions of a director -in good faith and for a proper purpose; in the best interests of the company; and with the degree of care, skill and diligence that may be reasonably be expected of a person - carrying out the same functions in relation to as those carried out by that director; and having the general knowledge, skill and experience of that director.

Section 76(4) states that, in respect of any particular matter arising in the exercise of the powers or the performance of the functions of a director, a particular company director will have satisfied the obligations set out in section 76(3), if that director has taken reasonably diligent steps to become informed about the matter. This goes to the degree of knowledge and the ability to rely on the veracity of the information provided, including financial statements and other financial data prepared by the, accountants or any other professional person retained by the company, the board, or any committee constituted by the listed company.

In terms of section 76(4) of the Act, a director would have satisfied the obligations of section 76(3), if the director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company and stakeholders.

SECTIONS 76 of The Company’s 2008 Act, although there are other sections within the Act which address directors’ duties, such as Section 75 (addressing conflict of interest), Section 78 (indemnification of insurance of directors) and Section 46(1)(b) (pertaining to distributions and ensuring that will satisfy the solvency and liquidity test immediately after the distribution). Section 77 on civil liability, does not limit the application of section 77 only to directors as such. It applies to a director, an alternate director, a prescribed officer (as designated by the Minister), a person who is a member of a committee of a board of a company, or a member of the audit committee of a company irrespective of whether or not the person is also a member of ’s board.

Section 77(6) states that – “The liability of a person in terms of this section is joint and several with any other person who is or may be held liable for the same act”.

Section 77(6) thus allows any persons to claim against more than one director and against any person who contravened the provisions of the Company’s Act.

Section 20(6) Each shareholder of a company has a claim for damages against any person who intentionally, fraudulently or due to gross negligence causes to do anything inconsistent with, herewith represented as “Preference Shareholders”: Section 22(1) the company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose.

Beyond the scope of company law, other statutory provisions impose liability on directors, such as the Section 332 of the Criminal Procedure Act, Section 34 of the Prevention and Combating of Corrupt Activities Act. 

Section 1 of the Companies Act 

“Agent” means any authorised representative who acts on behalf of his or her principal and includes a director, officer, employee or other person authorised to act on behalf of his or her principal, and

“Agency” has a corresponding meaning;

“Dealing” includes—

(a) any promise, purchase, sale, barter, loan, charge, mortgage, lien, pledge, caveat, transfer, delivery, assignment, subrogation, transmission, gift, donation, trust, settlement, deposit, withdrawal, transfer between accounts or extension of credit; “Foreign Public Official” means—

(a) any person holding a legislative, administrative or judicial office of a foreign state;

(b) any person performing public functions for a foreign state, including any person employed by a board, commission, corporation or other body or authority that performs a function on behalf of the foreign state; or (c) an official or agent of a public international organisation; “Foreign State” means any country other than South Africa, and includes—

(a) any foreign territory;

(b) all levels and subdivisions of government of any such country or territory; or

(c) any agency of any such country or territory or of a political subdivision of any such country or territory;

“Induce” includes to persuade, encourage, coerce, intimidate or threaten or cause a person, and

“Inducement” has a corresponding meaning;

“Listed Company” means a company, the equity share capital of which is listed on a stock exchange as defined in section 1 of the Stock Exchanges Control Act, 1985 (Act No. 1 of 1985);

“Official” means any director, functionary, officer or agent serving in any capacity whatsoever in a public body, private organisation, corporate body, political party, institution or other employment, whether under a contract of service or otherwise, and whether in an executive capacity or not;

“Private Sector” means all persons or entities, including any—

(a) natural person or group of two or more natural persons who carries on a business;

(b) syndicate, agency, trust, partnership, fund, association, organisation or institution;

(c) company incorporated or registered as such;

(d) body of persons corporate or unincorporate; or

(e) any other legal person,

“Property” means money or any other movable, immovable, corporeal or incorporeal thing, whether situated in the Republic or elsewhere and includes any rights, privileges, claims, securities and any interest therein and all proceeds thereof;

“Valuable Security” means any document—

(a) creating, transferring, surrendering or releasing any right to, in or over property;

(b) authorising the payment of money or delivery of any property; or

(c) evidencing the creation, transfer, surrender or release of any such right, the payment of money or delivery of any property or the satisfaction of any obligation.

Companies Act Section 2. Interpretation. —

(1) For purposes of this Act a person is regarded as having knowledge of a fact if—

(a) that person has actual knowledge of the fact; or

(b) the court is satisfied that—

(i) the person believes that there is a reasonable possibility of the existence of that fact; and

(ii) the person has failed to obtain information to confirm the existence of that fact, and

“Knowing” shall be construed accordingly. Furthermore, the Act defines what is meant by a person “knowing” of such prohibited conduct. “Knowing” when used with respect to a person, and in relation to a particular matter, means that the person either had actual knowledge, or such person reasonably ought to have had actual knowledge or acquired it by having investigated the matter or by having taken other measures which would reasonably be expected to have provided the person with actual knowledge of the matter. The knowledge possessed by the company at the time of the act that his conduct would lead to a consequence which the legislature desired to prevent, is by a construction of the law regarded as intention to bring about this consequence. ‘Knowledge' in this context does not necessarily mean 'full and certain' knowledge that this consequence is inevitable but on the other hand it must be knowledge which reached a high degree of probability.

(2) For the purposes of this Act a person ought reasonably to have known or suspected a fact if the conclusions that he or she ought to have reached are those which would have been reached by a reasonably diligent and vigilant person having both—

(a) the general knowledge, skill, training and experience that may reasonably be expected of a person in his or her position; and

(b) the general knowledge, skill, training and experience that he or she in fact has.

(3) (a) A reference in this Act to accept or agree or offer to accept any gratification, includes to—

(i) demand, ask for, seek, request, solicit, receive or obtain;

(ii) agree to demand, ask for, seek, request, solicit, receive or obtain; or

(iii) offer to demand, ask for, seek, request, solicit, receive or obtain, any gratification.

(b) A reference in this Act to give or agree or offer to give any gratification, includes to—

(i) promise, lend, grant, confer or procure;

'Pattern Of Racketeering Activity' means the planned, ongoing, continuous or repeated participation or involvement in any offence referred to in Schedule 1 and includes at least two offences referred to in Schedule 1, of which one of the offences occurred after the commencement of this Act and the last offence occurred within 10 years (excluding any period of imprisonment) after the commission of such prior offence referred to in Schedule

“Unlawful Activity” means conduct which constitutes a crime or which contravenes any law whether such conduct occurred before or after the commencement of this Act and whether such conduct occurred in the Republic or elsewhere.

Section 3 of the Corruption Act 94 of 1992, General offence of corruption. — 

Any person who, directly or indirectly—

(a) accepts or agrees or offers to accept any gratification from any other person, whether for the benefit of himself or herself or for the benefit of another person; or in order to act, personally or by influencing another person so to act, in a manner—

(i) that amounts to the—

(aa) illegal, dishonest, unauthorised, incomplete, or biased; or

(bb) misuse or selling of information or material acquired in the course of the, exercise, carrying out or performance of any powers, duties or functions arising out of a constitutional, statutory, contractual or any other legal obligation;

(ii) that amounts to—

(cc) the violation of a legal duty or a set of rules;

(iii) designed to achieve an unjustified result; or

(iv) that amounts to any other unauthorised or improper inducement to do or not to do anything, is guilty of the offence of corruption.

The codified standard of conduct. Personal liability where a third party suffers loss or damage where a director or prescribed officer did not adhere to the standard of conduct.

The Companies Act codifies the standard of directors’ conduct in section 76 The Companies Act makes no distinction between executive, non-executive or independent non-executive directors. The standard, and consequent liability where the standard is not met, applies equally to all directors irrespective of whether or not that the person is also a member of Company’s board.

In good faith and for a proper purpose, In the best interest of the company, and with the necessary degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions and having the general knowledge, skill and experience of that director.

The intention of the legislature seems to be to encourage directors to act honestly and to bear responsibility for their actions - directors should be accountable to shareholders and other stakeholders for their decisions and their actions. “Preference Shareholders enjoy more protection and peace of mind as the Directors’ take joint liability”.

In terms of section 66 of the Companies Act, the business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all of the powers and perform any of the functions of the company. The directors are entrusted by the shareholders of with the ultimate responsibility for the functioning of the company. While some of the day-to-day running of the company is generally delegated to some level of management, the responsibility for the acts committed in the name of rests with the directors.

These actions include: 

Being part of an act or omission while knowing that the intention was to defraud shareholders, employees or creditors. Signing financial statements that were false or misleading in a material respect, or issuing a prospectus that contained an untrue statement. The directors been a party to an act or omission by despite knowing that the intention was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose. As a consequence of the nature of a company, being a lifeless corporate entity, human intervention is required to direct its actions and therefore determine its identity.

The duties imposed under section 76 are in addition to, and not in substitution for, any duties of the director of a company under the common law. The traditional concept of fiduciary duties is not replaced by the codified standard of conduct.

The Companies Act also codifies the business judgment rule. In terms of this rule a director will have met the required standard if he or she has taken reasonable diligent steps to become informed about the subject matter, does not have a personal financial interest (or declared such a conflicting interest) and the director had a rational basis to believe that the decision was in the best interest of the company.

Section 162(5)(c)(iv) The director’s had, inter alia, allowed the company to continue business in parlous and insolvent circumstances and extracted company money in order to pay for business acquired directly through the major shareholder, with misstatements to investors and to continue selling the ‘Preference Shares”, knowing that being a public company, which required proper accounting systems and was destressed, strong on debt liability to investors.