Cape Town — Questions over who benefited financially from the sale of Keystone, an architectural firm that was assimilated by LeisureNet before it was liquidated, were posed yesterday in the Cape High Court during a section 174 application.

Former LeisureNet joint CEs Peter Gardener and Rod Mitchell are trying to have a number of charges against them dismissed.

Bruce Morrison, SC, for the state, said there were serious questions about how an asset that belonged to LeisureNet could simply disappear. It had not been taxed on the declared profits nor subjected to secondary tax on companies on declaration of a dividend.

Morrison said Gardener and Mitchell's legal representatives had admitted that where the money went was "a hopeless muddle" but said the two were not to blame "for the actions of their underlings (who) they had instructed to carry out the deal".

Acting Judge Dirk Uijs remarked that the question should rather have been: "Who ended up with the money?"

Morrison said it was common cause that Dawid Rabie, LeisureNet's in-house architect, struck a deal with Gardener and Mitchell for the sale price of his company.

In the circumstances, Rabie could hardly be held accountable for the clear problems evident from the implementation of the deal.

The company was valued at R5,7m, mostly relating to work in progress. Rabie's 50% stake of R2,8m was divided into three and Gardener and Mitchell allegedly "extorted" a third each from him.

Morrison argued that the best of the evidence so far from Rabie, who has admitted to lying under oath at two previous inquiries conducted into the demise of LeisureNet, was supported by objective witnesses and should not be rejected out of hand. He said there were aspects of this evidence which should be put to Gardner and Mitchell's defence before the case was concluded.

Uijs put it to Morrison that it could be argued that the exercise was asset stripping "in the unlawful sense of the word", removing what clearly was Keystone's most valuable assets. He said Gardener and Mitchell could at the "very least" have been of assistance to Rabie in perpetrating the stripping.

"Would that not explain everything that was so peculiar about Rabie's evidence?" he asked. Would it not also be conceivable that Rabie was not a truthful witness?

Morrison said if Uijs found that Rabie was "a crook and in cahoots" with Gardener and Mitchell, the state was still in a position to avert the application on one of the alternative charges.