Cape Town — The state has taken LeisureNet duo Peter Gardener and Rod Mitchell to the Cape High Court in a bid to recoup as much as R10m for benefits they received from a German deal.

The confiscation order has been sought in terms of the Prevention of Organised Crime Act.

In the case of Gardener, the state is seeking repayment of between R466000 and R6,5m, while in Mitchell's case this ranges from R592000 to R3,2m.

LeisureNet's collapse in 2000, with liabilities of R1bn, was SA's biggest corporate failure at that time.

Gardener and Mitchell were both given 12-year jail terms for fraud relating to the German gym deal. Four years of Gardener's sentence were suspended conditionally, and five years of Mitchell's sentence were suspended. Both have been granted leave to appeal.

They allegedly failed to disclose to the board of LeisureNet the 20% interest each held in German health-care company Dalmore, which LeisureNet bought in 1999 for DM10m. Gardener and Mitchell were each paid DM2m from the proceeds. This was paid into offshore trusts held in Jersey via companies they controlled.

Geoff Budlender for the state said he found it extraordinary that at this stage the two maintained that the money was "just given away" to a trust from which they expected no gain.

Budlender said it was clear that the entire sum paid to the offshore entities was for their benefit and the benefit of their families. He said this brought the money concerned within the definition of "proceeds of unlawful activities", if those proceeds were shown to be sufficiently connected with the unlawful activity.

Budlender said that the only reason Gardener and Mitchell failed to disclose their interest, was to conceal it and the benefit which they would receive from that interest.

He said that both Gardener and Mitchell remained indebted to the trusts, which assisted them in making payments to liquidators.

The two have each already paid about R11,5m to the liquidators.

Budlender said Gardener and Mitchell arranged their affairs to create the appearance that the money was not theirs and they had no interest in it.

"The purpose of that was plainly to attempt to place it beyond the reach of exchange control of the South African Revenue Service ," said Budlender.

The hearing continues today.(Wednesday)