Chantelle Benjamin
29 October 2008
Johannesburg — INVESTEC has told the Johannesburg High Court that efforts by union pension funds to stop the court approving the transfer of policies from Investec Employees Benefits (IEB) to Capital Life (CAL) are moot , since it does not involve the transfer of any money.
Policyholders, supported by their unions, argue that the deal involves the handing over by Investec of a final tranche of R13,8bn, which would render IEB bankrupt.
They say it is an "asset-stripping" exercise by Investec, aimed at ensuring that the assets will be immune from attachment if Investec loses a R4bn legal action brought by IEB policyholders for mismanagement, which is to be heard next year.
Investec has been in a costly seven-year fight, funded by the company on one side and the policyholders on the other, over a failure to pay bonuses for two years, which led to losses in value in the fund and subsequent losses for members and pensioners.
Fedsure, which was in financial trouble, did not declare bonuses for 2000 and 2001, the year Investec acquired the business.
Policyholders said they were told by Fedsure that it had invested the money in a guaranteed fund of diversified assets suitable for pension funds, "but instead the money was placed in a general fund used to invest in financial service companies as part of Fedsure's own business strategy". They now estimate the losses amount to R4bn, a figure Investec disputes.
Investec advocate Dennis Fine told the court this week that the court's approval of the scheme would not result in the physical transfer of assets to CAL. "The premium under the reinsurance agreements had been paid by IEB to CAL. The premium amounts to R13,5bn and the transfer does not involve the transfer of any further assets by IEB to CAL and has no adverse financial impact on the solvency or asset base of IEB."
He said the physical transfer took place when IEB paid the reinsurance premiums to CAL during 2001, 2002 and 2005, and that the reassurance asset was not capable of being attached to satisfy IEB's ordinary creditors claims because its true value was nil.
"The reinsurance asset has, in fact, not been available to creditors of IEB since payment of the reinsurance premium ... which is now the property of CAL. And CAL has an obligation to utilise those assets to pay the policy benefits to the policyholders whose policies have been reinsured by CAL," he said.
He denied that Investec had failed to disclose the true financial status of the fund, which policyholders say is insolvent. Fine said audited financial statements from January 2000 to March this year showed IEC had assets in excess of R3bn, but generally accepted accounting practice did not require the fund to take legal claims into account when determining solvency.
The policyholders, led by building and electrical contracting union Electrical Industry KwaZulu-Natal, argued that Investec had failed to convince them the fund was solvent.
They said IEB was R500m in the red, with claims of about R3,9bn and assets of R3,4bn.
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