South Africa: Bosasa Liquidators Succeed in Overturning High Court Judgment, Corruption-Cloaked Company to Be Liquidated

22 November 2019

Liquidators of corruption-accused facilities management and security company Bosasa have won a Supreme Court of Appeal (SCA) bid to overturn a High Court judgment that set aside their appointments.

The SCA in Bloemfontein heard arguments in the matter last Friday for a little more than an hour.

SCA Judge Malcolm Wallis delivered a scathing judgment, just seven days after hearing the matter, overturning the March 2019 Gauteng High Court order in Johannesburg that set aside the appointment of liquidators, Cloete Murray, Ralph Lutchman and Tania Oosthuizen.

Wallis was scathing of the Bosasa board's attempts to remove the company from voluntary liquidation and of Acting Judge Joolam Ameer's judgment in the High Court.

He found that Ameer ignored crucial information in two of Murray's reports that directly contradicted claims by Bosasa chairman Joe Gumede in his founding affidavit.

Gumede's "extremely tenuous evidence" to support an argument that Bosasa remained solvent did not hold up to Wallis' scrutiny.

He considered Murray's reports and found that Bosasa was, in effect, commercially insolvent when the boards of the company and its various subsidiaries agreed to resolutions on February 14 that placed the company under voluntary liquidation.

The subsidiary companies, 11 in total, owed Bosasa Holdings more than R400m in loans.

But, crucially, FNB and Absa had communicated their intentions to close the company's bank accounts, rendering the company insolvent.

Judge Wallis also pointed to the Bosasa group's annual financial statements dated March 7, 2018 for the period ending February 2017, signed by Gumede and the company's late CEO Gavin Watson.

"The directors draw attention to the statement of equity in the annual financial statements which indicates that the company incurred a net loss of R40 864 615 during the year ended February 28, 2017, and as of that date, the company's total liabilities exceeded its total assets by R173m. These conditions indicate the existence of uncertainty which may cast doubt on the company's ability to continue as a going concern," the annual financial statements read.

Judge Wallis found that the High Court should have dismissed Bosasa's arguments that the liquidators' appointments be set aside because they were appointed by the Master of the High Court in Pretoria.

Bosasa argued that the Master in Johannesburg had jurisdiction, but Judge Wallis pointed out that Johannesburg fell under Pretoria, and therefore, the Pretoria Master had the appropriate jurisdiction.

Bosasa also presented no explanation for how the company would continue to trade without bank accounts.

"The faint suggestions by counsel that some other way could have been found were unsupported by any evidence," Judge Wallis found.

"I conclude that [Bosasa] Operations and the other companies in the group were commercially insolvent at the time that the resolutions for their voluntary winding up were taken," Judge Wallis' judgment read.

He also concluded that the High Court should have had regard of Murray's liquidator's reports and the matter should not have been dealt with as urgent.

Judge Wallis further overturned a personal costs order against the liquidators, saying the High Court's ruling in this regard was inappropriate and based on "speculation and insinuations that verged on the defamatory" in Gumede's affidavit.

He ordered that the liquidators' appeal be upheld and that the judgment of the High Court be altered to read: "The application is dismissed with costs, such costs to include those consequent upon the employment of two counsel."

This week, News24 reported that the liquidators had initiated an auction of Bosasa's vast assets in a massive three-day auction to be held in early December.

The company was placed under voluntary liquidation after it received notice its bank accounts were to be closed, stemming from the reputational risk associated with the group following bombshell testimony by former Bosasa chief operations officer Angelo Agrizzi before the Zondo commission into state capture.

Bosasa was awarded several lucrative government contracts since 2004, amounting to R12bn over more than a decade.

This included proving catering services at prisons around the country, fencing for the prisons as well as a large security contract to provide protection services at court buildings around the country, among others.

Several former directors of Bosasa, including Agrizzi and former Department of Correctional Services commissioner Linda Mti and the department's former chief financial officer were charged earlier this year with offences relating to bribes Bosasa paid to secure the contracts.

Source: News24

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