Author Archive

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.

Forgive them their debts

Written by Ciaran Ryan. Posted in Journalism

Economist Michael Hudson’s new book argues that the world’s debt can never be repaid. It will have to be written off. From Moneyweb.

Debt cancellation was common in ancient times, and far more humane than current practices. Image: Shutterstock

Debt cancellation was common in ancient times, and far more humane than current practices. Image: Shutterstock

It may seem a long way off, but the day will come when household debts must be forgiven, for the simple reason that they cannot be repaid.

The most reckless financial experiment in history has been unravelling in front of our eyes over the last decade, as a tsunami of created debt was hosed into the world financial system to save the casino banks from their inevitable demise. The result was a massive transfer of wealth to the financial, insurance and real estate (or FIRE) sector.

In South Africa, finance contributes 23% to GDP (in the US it is 85%). It makes little contribution to the economy as it involves the re-trading of already-existing assets at ever-inflated prices. Precious little of this money is invested in new production.

Remove this distortion from the GDP figures and the world economy has been in depression for the last ten years, argues economist Michael Hudson in his book ‘… and forgive them their debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year’.

Read: Finance dominates SA economy, and that’s a problem

For a glimpse into the future, look at what is happening on the streets of France or Chile, where demonstrators complain that they are being asked to – wait for it – “tighten their belts” while living from one month-end loan to the next.

In SA, about four out of ten of the roughly 20 million who qualify for credit are in financial distress, meaning they are two or more months in arrears on at least one account. How long before they take to the streets?

Hudson has been banging this drum for the best part of a decade, arguing that in 2008, rather than bail out the big banks, authorities should have given the money to the citizens so they could pay off their debts.

The result, based on historical evidence, would have been a boom of almost unimaginable strength.

Instead they rescued the banks with trillions of dollars in quantitative easing, which went straight into the stock and real estate markets. In other words, straight to the rich.

This can’t, and won’t, last.

The social order is fraying and debt – not climate change – is the real curse of our age.

In his book, Hudson delves into the storied history of debt jubilees (or forgiveness) through history, from Sumer to Babylon, Greece, Sparta and Rome. Judaism took the practice of debt forgiveness and placed it at the centre of Mosaic Law. All this was done in the interests of social peace. The ancient battle between debtors and creditors courses through the Bible and the Quran, from the economic proclamations of Moses to the gospel of Luke, when Jesus announces the coming of the Jubilee year when debts were to be forgiven.

Ancient history makes better sense once you start to view it through the lens of creditors versus debtors.

Wars are always an asset grab clothed in the fineries of impugned rights. Creditors fought the jubilees every inch of the way, waging war where necessary to collect their dues. Roman creditors fought and won a century-long ‘Social War’ that was ultimately catastrophic to the empire, creating a caste system of grotesque inequality.

Livy, Plutarch and other Roman historians saw creditors as a pestilence that destroyed classical antiquity, by using interest-bearing debt to impoverish and disenfranchise the population. The Barbarian invasions of Rome and elsewhere succeeded only when societies were sufficiently weakened from within by debt.

Chronic indebtedness ‘normal, desirable’

Most economists today recoil from any suggestion that debt write-offs are needed. Hudson takes them head on: lacking any historical understanding of debt and the inevitable servitude it imposes, they see chronic indebtedness as normal, even desirable.

However, debt cancellation was far from radical in ancient times, and far more humane than current practices. For example, it was illegal to waive one’s rights to debt forgiveness in ancient Sumeria, Babylon and Israel. Today, banks require borrowers to waive their rights in favour of the courts – and that has put ten million Americans out of their houses since 2008.

There were usually sound, practical reasons for debt forgiveness: it prevented creditors from accumulating too much power at the expense of local sultans, allowed rulers to recruit soldiers or workers from those recently freed from debt peonage, and enabled overindebted farmers to resume payment of taxes.

The idea was to create a fair and equitable society and provide citizens with the basic minimum standard needed to be self-sustaining. Populist leaders in 7th Century Greece paved the way for the economic take-off of Sparta, Corinth and Aegina by cancelling debts and redistributing lands monopolised by their cities’ aristocracies.

It didn’t always go the way of the debt cancellers. There were creditor-sponsored counter-revolutions in the Western Roman Empire and then Byzantium.

The word ‘tyrant’ is today loaded with invective, but only because the original ‘Tyrants’ who sought to liberate Greek populations from debt bondage lost their war against creditors. It turns out the Tyrants were the good guys.

Today’s legal system is based on the Roman philosophy of upholding the sanctity of debt rather than its cancellation.

“Instead of protecting debtors from losing their property and status, the main concern is with saving creditors from loss, as if this is a prerequisite for economic stability,” writes Hudson.

“Moral blame is placed on debtors, as if their arrears are a personal choice rather than stemming from economic strains that compel them to turn to debt simply to survive.”

In pre-Christian Babylon, debts that could not be repaid as a result of misfortune were written off. Hudson points out that most household debt today – as in ancient times – is for consumption, and therefore cannot and will not ever be repaid.

Asset forfeiture

The long game with any debt cult is asset forfeiture. “Concentration of land ownership and polarisation between creditors and debtors is traditionally a formula for economic shrinkage and depopulation,” writes Hudson.

Lending to farmers was used as a lever to privatise land. The Sumerians invented usury (lending at interest) but mitigated its effects through periodic royal edicts forgiving debts, particularly those related to crops and fees owed to public collectors. The meaning of ‘usury’ has changed through the ages to mean lending at excessive interest.

The concept of legal title to land is a relatively modern concept and, once tethered to debt, is the most efficient method of foreclosure and stripping the poor of their customary rights.

The absence of formal property rights in Africa has actually protected the poor from the dispossession and eviction that follows debt peonage.

The modern concept of economic liberty exalts title deeds and the transferability of land as an act of empowerment, yet ten million Americans and an estimated 100 000 South Africans have been stripped of their properties in the last decade or so through foreclosure.

Property ownership

Property ownership is vital to economic prosperity but is under constant attack by the creditor class. Title deeds were one of the principal tools of dispossession used by colonisers in Africa, subverting the traditional system of communal property. The Bafokeng in North West Province had to buy back the land they had occupied for centuries because some ‘smart’ 19th Century property speculators proved by means of a title deed that they were the new owners.

Hudson also challenges the notion that money originated out of primitive barter economies. The origins of money, he suggests, lay in fiscal arrangements with the palaces, where dues had to be settled in silver.

To insist that all debts must be paid ignores thousands of years of contrary practice in the Near East and the economic flowering that followed this humane practice.

Hudson says he wrote the book as the time is now ripe to re-introduce the concept of debt Jubilees into public consciousness. It will allow an instant and orderly economic recovery rather than decades of slow atrophy and social disorder, as banks continue to make claim on debts and interest that can never be repaid.

Read: Review: J is for Junk Economics by Michael Hudson

Komape family wins R1.4 million for emotional shock and grief

Written by Ciaran Ryan. Posted in Journalism

Supreme Court of Appeal overturns Limpopo High Court decision. From Groundup.

Photo of Komape family
From right, James, Rosina and Lucas Komape attended the Supreme Court of Appeal hearing earlier this year. Archive photo: Ciaran Ryan

The Supreme Court of Appeal (SCA) awarded the Komape family R1.4 million for emotional shock and grief after the loss of their five year-old son Michael, who drowned in a Limpopo school pit toilet in 2014.

The award overturns a decision by the Limpopo High Court in 2018, which denied the family’s claim for damages arising from Michael’s drowning. The SCA found it “somewhat startling to say the least” that the Limpopo High Court had dismissed the family’s claim for emotional trauma and shock even though the state had earlier conceded the claim. What remained in dispute was how much the family should receive in compensation.

The matter went to trial in 2017 when the two opposing parties could not agree on a suitable financial settlement. The Komape family was defeated in the Limpopo High Court (other than an order requiring the state to ensure all schools were fitted with secure and hygienic toilets, and R12,000 for future medical expenses for two of the Komape children) and then took the matter on appeal.

The Minister of Basic Education and the Limpopo Department of Education were cited as main respondents in the case. The SCA ordered them to pay the R1.4 million award to the family jointly and severally. The Komape family was represented by public interest law firm SECTION27.

The SCA also ordered the respondents to pay future medical expenses for three of the younger surviving Komape children.

Michael “suffered the most appalling and undignified death when he fell into a pit latrine at his school in Limpopo, and drown in its sludge and filth,” reads the judgment.

The SCA ruled that the Komape family had suffered terrible psychological trauma due to the manner of Michael’s death, and the seemingly unfeeling attitude of the education authorities thereafter. Both Komape parents were diagnosed with post-traumatic stress disorder, and for years had trouble sleeping. Michael’s mother, Rosina Komape, fainted when she saw her son’s arm protruding from the school pit toilet. The younger children were likewise deeply scarred by the death and required counselling.

The Komape family had asked the court for two types of damages: R940,000 in general damages and R2 million in Constitutional damages, and further asked the court to develop common law to adequately compensate victims of this kind of tragedy. The SCA found there was no need for the development of common law to assess the damages occasioned by their feelings of loss and bereavement.

The SCA decided to award R350,000 to each of the Komape parents, R200,000 to each of the two elder Komape children (Lydia and Lucas), and R100,000 each to the three surviving younger children (Onica, Maria and Moses).

The court rejected the claim for additional Constitutional damages on the grounds that this would be unnecessarily punitive as the court had already granted financial damages to the family. The state was ordered to pay the costs of the case.

The Supreme Court rejected an attempt by class action specialist Richard Spoor Inc. to intervene in the case on the grounds that he had an interest in its outcome. Spoor, who is involved in a class action suit against Tiger Brands related to the outbreak of listeriosis in 2017 that resulted in more than 200 deaths from tainted food, asked to be admitted as a friend of the court so that he could advance arguments calculated to assist the court in reaching a decision. The SCA denied his request because he had a partisan interest in the matter, as he could potentially earn substantially more in his listeriosis class action case depending on the outcome of the Komape case.

SECTION27 welcomed the judgment. “SECTION27 hopes that this judgment will bring some semblance of closure for the family and restore their dignity for the manner in which Michael died and the treatment of the family by education authorities in the aftermath of his death,” the organisation said.

Court decision opens the way for consumers to get billions in fees back

Written by Ciaran Ryan. Posted in Journalism

Judgment is damning for credit providers. Class action suit to follow. From Moneyweb.

Debt collection has become a thriving business for many law firms. This judgment could put some of them out of action. Image: Shutterstock
Debt collection has become a thriving business for many law firms. This judgment could put some of them out of action. Image: Shutterstock

The Cape High Court on Friday delivered a damning judgment against credit providers for overcharging on legal fees and interest in contravention of the National Credit Act (NCA) which came into force in 2007.

The case was brought by Stellenbosch University’s Law Clinic and Summit Financial Partners on behalf of several customers of loan providers who ended up owing several times the initial sum borrowed after falling into default.

One of the applicants, Jenina Matthys, borrowed R5 600, repaid R13 000 and still owes R13 300.

Another applicant, Frans Saulus, borrowed R16 000, repaid R1 000 and still owes R37 000.

The majority of the applicants represented by the Law Clinic are poor, over-indebted and sinking deeper into financial distress.

The nearly 50 respondents in the case included credit providers Bayport, Finbond, Full House Retail and numerous law firms involved in debt collection.

Also cited as respondents were the country’s various law societies, which came out swinging on behalf of their members and their right to continue gouging the poor and those in financial distress.

Debt collection has become a thriving business for many law firms, and this judgment could put some of them out of action.

Declaratory order

The Law Clinic asked the Cape High Court for a declaratory order confirming the NCA’s so-called statutory in duplum (‘double’) rule – meaning a borrower may not be charged more than double the amount of the loan outstanding at the time of default – including all costs associated with the collection of the outstanding amount as well as legal fees.

For example, let’s say you borrow R500 and, once finance and other legally allowed costs of credit are added, you are required to repay R700 over a two-year period. You repay R400 of this and then default. The outstanding amount is R300. You can never be charged more than double this amount (R600) even after interest, admin and legal fees have been added, as long as you remain in default.

The Cape High Court has now confirmed this is the intent and the effect of the NCA.

Opt-out class action suit

Senior Law Clinic attorney Stephan van der Merwe says while he would not be surprised if the credit providers appeal the case, an opt-out class action suit is now being planned for early in the New Year to recover what could be billions of rands in overcharged interest and fees.

An opt-out class action suit means you are automatically included in the case (provided you have suffered from the abuses argued in this latest case) unless you specifically opt out.

Read: Landmark court case seeks to stop over-charging by creditors

Should the losers appeal the Cape High Court judgment, it will delay but not derail the class action suit.

“We are planning to institute a class action suit early in the New Year because we want to interrupt prescription [running out of time] on behalf of all borrowers across the country who have been prejudiced by the behaviour of unscrupulous credit providers,” says Van der Merwe.

The Prescription Act sets time limits for the legal claims related to loans. In the case of micro loans, credit card and overdrafts, it is three years. Any claim brought after this time period is generally invalid, unless there are exceptional circumstances.

Judge incensed

Acting Judge Bryan Hack of the Cape High Court was clearly incensed at the behaviour of credit providers who ran up interest as well as legal and admin fees, and loaded these onto the accounts of the borrowers to the point where they were repaying many multiples of the original amount borrowed.

Credit providers exploited what they claimed was loose wording of the NCA to add legal and other fees to the borrower’s outstanding amount.

This explains how Jenina Matthys ended up repaying R13 000 on a loan of R5 600 and was still being hounded for a further R13 300.

Credit providers and their lawyers relied on the previous common law interpretation of in duplum, which allowed them to load additional costs of debt collection onto the account of the borrower.

They tried to claim that once litigation had commenced, the credit agreement was cancelled and they were no longer limited in running up the costs of collection.

They argued that once judgment was issued against a borrower in default, a new “cause of action” had commenced and that legal fees accumulated thereafter were not collection charges as defined by the NCA.

The judge was buying none of this. The NCA was clear enough and there was no need to further develop the existing law.  

“It is contrived to try to distinguish legal fees which are part of collection costs and legal fees which are part of litigation costs … ,” reads the judgment. “It is a continuation of one cause of action and is simply a further procedural step to enforce the claim.”

Choice quotes from the judgment

  • “The crucial purpose of the [NCA] is set out in the long title of the act in the words ‘to promote responsible credit granting’. The respondents have emphasised the obligation on consumers to be responsible and not seek credit when they know they cannot pay or there is a risk that they might not be able to pay. I am of the view that the credit providers are thereby attempting to shield themselves from the responsibility imposed on them by the credit act.”
  • “The question is whether in the seven years since the Sebola judgment [which argued that the credit market must be competitive and sustainable] credit providers have shown the responsibility called for to balance the respective rights and responsibilities of credit providers and consumers. The facts of this case suggest no. The escalation of indebtedness as a result of costs set out (by the applicants) suggest the credit providers are not even paying lip service to the need for fairness and equity.”
  • “I take judicial notice of the notorious fact that consumers are constantly being cajoled and encouraged [to apply] for credit.”

The judgment

The judgment declared that the NCA’s definition of collection costs included all fees, as well as legal costs. The total amount claimed from a defaulting borrower may not exceed double the outstanding amount at the time of default, even after accounting for collection costs.

The losers in the case were ordered to appoint an expert to determine how much the applicants were overcharged and to refund them.

The losers were ordered to pay the costs of the case.

This is another victory for over-indebted consumers, coming just weeks after the Grahamstown High Court ordered banks to bring their cases before magistrates’ courts rather than high courts. This will drastically lower the legal costs for those in financial distress, and will curb the appetite of banks and their highly paid legal teams to litigate rather than seek accommodation with customers.

Read: The days of banks suing you in the high court are over

Another aspect of the judgment that will bring relief to borrowers is that any legal costs associated with collection must be “taxed” (or agreed with the debtor).

“This is an important improvement as it will bring some oversight to creditors’ unilaterally loading debtors’ bills with their costs,” says Van der Merwe.

BEE shareholder asks court to put Tubular Construction in business rescue

Written by Ciaran Ryan. Posted in Journalism

Accuses company of fronting after receiving no dividends. From Moneyweb.

The applicant says there is a reasonable prospect of saving the company – due primarily to R410m still owed to it by Eskom. Image: Moneyweb

The applicant says there is a reasonable prospect of saving the company – due primarily to R410m still owed to it by Eskom. Image: Moneyweb

Brian Bestenbier, a black economic empowerment (BEE) shareholder in Tubular Construction projects, has applied to the Pretoria High Court to place the company in business rescue.

Tubular Construction was a contractor at Eskom’s Kusile power plant and has been accused by forensic investigator Paul O’Sullivan of having been a major factor in the energy utility’s financial quagmire, as well as its inability to deliver electricity.

Tubular Construction CEO Tony Trindade has been accused in court papers of having paid R55 million in bribes to a company owned by former Eskom contracts manager Frans Hlakudi. This was purportedly to secure work at Eskom’s massively over-budget Kusile Power Station in Mpumalanga.

Read: The crisis at Kusile and Medupi continues …

Bestenbier says he was brought in as a BEE shareholder to assist the company in winning contracts, but he received nothing in the way of dividends. Tubular is owed about R410 million by Eskom. Its assets amount to R451 million and liabilities R481 million, of which R460 million is purportedly owing to group companies.

Tubular Construction is 65% owned by Tubular Technical Construction and 35% by Bestenbier’s company SB Investment Holdings.

“The intention was, however, never to benefit the black shareholder, but to create a vehicle through which lucrative contracts, like the Eskom contract, could be secured for the benefit of the Tubular Group of Companies,” says Bestenbier’s affidavit. This amounts to BEE fronting, he adds.

Due to the fact that Tubular Construction is “factually insolvent and financially distressed”, it should be placed in business rescue rather than wound up, as there is a reasonable prospect of saving the company due primarily to the R410 million still owed to it by Eskom.

Read: SA approves R59bn bailout for debt-laden Eskom

Bestenbier has asked the court to appoint Thomas Samons of Restructuring SA as interim business rescue practitioner. The Broad-Based Black Economic Empowerment (B-BBEE) Commission has also been cited as a respondent.

In terms of a shareholders’ agreement, Bestenbier’s company was entitled to 35% of at least half of distributable profits.

He was also entitled to receive annual strategic plans, operating and financial budgets, and statements, but these were never supplied.

“Despite the fact that I was appointed as [a] director [of Tubular Construction] on or about 18 August 2008, I never enjoyed a fair participation in the affairs of the [company] and I was sidelined by my co-directors. The executive committee envisaged in the shareholders’ agreement was ever established, subcontractors were not appointed subject to the instructions, policy and directions of an executive committee … ,” according to Bestenbier’s affidavit.

Read: Police investigate Tubular directors for fraud and corruption

Bestenbier says he raised his concerns about various financial irregularities at the company, such as the practice of funnelling overhead costs incurred by other group companies through Tubular Construction, and extending financial assistance to directors. These concerns were not addressed by his fellow directors, and Bestenbier says he conditionally approved the 2015 financial statements. Projects he introduced to Tubular Construction were subsequently diverted to other group companies, with no benefit flowing to himself.

Irregular payments

Auditor Moore Stephens issued a qualified audit report in 2017 after material irregular payments were made to a close corporation “where the sole member was the head of contracts at a government organisation, whose member was linked to a significant contract that the company had been awarded”. This refers to the alleged bribes to Hlakudi. Bestenbier says he had no knowledge of these payments at the time, although same was subsequently pointed out to him by O’Sullivan.

Several attempts were made by Bestenbier to resolve these financial irregularities with Trindade, to no avail.

In an emailed response to Bestenbier dated November 19, 2018, Trindade writes: “Not only did you fail to attend [management meetings] to raise concerns, you signed off various documents thereafter, including the AFS [annual financial statements], without raising concerns. To now allege that you signed on provisos is blatantly untrue and inconsistent with the duties imposed upon you as a director in terms of the Companies Act.”

In a separate case, O’Sullivan and Trindade squared off a second time in the Germiston magistrates’ court last month, with more harsh words passing between O’Sullivan and Trindade’s legal team at the in-camera hearing.

Read: Vintage Paul O’Sullivan confrontation outside magistrate’s court

Trindade was asking the court to interdict O’Sullivan from contacting him and his family. O’Sullivan agreed to this, saying he had no need to contact Trindade again and the magistrate made it an order of court. Trindade also wanted O’Sullivan to be charged with contempt and to pay legal costs, but the court did not entertain that part of the application.  

“Trindade is going to jail,” says O’Sullivan. “He is the person more than anyone else who sank Eskom.”

Trindade’s attorney Robert Kanarek says the business rescue application will be vigorously opposed.

On the consent interdict against O’Sullivan, he says: “Funnily enough, when the application was launched the reporters were at court at the instance of O’Sullivan, but when the order was obtained against him, no reporter was in sight.”

The court hearing was held in camera, which means reporters and members of the public were barred from entry.

O’Sullivan has accused Kanarak of living off the proceeds of crime and says he has written to Standard Bank, requesting it to freeze Trindade’s accounts.

Miners survive on charity while battle for Koornfontein mine drags on

Written by Ciaran Ryan. Posted in Journalism

Losing bidder Lurco Group feels cheated by irrational conditions imposed on it. From Moneyweb.

Image: Ciaran Ryan

Image: Ciaran Ryan

Koornfontein coal miners have been without pay for nearly two years, after the catastrophic involvement of the Guptas brought the company to its knees. It was stripped of cash to the point where underground cables went unserviced and safety gear was almost non-existent.

The mine, along with Optimum and several other Gupta-owned companies, was placed in business rescue nearly two years ago. The adjoining town of Blinkpan in Mpumalanga has been gutted since the mines were placed in rescue. It is reckoned two dozen miners have died, some from stress-related illnesses, since they stopped receiving pay cheques in early 2018.

Blinkpan is the poster child for capitalism’s ugly offspring. Don’t mention the name Gupta in these parts. The dauphins of state capture have wrecked this part of Mpumalanga, but did alright for themselves.

Out-of-work Koornfontein and Optimum miners were collecting food and donations from nearby businesses to feed themselves, in the hope that the mines would be resuscitated within a matter of months rather than years. Now nearly two years later, many have drifted off to surrounding areas to take whatever work they could find. They borrowed from family and friends to pay for water and lights and made deals with school administrators to pay their children’s school fees once the mines reopened.

Back in Johannesburg, the battle for who gets to own and run the mine is far from resolved. There’s no question which bid the miners prefer: Lurco group, a black-owned coal and chrome mining operation, put in a bid of R500 million which would include 94 cents in the rand backpay to workers. This was about R200 million better than the next best bid from Black Royalty Minerals (BRM).

But then the business rescue practitioners (BRPs), acting on instructions from creditors (the largest of which is Eskom), added a strange condition: have the money in a South African bank account within five days. This was an impossibility for Lurco, as the money was overseas and would take at least six weeks to get Reserve Bank approval. This was known to the BRPs and creditors, says Lurco Chief Operating Officer Aubrey Chauke.

Last month Lurco brought an application to interdict the rescue practitioners from selling the mine to BRM, on the grounds that the original business rescue plan was amended to include the impossible five-day payment condition. At a media briefing this week, Lurco CEO Ellington Nxumalo said had the changed condition been known in advance, the company would have amended its bid accordingly.

It’s almost as if the condition was added to torpedo Lurco’s chances of acquiring the mine. Nxumalo says the company has good relations with the other bidders, including BRM, as well as the BRPs. Yet it remains a mystery as to why such a onerous condition was imposed on it.

Says one Koornfontein miner now working as a waiter: “We are aware of the different deals on the table and for us the Lurco deal was the best, because we would receive backpay.”

The BRPs say their hands are tied by creditors, the largest of which is Eskom. This has prompted speculation that Eskom secured a better deal for itself with BRM once the mine reopens. Eskom currently pays R430 a ton for Koornfontein coal according to the business rescue plan, but less than half of that for Optimum coal. Eskom’s nearby power stations of Arnot and Hendrina are old and due for decommissioning within the next few years, which raises the question why Lurco or anyone else would be interested in purchasing an asset with an uncertain coal market four or five years hence. One of the more interesting options once electricity generation is privatised is for coal mines to acquire and refurbish these old power stations.

A complicating factor for the business rescue process is that Koornfontein creditor Westdawn has applied for the winding up of mine, on the grounds that it cannot pay its debts.

Nxumalo says Lurco has no ties to the Guptas, nor to any politically-connected individuals. It has to bring this up because of ongoing suspicions that the Guptas are trying to sneak back into the country through the side door. “We were very transparent and open that the source of our funds was overseas, and we presented proof of funds to the BRPs. We have good relations with our overseas funders and they are following this story because there is huge interest in this asset. But the ongoing delays in finalising the sale (of Koornfontein) is creating investor fatigue.”

Lurco is also bidding for the one-time jewel in the Gupta crown, Optimum. The preferred bidder for Optimum will be announced at the end of January.

Complicating things further is another case seeking to stop the sale of any of the former Gupta assets held by Tegeta. The case is being brought by Amin Al-Zarooni, chairman of Swiss-based company Charles King SA, which claims it has a written agreement signed in 2017 to purchase the Gupta holding company Tegeta for R2.9 billion. It was to secure this right with a down-payment of R66.7 million, but was R2.3 million short when payment fell due on October 22, 2017. The money that was deposited was used by the Guptas to pay salaries at various Gupta companies, including Optimum. The BRPs cancelled the agreement in April 2018 and the matter went to arbitration. The arbitrators found against Charles King, and that ruling is now being appealed.

Read: Ghosts of the Guptas still haunt Optimum coal mine

Lurco was launched in 2010 as a black-owned minerals company and today has two coal assets in Mpumalanga (Van Dyks Drift and Inyanda) and the Mooinooi chrome operation in Gauteng. It is on the hunt for prime coal assets in Zimbabwe and Eswatini (formerly Swaziland) and in November 2018 signed a 50-50 joint venture with Shumba Energy in Botswana’s Sechaba coal mine. 

Adding Koornfontein and possibly Optimum to the stable would catapult it into the mining big league.

Supplier applies to court for liquidation of Nkomati Anthracite

Written by Ciaran Ryan. Posted in Journalism

Bumbana Mining says it’s owed R32m by the firm, which is part of JSE-listed Unicorn Capital Partners. From Moneyweb.

Image: Shutterstock

Contractor Bumbana Mining is asking the Pretoria High Court for the winding up of Nkomati Anthracite, after failure to receive roughly R32 million in contractor fees – which includes interest, dating back to 2016.

Nkomati Anthracite is part of the JSE-listed Unicorn Capital Partners. According to Unicorn’s financial statements, the anthracite operations account for about 20% of group revenue. Bumbana was formed specifically for the project with Nkomati.

Bumbana Director Pieter Tenner says in a court affidavit that the company provided mining operations at Nkomati’s Mbombela mine from February 2016 to May 2017. 

Nkomati started experiencing financial difficulties during the early part of 2017 and Bumbana was refused an increase in its contract mining rate when it came to negotiation time.

Invoices that were supposed to be paid within seven days were bumped out to 30 days in keeping the payment terms of the ultimate recipient of the anthracite, Glencore, which had increased Nkomati’s rate per tonne by 22%, according to Tenner’s affidavit.

“The real reason for the refusal to give applicant (Bumbana) an increase in the rate, as well as the attempt to change the payment terms, were simply because the respondent was already at that stage experiencing extreme financial difficulties,” Tenner stated.

Payment delays started in March 2017 and were aggravated by disputes over contract rates and supplies. Bumbana says it ended up carrying Nkomati financially and could no longer carry on.

On May 31, 2017 it started vacating the site, claiming R27.3 million in outstanding invoices.

In June 2017, Nkomati claimed in a letter that it had suffered damages of R13.5 million due to Bumbana not meeting production targets, and a further R51 million due to mine rehabilitations obligations. This was the first indication of any concerns over production targets.

The matter then went to arbitration, chaired by Advocate Danie Dörfling SC.

There were several months’ more delays and when Nkomati finally presented its pleadings, it claimed Bumbana had failed to comply with the contract; its invoices were incorrect; and it had flouted various laws and failed to mine efficiently and with the required resources.

Ultimately, Nkomati narrowed its defences to two issues: Bumbana had failed to achieve a production target of 40 000 tonnes a month so payment was not due; and the invoices did not display the right VAT number. Nkomati then counterclaimed for about R66 million.

During the arbitration proceedings, Nkomati’s case reportedly collapsed, according to Tenner. Its witnesses were found to be untruthful and the counterclaim “died a slow death”.

The arbitrator found against Nkomati on the grounds that there was no contractual obligation to produce 40 000 tonnes a month. The arbitration award was handed down in February 2019 and Nkomati appealed. “Once again, it was clear that (Nkomati) was busy with delaying tactics.” The appeal was dismissed with costs against Nkomati.

Bumbana then applied to have the arbitration award made an order of court and was met with a counter-application from Nkomati to freeze proceedings.

Tenner says this is a further attempt by Nkomati to delay the inevitable day of reckoning. Nkomati had allegedly offered to pay the outstanding amount in instalments, as it was unable to pay in one go. Discussions broke down and no resolution was reached.

Tenner’s affidavit also alleged that Unicorn intended to list Nkomati on the JSE or sell it to a third party. The listing idea was announced in Unicorn’s 2019 annual report.

The affidavit also references ongoing litigation with other companies in the same annual report, though no mention is made of the claim by Bumbana.

When contacted for comment, Unicorn CEO Jacques Badenhorst said Bumbana’s claim had been included in its financial statements as an ordinary creditor. He also said the matter would be defended, notwithstanding the arbitrator’s ruling.

The days of banks suing you in the high court are over

Written by Ciaran Ryan. Posted in Journalism

National Credit Act matters must go through the much cheaper – and more accessible – magistrates’ courts. From Moneyweb.

There is little doubt that taking foreclosures and repossessions to a high court was designed to make it intimidating and expensive for clients to oppose the litigation. Image: Scott Eells, Bloomberg
There is little doubt that taking foreclosures and repossessions to a high court was designed to make it intimidating and expensive for clients to oppose the litigation. Image: Scott Eells, Bloomberg

A recent judgment by a full bench of the Grahamstown High Court makes it unlawful for banks to bring National Credit Act matters before the high court instead of the much cheaper magistrates’ courts.

Lawyers have complained for years that banks were attempting to financially ruin their customers by forcing them into the high courts in an effort to collect on outstanding debts. They also argue that forcing customers into high courts – often far from where they live, a practice known as ‘forum shopping’ – is a further prejudice intended to stack the deck against a customer in default.

Apart from being financially ruinous for customers, it is also a denial of access to justice.

This recent judgment means lenders no longer have that luxury of suing in high courts. Though the judgment is confined to credit agreements falling under the National Credit Act (NCA), a minority ruling by Judge Mbulelo Jolwana called for all civil actions and applications to be instituted in the magistrates’ courts to give effect to the constitutional right of access to justice.

Easier and less costly to mount a defence

Disputes over credit agreements must now be argued in magistrates’ courts, where the allowable scale of legal costs are a fraction of that in the high court. Customers being sued by the banks can argue their own cases without legal representation in magistrates’ courts and will not get lumbered with huge legal bills from the opposing side should they lose the case.

The full bench was asked by the Judge President of the Eastern Cape High Court in Grahamstown to deliberate on several cases involving Nedbank, Standard Bank, Ford Credit and Wesbank. All of the cases involved unopposed matters brought by the lenders seeking default judgment against clients. The Judge President asked the full bench to consider why the high court should entertain matters that properly belong in the magistrates’ courts.

The banks argued – without success – that in matters where the magistrates and high courts had “concurrent jurisdiction”, forcing them to bring matters to the magistrates’ courts would infringe their right of access to justice. The judges did not agree.

The Black Lawyers Association and the minister of justice and correctional services were admitted as friends of the court.

‘Major victory’

Consumer lawyer Leonard Benjamin says the judgment is a major victory for consumers and tilts the scales of justice in their direction. “A majority of foreclosures and repossessions are unopposed, which allows banks to get judgments which could be based on defective cases and incorrect information.

“I believe that the main reasons why consumers do not oppose the banks are because of their use of the high court. They are inaccessible because they have unfamiliar procedures, are intimidating and located far away.”

Most consumers do not put up a fight against the banks, believing they do not have a defence. But this is incorrect.

Benjamin says when it comes to foreclosures, not opposing a claim by the bank is a waiver of your constitutional rights. “Where your primary residence is under threat, even if you are in default, the court must consider relevant circumstances before granting the bank an order that will allow it to sell your home to recover its debt. The court must give special consideration to how granting the judgment will impact on children, the aged, the sick and disabled, and women-headed households.

“The court does not know what your circumstances are unless you tell the court. Hopefully, for consumers who defend themselves it will be easier and less intimidating to appear in the magistrates’ courts.”

The NCA came into effect in 2007 with the clear intention that all NCA matters (credit agreements) should be dealt with in the magistrates’ courts. The Magistrates’ Court Act was amended to allow all NCA matters, regardless of the amount claimed, to be heard in the lower rather than the higher courts.

However, some of the banks argued successfully that nothing in the NCA amounted to an express ousting of the high courts’ jurisdiction.

Although they could easily have brought foreclosures and repossessions in the magistrates’ courts, for more than a decade the banks sued consumers in the high courts. There is little doubt that this was a strategy employed to make it as intimidating and expensive for consumers to oppose the litigation.

The reason is not difficult to fathom: the banks’ lawyers make little or no money arguing cases in the lower court.

They avoid it like the plague. They are, as we previously reported, fighting for their lunch.

Read: Lawyers fight for their lunch in abusive lending case

Indicative of this is the banks’ favourite ploy of suing consumers living in Johannesburg in the Pretoria High Court. For those defending themselves, this adds a layer of unnecessary and unwelcome expense: a round trip just to serve and file court proceedings costs between R200 and R300 each time. This is quite apart from the costs of hiring lawyers, which left consumers in a dilemma: pay the lawyers’ fees or try to catch up on the bond and forestall legal proceedings?

Benjamin says the high costs of mounting a legal defence means most cases involving the banks go undefended. After this recent judgment, that should no longer be an issue.

“Late last year a bench of the Pretoria High Court seemed to have brought an end to the practice of banks suing in the high courts rather than the magistrates’ courts,” says Benjamin. “Holding that it was an abuse of the courts and denied consumers access to justice, the court gave a directive that after February 2, 2019, all NCA matters should be brought in the magistrates’ courts unless the bank had been granted leave to sue in the high court, for instance, if the issues were complex.”

This proved to be a pyrrhic victory as banks continued suing their customers in the higher courts, but without the courts’ leave. It was business as usual, with Johannesburg customers being sued in the Pretoria High Court instead of the Johannesburg Magistrates’ Court.

The Grahamstown judgment will make this more difficult.

How the AG is trying to plug a torpedo-sized hole in state finances

Written by Ciaran Ryan. Posted in Journalism

New powers to enforce recommendations and chase down stolen money should help. From Moneyweb.

'Private auditors only have to comply with the Companies Act; we, as public auditors, have more legislation that must be complied with' – Alice Muller, national leader of audit services, AGSA.
‘Private auditors only have to comply with the Companies Act; we, as public auditors, have more legislation that must be complied with’ – Alice Muller, national leader of audit services, AGSA.

It is astonishing to read in the Auditor-General’s (AG’s) 2019 consolidated general report that public entities spent R1.747 trillion in the last fiscal year.

But perhaps it shouldn’t be that surprising, given the 2019 national budget estimated spending of R1.665 trillion for 2018/19, which amounts to 33% of GDP.

If we take the AG’s figures, the public sector is gobbling up 34.5% of GDP – and this figure is growing each year. That should concern us.

It should also concern us that more than a third of the national budget is going on salaries.

The 20 state-owned entities (SOEs) audited by the AG spent R347 billion in the last financial year.

Irregularities defined

At a media training session this week, representatives from the office of the AG explained the audit process followed, as well as the AG’s new powers to curb the alarming trends in irregular spending and material irregularities.

The two have quite distinct meanings:

  • Irregular spending (SI) is where there is non-compliance with legislation leading up to payment. For example, awarding a contract without a competitive bidding process. Everything paid out to the winning bidder will then be deemed irregular, even though the service was delivered as promised. In the last year, irregular spending amounted to R62 billion, up from R51 billion the previous year.
  • A material irregularity (MI) is where there was non-compliance with the law but goes a step further than IS to embrace fraud, theft and actual loss. For example, where an uncompetitive bidding process results in the award of a contract for R20 million when the same service could have been delivered for R18 million, resulting in a loss of R2 million.

In the last financial year the AG identified 28 material irregularities, representing a financial loss of R2.8 billion, of which R2.2 billion was logged to the Passenger Rail Agency of SA (Prasa).

“A prepayment of R2.6 billion was made to the supplier, but the auditee [Prasa] derived no value as the locomotives were not fit for purpose,” says the AG report. The supplier filed for liquidation in December 2018, dashing any hopes of financial recovery. The contract was set aside by the court in May 2019 after the matter was referred in 2015 to the Directorate for Priority Crime Investigation (the Hawks).

The greatest offender in terms of the number of material irregularities was the Department of Human Settlements in the Free State where contractors were paid for work not done, or duplicate invoices were paid out, and in some cases, retention amounts were paid out unlawfully.

In one instance, nearly R33 million was squandered after contractors were paid for work not done.

In another, the Gauteng Department of Health lost R149 million over an IT project for which no competitive bids were invited.

New powers

In terms of amendments to the Public Audit Act passed this year, the AG can now refer these matters to the police, the public protector and the special investigations unit, and recommend remedial action with timelines.

If no action is taken by the stipulated date, the AG must take action itself and instruct the accounting officer at the public entity to quantify and recover the loss. If that fails, the AG must issue a certificate of debt to the accounting officer or the relevant accounting authority. It then falls to the minister or other executive authority to recover the loss.

How this works in practice remains to be seen, says Alice Muller, national leader of audit services at the Auditor General of SA (AGSA). “Private auditors only have to comply with the Companies Act. We, as public auditors, have more legislation that must be complied with.”

This includes the Public Audit Act, the Public Finance Management Act and the Municipal Finance Management Act. And that’s not counting a tower of accounting and audit standards.

Muller believes state recoveries will increase 10-fold as a result of the new powers in terms of the Public Audit Act.

Drilling deeper into the material irregularities we learn that 39% of the cases involved unfair or uncompetitive procurement processes resulting in R438 million in overpriced goods or services. Another 39% of cases involved goods and services not delivered. And in 11% of cases, invoices were not paid on time.

Releasing the report last week, Auditor-General Kimi Makwetu said it was encouraging that unauthorised expenditure had declined by 23% from the previous year.

That’s where the praise ended.

In actuality, 74% of government departments had insufficient funds to settle their liabilities. This means they start the new financial year with part of their budget effectively pre-spent.

Fruitless and wasteful expenditure swallowed R849 million in the last financial year but swells to R4.16 billion over the last five years. The AG report also shows irregular expenditure in SOEs audited by private audit firms was R57 billion, of which R49.9 billion was at Transnet and R6.6 billion at Eskom.

Overall, audit outcomes across public entities regressed since 2015, with only 26% of auditees earning clean audits.

No state-owned entity managed to receive a clean audit.

The SA Post Office regressed, receiving a qualified audit opinion, and the Development Bank of Southern Africa received a financially unqualified opinion. Some SOEs enterprises were struggling to produce financial statements demonstrating their going concern status.

Makwetu recommends stabilising leadership at SOEs so they can tighten controls and implement action plans.

Given the parlous state of public finances, the AG’s new powers of enforcement will be a vital tool in reining in spendthrift public entities. And there’s every likelihood accounting officers and others involved in corrupt practices will end up in prison within the next 12 months.

Zuma loyalists face rule-of-law reckoning

Written by Ciaran Ryan. Posted in Journalism

The arrest of a sitting ANC MP is an important development, and more are expected. From Moneyweb.

Bongani Bongo (left), seen here with Transport Minister Fikile Mbalula, chairs the National Assembly’s portfolio committee on home affairs. He is currently out on bail. Image: GCIS

Bongani Bongo (left), seen here with Transport Minister Fikile Mbalula, chairs the National Assembly’s portfolio committee on home affairs. He is currently out on bail. Image: GCIS

Former state security minister Bongani Bongo was arrested by the Hawks on Thursday and appeared in the Cape Town Magistrate’s Court before being released on bail.

He was accused of interfering in a state capture inquiry at Eskom in 2017, when he allegedly offered a bribe to Advocate Ntuthuzelo Vanara who was leading evidence at the inquiry. The apparent purpose of the bribe was to deep-six the inquiry.

Read: Former minister arrested on corruption charge

Bongo shot from obscurity in Mpumalanga to sitting ANC MP in the last three years. He got the call from former President Jacob Zuma in October 2017, offering him the role of minister of state security – a key position that gave him unrivalled intelligence on Zuma’s enemies.

He had been investigated by the Hawks for alleged corrupt land transactions in Mpumalanga, during his time as legal advisor in the provincial government, according to City Press.

Land valued at R55m allegedly sold for R124m

The Hawks claimed he drafted the contracts for the purchase of several farms by the Mpumalanga human settlements department, which ended up paying R124 million for land that was valued at just R55 million. The land conveyancer reportedly then transferred R300 000 to BMW Sandton as a deposit for a vehicle purchased in the name of Bongo’s brother.

Given his history of dubious dealings, many were shocked when he was appointed as recently as June this year as chair of the National Assembly’s portfolio committee on home affairs.

He was one of a string of Zuma loyalists linked to the Guptas and state capture who now head up parliamentary committees.

Many of them must now be wondering when the Hawks will come knocking on their doors.

The Hawks are reportedly about to pounce on several more officials over a R630-million toilet tender fraud in the Eastern Cape. Independent Media reported that Goodman Ntandazo Vimba, CEO of the Municipal Infrastructure Support Agent, will appear in court next February after being released on bail this week. He is one of ten people expected to face arrest for the tender irregularities.

But by far the biggest fish caught in the Hawks’ net so far is Bongo.

The ANC has declined to take action against him as the matter is still before the courts, but Bongo has levelled accusations against Public Enterprises Minister Pravin Gordhan as the man behind his arrest – a claim rejected by Gordhan.

We can get some sense of the man from the ‘High-Level Review Panel on the State Security Agency (SSA) and Related Matters’, published in December 2018. It is clear this agency was the source of untold friction in the country and the ruling party.

The report does not cite Bongo by name, but this can be inferred from his tenure as minister of the SSA between August 2017 and February 2018, when he was removed by President Cyril Ramaphosa. He was known to be close to the Guptas and held a crucial position of power in an agency that had been commandeered in the service of waging war on Zuma’s enemies.

Read: Ramaphosa’s ‘poisoned chalice’ 

Bongo was the latest in a long line of Zuma loyalists to occupy the position. Current Deputy Minister of Human Settlements, Water and Sanitation, David Mahlobo, was his predecessor and is said to have initiated an inquiry into whether former Public Protector Thuli Madonsela, who was herself investigating state capture at the time, was a spy.

“It is astonishing that Bongo still occupies a position in the home affairs portfolio committee,” says Thami Nkosi of Right2Know. “The ANC has been rolling the dice on corrupt Zuma-era members, hoping the noise dies down. That doesn’t seem to be happening. I think what might be unfolding here is a gradual purge of Zuma loyalists.

“It’s a good sign that the Hawks are going after Bongo, but he is low-hanging fruit. There are bigger fish to catch in the ruling party.”

The review panel found the SSA was subject to political interference, and often ended up as a pawn of the ruling party, rather than serving the intelligence needs of the country. The agency became politicised over a period of ten to 13 years and “has become extensively embroiled in the politics and factionalism of the ruling party,” says the report.

One of the questions the panel investigating the agency considered was whether SA needed a minister of intelligence at all.

This has been discussed for the better part of two decades, and was considered necessary to drive transformation in the intelligence services. The transformation drive has been a remarkable success, to the point where the agency became a tool of a faction within the ruling party. And Bongo squatted in the middle of this.

It started with the hoax email saga in 2005 when elements within the National Intelligence Agency (NIA, which has since been subsumed into the SSA) advanced bogus intelligence in the form of emails and chat messages suggesting a conspiracy against then-deputy president Jacob Zuma. Despite this being debunked by the Inspector-General of Intelligence (IGI), elements within the ANC refused to believe the IGI.

Factionalism became rife when Zuma took over as president, and the influence of the Guptas started to bleed from their home in Saxonwold to the highest office in the land – and just about everything in between.

The Oath of Allegiance that SSA members are expected to take requires members to swear allegiance not just to the Constitution and the laws of the country, but also to the president. It further requires them to “recognise the authority of the Minister of State Security”.

‘Temporary advances’ were like ATMs

The report suggests that financial controls in the SSA were loose, as most of the agency’s transactions are done in cash to hide their origin. Cash disbursements are made by a system of ‘temporary advances’ and agents are supposed to return unused amounts and reconcile the transaction before applying for a new one. But this appears to have been widely abused. Even where agents were required to settle temporary advances by deducting from their salaries, the amounts were so large (running into millions of rands) in some cases that they could not realistically be settled. Others left the agency before they could settle what they owed.

An amount of R17 million was stolen from a safe at the SSA in 2015, but the culprits were not brought to book – despite being identified by video.

Civil society groups Organisation Undoing Tax Abuse (Outa), Right2Know and Corruption Watch have welcomed Bongo’s arrest.

“Bongo was put in charge of the State Security Agency by Jacob Zuma to keep an eye on intelligence gathering and to spy on Zuma’s opponents,” says Nkosi. “We know that Zuma was handed an intelligence report suggesting there were people in the ANC who were intent on staging a revolt. This was a case of using state resources to do the ANC’s dirty work.

“Under Bongo’s tenure, the SSA was co-opted as an organ of a faction of the ruling party, to the neglect of the national interest.”

Says Outa CEO Wayne Duvenage: “We’re following the [case of Bongo’s arrest] with interest, as we are following all cases where the rule of law is unfolding against others in authority who have been involved in corruption. This matter and others unfolding now and into the future is significant to instilling confidence into SA’s future and the need for accountability.”

The fact that Bongo is a sitting ANC MP is a positive development, as his arrest would not have happened in the Zuma era, adds Duvenage. This gives the country confidence that the rule of law is able to flow without political interference.


“There can surely be no more heinous act of political corruption than a sitting MP and cabinet minister offering a bribe to an officer of parliament, specifically in order to undermine parliament’s core function of holding the executive to account. If Bongo is convicted we trust he will face the full might of the law,” said David Lewis, executive director of Corruption Watch.

“While we welcome the Hawks’ investigation and prosecution of Bongo, the real hero is Advocate Vanara, a true officer of the court and a person of integrity,” Lewis said. “The institution that comes out worst in this whole sordid saga is the governing party, the ANC. Bongo already had this massive cloud hanging over him when he was placed on the ANC parliamentary list. Salt was then rubbed into the wound by making him chair of the important Home Affairs portfolio committee.”

There are many more like him serving in parliament, said Lewis, and they too should be removed.

Trade union pension funds sit with billions of rands in unclaimed benefits

Written by Ciaran Ryan. Posted in Journalism

R19 billion owed to beneficiaries in metal industry. From Groundup.

Photo of money

Billions of rands in unclaimed benefits are sitting in trade union pension funds. Archive photo: Ashraf Hendricks

More than half the unclaimed benefits of R42 billion owed to roughly 4.2 million former workers are bottled up in just two trade union-affiliated pension schemes.

This is one of the findings in a recent report into unclaimed benefits entitled The Bottom Line by non-profit organisation Open Secrets. The amount of unclaimed benefits owed to former workers rises to more than R51 billion if funds falling outside the Pension Funds Act are added.

The fund with by far the largest amount of unclaimed benefits is the Metal Industries Benefit Fund with nearly R19 billion, followed by the Mineworkers Fund with R4.3 billion. These numbers are from a 2017 report on unclaimed benefits from the Financial Services Conduct Authority, or FSCA (formerly the Financial Services Board).

Administrators earn huge fees on these unclaimed benefits, which would disappear if the beneficiaries were to be located and paid out.

GroundUp asked for comment on the Open Secrets report from the regulator, the FSCA, and two administrators, Liberty and Alexander Forbes. Only Liberty responded.

Tiaan Kotze, managing executive of Liberty Corporate, said the problem of unclaimed benefits is decades old and not unique to South Africa. He said workers often left employment unaware that they have pension benefits owing to them. The administrators responsible for safekeeping fund members’ personal data often kept poor and incomplete records, he says. For example, many members were identified by their initials and surnames, rather than their full names. Nor, apparently, was there much effort to keep a record of forwarding addresses, which was a particular problem when workers went back to the rural areas or neighbouring countries. They simply disappeared off the radar, says Kotze.

Benefits Exchange allows those who believe they may have unclaimed benefits to do a free search, and claim a 12% success rate on search requests. The FSCA also has an unclaimed benefits database search facility. Benefit Exchange founder Sean Rossouw says by far the greatest culprits in dragging their feet over the tracing of beneficiaries and payment of unclaimed benefits are the trade union-affiliated funds which are not administered by large third-party administrators.

“These funds account for about 80% of all unclaimed benefits,” he says. “Some administrators such as Liberty are far more diligent in tracing beneficiaries than others. The reasons some are more lethargic than others is obvious, he adds: if they were to be too successful in tracing beneficiaries, some administrators might be out of a job as the fees they earn from active fund members would not carry their operating costs.

“Our experience with the trade union-administered funds has been frustrating for many claimants. We have done searches on behalf of former members that show they are entitled to benefits, yet when they then approach the administrators directly, they are told there is no record of them on file.”

“Our impression is they are not trying very hard to assist former members and poor staff quality and training results in valid claims not being processed,” says Rossouw.

Where fund administrators have been tracing members of funds, the processes have remained the same for more than 15 years. Meanwhile, the amount of unclaimed benefits increases every year. Rossouw believes that it is critical that fund administrators and trustees try alternate tracing methods to complement existing processes.

In addition, poor membership records mean the unclaimed benefits will continue to increase. “It is time for the FSCA to implement data quality requirements and audits which is the practice in the United Kingdom,” adds Rossouw.

Administrators charge up to R12 per member per month – or R144 per year. Liberty charges R10 per member per month for administration, and 0.6% annually on long-term funds invested. By way of comparison, a typical fee on a commercially available retirement annuity is between R60 and R80 a month for administration, and 1% annually to the manager who invests the funds.

For the millions of claimants with relatively small unclaimed benefits, these fees can quickly gobble up whatever meagre benefits they are entitled to.

Often administrators do not earn fees when a member leaves employment and is no longer an active member of the fund. One way for administrators to start earning fees again is to move these “dormant” members into an unclaimed benefit preservation fund after two years, and then to drag their feet in tracing the beneficiaries.

“We’re not trying to make secret profits on unclaimed benefits,” says Kotze of Liberty Corporate, one of the largest administrators in the industry, with R2.2 billion in unclaimed benefits. In the last two years it paid out R270 million in unclaimed benefits to roughly 39,000 claimants.

Kotze says Liberty has more than 50 people in the company working full time at tracing beneficiaries in old funds and getting benefits paid to members. The company also uses the services of outside tracing agents.

SA had about 13,000 retirement funds at the time the Financial Services Board (which later became the FSCA) began a project to deregister funds about 12 years ago. Of these, about 6,700 were administered by Liberty. The number of funds has since been whittled down to about 5,000, of which 1,300 are administered by Liberty.

“This was done because the cost of administration is a huge financial burden to the industry,” says Kotze. “To the best of my knowledge, Liberty is the only administrator to engage with the Unclaimed Benefits Campaign (which lobbies on behalf of beneficiaries owed money in these funds), assisting them to reclaim benefits that remained unclaimed.”

“The unclaimed benefits in funds administered by Liberty account for about R2 billion of the R42 billion of unclaimed benefits across the industry. We are fully committed to paying the benefits to members of these funds and are investing significant resources into enhancing our tracing and payment capabilities,” says Kotze.

Pensions fund whistleblower Rosemary Hunter says Liberty asked the Registrar of Pension Funds to cancel the registrations of 130 funds with assets of some R110 million. The company later applied to the court to set aside the cancellations of 25 of them and that application was granted in March 2018.

“The problem is that while all this delay is happening, beneficiaries could well be dying,” says Hunter. “Liberty said that it was going to be making several more applications to court for the reinstatement of the registrations of the remaining 105. But then it didn’t do it.

“There is still no sign of more applications by Liberty and the fear now is that it is waiting for an amendment to be made to the Pension Funds Act to allow the FSCA to reinstate the funds so that it can be done quietly and without the necessity to explain why the funds’ registrations had been cancelled in the first place. In the meantime those entitled to the money held by those funds get older and no doubt some of them have died and more will die before the funds’ registrations are reinstated and board of trustees or curators are appointed to make sure that their assets and liabilities are disposed of properly.”

Kotze replies: “Over the course of 2007-2013 the South African pension fund industry embarked on a wide-scale project to deregister dormant retirement funds. Following a review of systems and processes, Liberty identified approximately 130 funds that were deregistered in error. Liberty has successfully re-instated 25 of these funds via the High Court and is working with the regulator and trustees to allow for benefits to be paid to members as soon as possible.”

Liberty says those who believe they are entitled to unclaimed benefits can access the Liberty Unclaimed Benefits service.