Advocate Louis Hollander on Tuesday told the North Gauteng High Court that Zondwa Mandela as managing director of Aurora Empowerment Systems, director Sheshile Thulani Ngubane, as well as their business partners Sulliman and Fazel Bhana could not have known that the funding for its 2009 purchase of Pamodzi’s gold mines would not materialise.
Hollander is representing them in an application by the Pamodzi liquidators to hold his clients – as well as Aurora non-executive chairman and nephew of President Jacob Zuma, Khulubuse Zuma – personally liable for claims of more than R1.5 billion against Aurora. The claims relate to alleged unauthorised gold sales and stripping of mining infrastructure.
Presiding Judge Eberhard Bertelsmann asked whether Hollander’s clients ever made enquiries about the Malaysian funder, Dato Shah’s background.
Hollander said the Bhanas knew Shah before they met with him in March 2009 to secure funding for the Pamodzi deals. They knew he was a director of a private equity fund in Malaysia, AM Capital (AME).
He pointed out that Pamodzi liquidator Enver Motala, who has since been removed from this position by the Master of the High Court, was satisfied with Shah, as was Sandra du Toit of Standard Bank who did a due dilligence. The applicants dispute that Du Toit was satisfied with Shah as an investor (she was said to have found his address to be an internet café).
Hollander said his clients believed, on signing of the agreements to buy the mines in October 2009, that they had funding from Shah, contracted mining expertise from mining expert Dawid Stander and political connections. (Apart from Zuma’s ties with the President, Mandela is the grandson of former President Nelson Mandela.)
Bertelsmann said the funding was expected in December 2009. He asked how the directors expected to run Aurora, which had taken on considerable obligations in running the mines at a cost of about R10 million per month, between the signing of the agreements in October 2009 and the expected arrival of the funding in December of that year – as “there was no money in the kitty”.
Hollander said about R50 million was sourced from the Indian community and family members of the Bhanas. He could not confirm exactly when the R50 million was raised.
Hollander said Fazel Bhana testified in the insolvency enquiry that he believed the risk for Aurora was low. He described it as a “calculated risk”. Hollander said s.424 of the Companies Act does not penalise business people for taking calculated risks.
He said “there were no red flags for any reasonable business person that the transaction (to buy the mines) would not come to fruition”. When the bids for the mines were signed Aurora had a funding agreement in place and the directors did not act recklessly or fraudulently, Hollander said.
Bertelsmann then pressed Hollander on his clients’ conduct after it became clear that the funding did not materialise as expected by December 2009 and the company was unable to pay salaries and wages to its 5 000 workers.
Hollander said his clients did not address what happened in January and February 2010 (what they did about there being no money to pay the salaries and wages of the 5 000 workers), before the funding finally fell through in March 2010.
“Is it not disconcerting that there is nothing in the [responding] papers?” Bertelsmann asked. He asked what happened at the Aurora board meeting in January and said the impression from the papers is that the directors did nothing. “There is complete silence on the part of the directors” and this seemed deliberate, Bertelsmann said.
Hollander said Shah withdrew by mid-March. He said his clients could well be criticised for doing nothing during January and February, but that would at most be negligent and does not constitute reckless and fraudulent conduct as the applicants allege.
“Are you comfortable with that? I am struggling to get my head around it. I find it disconcerting that the directors could have been comfortable that a funder who did not perform (in December) would do so at a later stage without any reason (for their belief).”
Hollander said the liquidators were content to continue to deal with Shah and to keep Aurora on board and only spoke about being misled by the directors in their founding papers for this application. “It is too little too late,” he said.
Hollander said it would be unfair to penalise his clients for not giving more detail in their papers about their conduct in January and February 2009.
Bertelsmann said the essence of the enquiry is how the business of Aurora was run. It is irrelevant whether the liquidators were at fault. Even if they were at fault, it does not mean that they cannot bring this application, he said.
Bertelsmann said there was “a great deal of puffing” in Aurora’s bid document for the purchase of the mines. It said it acquired Redwood Timber Merchants, which “put them on the forefront of the global timber industry”, while the acquisition was subject to suspensive conditions and never materialised.
He asked whether Hollander would be prepared to have Aurora’s statement tested by the Advertising Standards Authority’s test.
“I am not answering that,” Hollander responded.
Advocate Cedric Puckrin SC for the applicants asked for a cost award, including the cost of two counsel and all costs that have earlier been reserved. Judgement has been reserved.
Trade union Solidarity has created a timeline of events:
Source: Solidarity, available here