The Companies and Intellectual Property Commission (CIPC) has ordered the Nova Property Group not to sell any more of its properties.
The order to cease selling assets is the first active step a South African regulatory authority has taken against Nova – the company which took ownership of all the former Sharemax properties and was tasked to repay the R4.6 billion around 18 600 people invested in Sharemax.
It is the third compliance notice the CIPC has issued to Nova since early last year and it effectively restricts the board’s authority to manage the company at its discretion.
Moneyweb can also confirm that the CIPC is driving an inter-regulatory process to re-evaluate the events that led up to Sharemax’s implosion and Nova’s failure to execute the rescue plan. This process involves the South African Reserve Bank, The Hawks, and financial regulators such as the Financial Intelligence Centre and the Financial Sector Conduct Authority (FSCA).
It is not clear how advanced this process is, but it currently involves sourcing documents and affidavits.
Moneyweb has also been informed that this process could lead to new criminal charges.
This news follows after the NPA recently decided not to prosecute any individuals in connection with Sharemax’s implosion.
No prosecution for Sharemax implosion – NPA
CIPC asks Nova to explain why it should not be closed down
Sharemax rescue vehicle faces CIPC shutdown
CIPC concerned about Nova’s ability to repay debenture holders
The latest compliance notice is a so-called CoR 139.1 notice. The CIPC issues such notices when it believes a company is operating in contravention of the Companies Act. If the company cannot convince the CIPC that it is not guilty of the alleged infringements, it may be shut down.
The notice also follows after the CIPC issued a compliance notice early last year regarding Nova’s potential contravention of Section 22 of the Companies Act. This section refers to several possible transgressions and prohibits a company from trading recklessly, negligently, fraudulently, or under insolvent circumstances.
Although Moneyweb has not seen the notice, it’s believed it only limits the board’s ability to sell properties.
Nova sold 19 of the original Sharemax properties
The CIPC’s latest compliance notice will end Nova’s aggressive sale of properties over the past few years.
Nova’s auditors have since 2017 warned that Nova’s financial position has deteriorated to such an extent that it may be insolvent and that the company only remains in business by funding operational expenses with the proceeds of the sale of the properties.
Although the original rescue scheme allowed the Nova board to sell properties, the perception was for the bulk of the proceeds to be repaid to debenture holders.
The deterioration of the financial position also resulted in Nova’s failure to repay debenture holders per the original rescue plan.
The extent of the selloff is startling.
Nova inherited 28 unencumbered properties from Sharemax in 2012. Since then, the group has subsequently sold 19 of these properties.
According to Moneyweb calculations, the proceeds amount to R640 million, of which only R176 million has been returned to former Sharemax investors.
In fact, since 2018 alone, Nova’s proceeds from the sale of properties have amounted to R350 million, of which only R96 million was paid back to debenture holders. (In previous correspondence, Haese disputed Moneyweb’s calculations. Read her response here.)
Nova failed to repay investors
The CIPC action also follows after Nova failed to repay investors by 20 January 2022, the date specified as the final repayment date in the Section 311 Schemes of Arrangement (SoA).
At the time, Nova’s board said the SoA allowed it to postpone repayments, a view not shared by the CIPC and Nova’s former auditors.
Moneyweb has sent questions to Nova regarding the compliance notice and will include a response if and when we receive it.