The liquidators of Harrison & White Investments (H&W) have sued the company’s directors, its business rescue practitioner (BRP) and its former legal advisors for R110 million for delaying the “inevitable” liquidation of the company by more than three-and-a-half years.
The summons states that this delay allowed the former directors to loot the company by selling off virtually all the assets, leaving the creditors nearly empty-handed when the company was eventually liquidated in 2017.
The BRP is a well-known restructuring specialist and head of BDO’s Business Restructuring Unit, Hans Klopper.
The former H&W legal advisors are corporate lawyer and current Nova Property Group chair Connie Myburgh, and Diaan Ellis, a director of Faber Goërtz Ellis Austen.
Klopper and Myburgh were involved with the rescue efforts of the failed Highveld Syndication (HS) companies. They are also still involved with the rescue efforts of the failed Sharemax property syndication schemes. More than 30 000 people collectively invested nearly R10 billion in these schemes.
The former directors of H&W are Gavin Zietsman and Michael Ralston. Zietsman is probably better known for being convicted of insider trading and fined R1 million in 2011.
Klopper, Myburgh and Ellis responded to Moneyweb’s questions and confirmed they would defend the summons and claim. They did not comment on the merits of the allegations made in the summons.
However, Myburgh and Ellis stated that some of the allegations are defamatory and warned Moneyweb that republishing these allegations would also be defamatory. The full responses appear at the bottom of this article.
Zietsman and Ralston could not be reached for comment.
History and damning Section 417 report
H&W was a Benoni-based company that offered crane hire services to the construction industry.
It ran into financial difficulty in 2011 and defaulted on loan repayments to FirstRand. It owed the bank nearly R150 million at the time, and the parties entered into a restructuring agreement to repay the outstanding debt. However, H&W failed to repay the amounts under the agreement, and FirstRand called up the loan in July 2013. The directors put the company into business rescue a few days later, and Klopper was appointed as the BRP.
A business rescue process intends to allow a financially-distressed company some breathing room from creditors’ legal challenges to recover their debts and afford the BRP time to formulate and publish a rescue plan to return the company to financial viability.
Business rescue is intended to be a short-term process – and if the BRP decides the company cannot be saved, it must be put into liquidation immediately.
The summons and a Section 417 report (see below) allege that the company was insolvent at the time and should have been liquidated immediately. However, the business rescue process was prolonged and the company was only finally liquidated in February 2017 – more than three-and-a-half years later.
This is despite FirstRand applying for the company’s provisional liquidation in February 2015, which the parties opposed.
Claim of R110 million
Cloete Murray and Kgashane Monyela, the joint liquidators of H&W, issued the summons in December last year.
The summons claims the company owned assets valued at R116 million when it entered business rescue in July 2013, but only R6.1 million when the final liquidation order was granted in February 2017.
This delay, they claim, resulted in over R110 million in losses, which the liquidators are now claiming from the individuals.
Critical of Klopper, Myburgh and Ellis
The summons alleges that the delay paved the way for the selloff of the assets to the creditors’ detriment.
It is especially critical of Klopper’s conduct as BRP and says he failed to investigate H&W’s affairs properly and that not putting the company in liquidation was “grossly negligent”. Klopper, according to the summons, also failed to ensure that the business rescue process was not abused by Ralston, Zietsman, Myburgh and Ellis.
The summons is equally critical of Myburgh and Ellis and states that they were in breach of their fiduciary duties to H&W and its shareholders and creditors.
“Had Myburgh and Ellis not breached their obligations and acted properly, H&W would have been liquidated in June 2013.”
“The conduct of placing H&W in business rescue, keeping it in business rescue, opposing the winding-up and leaving the affairs to Ralston and [Kevin] Kemp [a manager at H&W at the time] was intended to benefit Ralston, Kemp, Myburgh, Klopper and Ellis and the shareholders and some creditors of H&W. The conduct aforesaid was reckless and was intended to, or resulted in, prejudice to and was in fraud of the general body of creditors of H&W and in particular to FirstRand.”
Section 417 report
The summons follows a Section 417 report, penned by respected retired judge Eberhard Bertelsmann as the commissioner, in 2019. He was appointed in November 2017 by the Master of the Court to investigate whether H&W’s assets were indeed stripped or looted before the liquidation.
Bertelsmann also concluded that the business rescue process was fraudulently abused to delay an inevitable liquidation, which allowed for the selloff of the company’s assets.
Bertelsmann also recommended that the master refer the conduct of Zietsman, Ralston and Myburgh to the National Director of Public Prosecutions for criminal investigation.
Sharemax and Picvest
Klopper and Myburgh are closely involved with the rescue schemes of two of South Africa’s biggest failed investment schemes: Sharemax and Picvest.
Klopper was the BRP of the failed HS companies, which were placed in business rescue in September 2011. In terms of the original business rescue plan and a subsequent Section 155 Scheme of Arrangement, all properties syndicated as part of the HS schemes should have been transferred to a single company, Orthotouch, but this never happened.
Virtually all of these properties were subsequently sold to third parties during the eight years it remained in business rescue, including the listed entity Accelerate.
The business rescue process ended when Orthotouch itself was placed into business rescue in November 2019.
Klopper and Myburgh were directors of Orthotouch.
Klopper and Myburgh are also involved with Nova, the rescue vehicle of the failed Sharemax investment scheme. They are the two receivers and are responsible for implementing the scheme of arrangement to repay investors.
Myburgh is also Nova’s executive chairman.
However, Nova has been in financial distress for a few years and has sold several underlying property assets to finance its operating expenses. The company is also facing corporate governance challenges. It failed to publish its annual financial statements (AFSs) for three consecutive years within six months after the year-end, as the Companies Act prescribes. The 2020 AFS, which was due before the end of August 2020, has still not been published.
Furthermore, Nova’s auditors qualified Nova’s 2018 and 2019 AFSs and expressed concerns regarding its ability to continue as a going concern.
Full response from Klopper (via his legal counsel)
Questions sent to Mr JF Klopper on 29 January 2021
- We act for Mr Klopper in the claim brought by Harrison & White Investments (Pty) Ltd (in liquidation).
- We refer to your email to our client on 29 January 2021, in which you addressed a number of questions to him in relation to this matter.
- Our client will be addressing the allegations made in the claim against him, in the normal course of the litigation proceedings.
- Our client will not be commenting further on this matter at this time.
Full response from Connie Myburgh
Mr van Niekerk.
I refer to your email dated 29 January 2021.
I will be defending the action through my lawyers.
The matter is sub judice and you will appreciate that I cannot comment on or enter into a debate with you regarding the allegations raised in your email.
The allegations raised by you regarding me are defamatory of me, and I caution you regarding publishing such defamatory matter, as such publication will be equally defamatory.
You are requested to quote this response verbatim in any publication you may release.
Full response from Diaan Ellis
Dear Mr van Niekerk
- I am defending the action that you speak of, insofar as it pertains to me and am legally represented in that regard.
- You will thus readily appreciate that it would not be appropriate to enter into a debate with you regarding the merits of the matter whilst the matter is the subject of litigation and I will not do so at this juncture, particularly in circumstances where my professional indemnity insurance policy precludes me from commenting on the matter.
- I trust that you will agree with me that it would be unreasonable, in the circumstances, to expect me to respond in any other manner at this time.
- As a postscript, I must just point out that the assertions made against me in the action are defamatory and any publication by Moneyweb of these allegations would similarly constitute an act of defamation on the part of Moneyweb, the author of the article and Moneyweb’s editor.
FABER GOERTZ ELLIS AUSTEN INC