The auditor of the Nova Property Group has filed a reportable irregularity (RI) with the Independent Regulatory Board of Auditors (Irba). Nova has also contravened the Companies Act again, as it failed to produce audited financial statements within six months of its year-end for a second consecutive year.
Irba confirmed to Moneyweb that Nova’s auditor, Nexia SAB&T, filed the RI on December 5, but stated that it could not disclose the details.
An RI is considered a severe indictment of the board and management of a company and auditors are compelled to report such irregularities to Irba.
The Auditing Professions Act defines a RI as any “unlawful act or omission” committed by directors or the management of an entity, which leads to creditors and other stakeholders suffering a “material financial loss”, is “fraudulent or amounts to theft” or represents a material breach of any fiduciary duty.”
Nova fails to respond
Moneyweb put questions to the Nova board, but neither Connie Myburgh nor Dominique Haese, the chairman and CEO, responded.
Moneyweb also put questions to Bashier Adam, CEO of Nexia SAB&T, Nova’s auditor. However, he refused to confirm or deny whether Nexia SAB&T filed an RI. He also referred Moneyweb to Nova’s board to answer questions related to the reasons why the publication of the financial statement is delayed.
Communication to investors
Nova did not apprise investors of the RI, although it published a short statement on its website to inform investors of the delayed publication of the financial statements. No reasons were offered.
The statement reads: “The Audited Annual Financial Statements of Nova PropGrow Group Holdings Limited and its Subsidiaries for the year ending February 28 2019, will be made available during February 2020 when the Audited Annual Financial Statements have to be filed with the company’s annual return as required by the Companies and Intellectual Property Commission (“CIPC”).”
Significant developments during the reporting period
During Nova’s most recently completed financial year, several notable events transpired. It is not currently known whether any of these events have a bearing on the RI and the delay in the publication of the statements.
One of the major developments was that Standard Bank closed Nova’s bank accounts. According to minutes of a Nova board meeting, the bank closed the accounts because it was “no longer interested in doing business” with Nova.
Another development was that former financial director Liezl Gildenhuys, instituted an unfair dismissal claim against the Nova board in October last year. She alleged in her submission to the Labour Court that she was fired after she reported several apparent financial irregularities and fraud to the Nova board, Nova’s auditors and Irba.
She alleged that Nova overvalued its properties and could not meet its operational costs and that the board sold properties to fund operational expenditure.
Nova denied Gildenhuys’ allegations.
Resignation of chairman of the audit committee
A Nova director and chairman of the audit committee, Charles Rembe, resigned on April 15 this year, shortly after Nova’s year-end on February 28. He did not disclose the reasons(s) for his resignation.
The other non-executive directors are Adv Jan Smit, Lazarus Mbethe, Nigel Adriaanse and Jane Phiri. Matthew Osterloh is also an executive director with Myburgh and Haese.
2017/18 financial statements were also late
Nova has had a few issues with its financial statements over the past few years. The previous set of financial statements (2017/18) was also published three months late.
Nexia SAB&T issued qualified statements and not only questioned the assumptions on which Nova’s property valuations were done, but also raised concerns about the company’s ability to continue as a going concern.
However, the Nova directors expressed their belief that the group has adequate financial resources to continue as a going concern and even awarded themselves bonuses of more than R1.1 million on top of their salaries of R15.8 million for the period.
2017/18 financial statements
The 2016/17 financial results saw a significant write-down of the valuations of the property portfolio, especially The Villa and Zambezi Mall. These two Pretoria-based properties represent the most substantial assets in Nova’s portfolio, despite not generating any revenue for investors. BDO was Nova’s auditor at the time, and the valuations were written down by nearly R1.4 billion.
BDO also filed a RI during this reporting period, as the composition of the board was in contravention of the Companies Act. Nova then appointed several directors, and the RI was withdrawn.
BDO later resigned as Nova’s auditor and was replaced by Nexia SAB&T.
Myburgh cited in 417 report
Myburgh was also recently cited in a Section 417 report into the possible looting of assets before the liquidation of an unrelated company, Harrison & White (H&W). A Section 417 investigation is usually ordered by the Master of the Court to investigate whether assets were looted prior to a company being put into liquidation.
The report, penned by respected retired judge Eberhard Bertelsmann, found that Myburgh “colluded with the company directors (of H&W) and management in obstructing the flow of justice by delaying the finalisation of the liquidation application”.
The report also recommended that Myburgh’s actions be referred to the Director of Public Prosecution for further investigation.
Myburgh has never responded to questions regarding the Section 417 report, although he has stated that Moneyweb did not have permission to publish the report.