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Nova board sidesteps disclosure obligations

The board claims the resignation of Derek Cohen as trustee of the Nova Debenture Trust was ‘unlawful’.

This article was amended after publication to include a reference to the resignation letter of Charles Rembe, a former Nova director. Rembe contests a statement of Dominique Haese that decisions to sell properties were taken by an investment committee. He contends that management alone took such decisions. See below.

The members of the board of the Nova Property Group may have failed in their fiducial duties by not informing around 18 000 former Sharemax investors of the resignation of the trustee of the Nova Debenture Trust, Derek Cohen.

The Nova board also did not convene a meeting to allow investors to elect a new trustee, as explicitly prescribed by the trust deed of the Nova Debenture Trust­­­.

Nova, in response to Moneyweb questions, claims that Cohen’s resignation was unlawful and that the board has no obligation to do anything. This is in contrast to the views of three independent legal professionals who spoke to Moneyweb.

A further problem facing Nova is that it has failed to publish its annual financial statements for the year to the end of February 2019 within the prescribed period. This is in contravention of the Companies Act, which stipulates that audited statements must be published within six months of the year-end.

Cohen’s resignation

Cohen confirmed to Moneyweb that he resigned as the trustee of the Nova Debenture Trust and the resignation became effective on July 19 this year. He declined to comment further.

The trust is a critical structure in the Nova rescue scheme, as it sets out how and when debenture holders should be repaid.

The trustee is merely the administrator of the trust. Scheme receivers, business rescue practitioner Hans Klopper and Nova chairman Connie Myburgh, as well as Nova,  are responsible for the implementation of the scheme.

Derek Cohen. Image: Supplied

Cohen’s resignation should have triggered a well-defined process to appoint a replacement. The trust deed clearly describes this process and requires that the board notify debenture holders of the trustee’s resignation and is obliged to convene a debenture holders’ meeting where a replacement would be appointed. The Nova board, however, failed to act in accordance with the provisions in the trust deed and seeks to justify its failure on the argument that Cohen’s resignation is of no legal consequence.

The Nova board consists of Myburgh, Dominique Haese (CEO), Matthew Osterloh, Lazarus Mbethe, Nigel Adriaanse, Advocate Jan Smit and Jane Phiri. Charles Rembe resigned as chairman of the audit committee on April 15.

Nova response

In response to Moneyweb questions, Haese said Cohen’s resignation was unlawful. “Mr Cohen’s purported resignation is unlawful and void and consequently, no action is required to be taken following such unlawful action by Mr Cohen.”

Haese denied the Nova board was in breach of its fiduciary duties. “Nova took legal opinion on the lawfulness of Mr Cohen’s resignation and the opinion received was that Mr Cohen could not resign in accordance with the trust deed as it stands and that his resignation is unlawful in the context of his appointment by the High Court. It was advised, inter alia, that only the High Court can release Mr Cohen of his duties as the debenture holder trustee. No action is due to be taken by Nova in consequence of Mr Cohen’s unlawful resignation. Your assumption, as to Nova breaching its fiduciary duties, will indeed be unreasonable and incorrect.”

Nova Property Group CEO Dominique Haese. Image: Moneyweb

(Nova’s full responses appear at the end of this article.)

Debenture trust deed

The trust deed formed part of the court-sanctioned Section 311 Scheme of Arrangement and clearly sets out the conditions under which the trustee can resign, and the process of appointing a replacement.

This is set out in paragraph 15. The salient points are:

  • The trustee can resign. He must give Nova 60 business days’ written notice and “such resignation shall be effective without any leave of any court or any other person” (author’s emphasis).
  • The company needs to inform debenture holders immediately when the 60-day period expires. The board must also convene a debenture holder meeting within 90 business days after the resignation became effective, where debenture holders will have to approve the appointment of this trustee at the meeting.

Cohen’s resignation became effective on 19 July. To date, debenture holders have not been informed of his resignation, which means the board is in breach of the trust deed.

Nova is apparently pinning its hopes on its view that the resignation was unlawful for a failure that may otherwise be considered a Reportable Irregularity.  

Legal opinions

Moneyweb sent the trust deed and the Section 311 Scheme of Arrangement documentation to three independent corporate lawyers.

Gerhard Human, an attorney at Ramsay Webber Incorporated, said Cohen’s resignation seems lawful.  

“The debenture trust deed is between various parties, including Nova and Cohen, with Cohen being the sole trustee of this trust. In terms of 15.2 of the deed, it is clear that the drafters of this deed never intended to bind any trustee indefinitely. The deed goes as far as to clearly state that the trustee may resign without leave of any court or person.

“An important aspect to take note of is that Cohen was never cited as a party to the Section 311 court proceedings, nor does the court order explicitly appoint Cohen as the trustee by name. The order(s) merely approved the proposed scheme and consequently the conditions of the trust deed. 

“Nova’s reliance on the legal opinion they have obtained seems to be misplaced and, if any interpretation issues do arise from the deed, the contra proferentem doctrine, together with the basic principle of freedom to contract, will easily rebut their arguments.”

Two other attorneys chose to remain anonymous but concurred with Human’s opinion.

Debenture holders’ meeting

Nova may have good reason to avoid a debenture holders’ meeting, which, based on recent developments, could well be hostile. It will put investors face to face with the executives, exposing them to questions regarding their recent conduct related to several matters.

For example, debenture holders may want to know why Standard Bank closed Nova’s bank accounts last year and how creditors, staff and debenture holders can expect to be paid. The board may also be asked to explain how it allowed the company to receive a qualified audit in its 2018 financial year, in which auditor Nexia SAB&T questioned Nova’s ability to continue as a going concern. The board rejected this opinion at the time without explanation to the debenture holders.

Read: Standard Bank has closed Nova’s bank accounts

The board may also be asked to explain why Nova’s financial statements for its 2019 financial year have not been published, as required by the Companies Act.

The 2018 statements clearly showed Nova had significant cash flow problems. Nova sold several properties in 2018 and 2019 and the most recent financial statements would show whether any of the proceeds were used to fund operational expenses.

Read: Nova teetering on the verge of insolvency

Liezl Gildenhuys, a former financial director of the company, recently claimed in court papers before the Labour Court relating to her alleged unfair dismissal that Nova disposed of nine properties valued at R242 million and that the proceeds were not used to repay debenture holders.

In a recent communique to debenture holders, Nova confirmed that three properties were recently sold, leaving only 11 properties in the portfolio, including the half-built Villa shopping centre in Pretoria. In 2012, Nova inherited 28 properties from the failed Sharemax scheme.

Nova also disclosed in its 2018 financial statements (page 41) that it borrowed R42.7 million from a company called Beneficio at an interest rate of 1% per week, which equates to an annualised interest rate of around 48%. Beneficio is a specialist provider of bridging finance. The financial statements also indicated that this loan would be repaid by December 2018, ten months after the 2018 year-end.

Haese strongly denied using the proceeds to fund operational expenses. “It is mischievous of you to make a statement to the effect that Nova sells properties in order to fund operational expenses, clearly in the hope that Nova will miss this statement, and then this statement stands as uncontested. Nova disputes this mischievous statement.”

Haese added that Nova’s annual financial statements “are in the final stage of preparation and signing off and will be published as soon as possible.”

Read:

Nova properties auctioned off

Nova plans to sell another five properties

Harrison and White

Another thorny issue that may crop up at a debenture holders’ meeting is a recent recommendation in a Section 417 report which investigated the events leading up to the liquidation of a company called Harrison and White. The report found that the liquidation of the company was delayed while the assets were looted to the detriment of creditors. Myburgh was the legal advisor to this company and the report found that his actions during the period were “reckless, if not worse”. The report recommended that his actions be referred to the Director of Public Prosecution for investigation.

Section 417 proceedings are confidential, but Moneyweb, after seeking legal advice, published the findings and recommendation of the report, in the belief that it is lawful and of great public interest to do so.

Read: The dark underbelly of the business rescue industry

Read: The full Section 417 report

Haese responded as follows on questions related to how the Nova board sees the report.

“Your recordal that Moneyweb was at liberty to disclose portions of a report of proceedings at a private and confidential enquiry because the report (as opposed to the proceedings) is allegedly not private and confidential is clearly wrong. We repeat that we have not seen the report. We reiterate the concern previously expressed that you have not disclosed the basis on which you obtained a copy of a confidential and legally privileged and protected document.

“We have it on good authority that you have been advised by a number of attorneys and Judge Bertelsmann himself, that the report is confidential, and not available to or to be used by you.

“You having possession of and utilising the report is unlawful.

“Your proposed assumption that the board is in breach of its fiduciary duties by not ‘responding’ to allegations (untested as to veracity) which you say are contained in a confidential and privileged report about Mr Myburgh and of which we have had no sight, is entirely misplaced. Nova has no knowledge of and has no place in becoming involved with what happened in the past in regard to Mr Myburgh and his private affairs. There is no connection between the untested allegations against Mr Myburgh and Nova’s business affairs.

“Nova’s full Board and its Investment Committee independently considers and advises on the sale of any properties and not Mr Myburgh.

“Your innuendo that Mr Myburgh will influence Nova to ‘asset strip’ is noted and the notion is rejected with contempt. The innuendo is defamatory, and all rights in this regard are reserved.”

Former director disagrees

However, the resignation letter of Charles Rembe, the director who resigned as head of the audit committee in April, alleges that Nova management took all the investment decisions. Rembe wrote in his letter: “Disposal of Assets – historically any assets disposed of have been undertaken unilaterally by management with no input from the Board nor the Audit and Investment Committees. Once again this is a material breach of Corporate Governance principles.”

Nova chairman Connie Myburgh at a meeting of debenture holders in Pretoria on November 24, 2017. Image: Moneyweb

Subsequent to receiving this response from Nova, the Section 417 report was included in court documents, which made the report a public document. Moneyweb sent this document to the Nova board, but had not received a response by the time of publication.

Haese requested that the full responses to Moneyweb’s questions be published as part of any article. The questions and responses appear below.

Moneyweb questions sent on September 5

Dear Nova Board

1. According to the Companies Act, Nova has to release the results within six months after the year-end. This period ended on 31 August 2019.

  • Why have the annual financial statements not been published in accordance with the Companies Act?
  • When will Nova release the annual financial statements of the company for the financial year that ended on 28 February 2019?

2. Mr Derek Cohen, the trustee of the Nova Debenture Trust, resigned on 19 July 2019. According to paragraph 15.2 of the trust deed (attached), the board should have informed debenture holders immediately of the trustee’s resignation. The trust deed also prescribes that the board should also have called a meeting of debenture holders within 90 days after the effective date of the trustee’s resignation. The 90-day period expires on 17 October 2019.

  • Why were debenture holders not informed of Mr Cohen’s resignation?
  • Why did the board not call a debenture meeting as prescribed by the trust deed? 
  • Does the apparent failure of the board to adhere to the conditions set out in the Debenture Holder Trust Deed not suggest that the board failed in its fiduciary duties?

3. A recent Section 417 report investigated the apparent looting of the assets of a company Harrison & White prior to its liquidation. The report recommends that the conduct of Mr Myburgh be referred to the National Prosecuting Authority for possible further investigation. The findings of the report are set out in this article: The dark underbelly of the business rescue industry.

  • What is the board’s view on this recommendation?  

Kind regards

Ryk van Niekerk 

Moneyweb

 

Verbatim response from Nova

Mr Van Niekerk,

Your email dated September 5, 2019, and attached questions refer.

Mr Cohen’s purported resignation is unlawful and void and consequently, no action is required to be taken following such unlawful action by Mr Cohen.

As has been pointed out to Moneyweb the proceedings in an enquiry under section 417 are private and confidential unless the Master of the High Court or a Court directs otherwise. By your own admission, no such direction was ever given to or sought by Moneyweb and it is unclear how or why Moneyweb came to be in possession of the report. Moneyweb’s publication of any portion of the report by the Commissioner is unlawful and in breach of the Companies Act. More importantly, the Nova Group has not had sight of the report and it stands to reason that the Nova Group cannot sensibly comment on what you allege is contained therein about Mr Myburgh in the context of a wholly unrelated company. No doubt Mr Myburgh is entitled to deal with any such allegations in the proper forum in due course.

The Nova Group distances itself from any aspect of Moneyweb’s involvement in matters pertaining to the report.

Should you decide to publish anything with regard to the above matters, you are reminded to print our response verbatim.

Kind Regards

Dominique Haese

CEO Nova Property Group

Follow up questions from Moneyweb to Nova on September 11

Ms Haese

How can Mr Cohen’s resignation be unlawful? The title deed clearly states the following in paragraph 15.2 of the Debenture Trust Deed: 

“The trustee shall cease to hold office if … he resigns having given at least 60 business days’ written notice to the company in the manner prescribed herein. Such resignation shall be effective without any leave of any Court or any other person. At the expiration of such period of notice the trustee shall be discharged from the trusts hereof and shall not be responsible for any loss or costs occasioned by its resignation … “ 

In paragraph 15.4 of the Debenture Trust Deed, the following is stated:

Upon the appointment of a trustee in place of a former trustee, the new trustee shall, by notice in writing to the company, signify its acceptance of the appointment and shall thereafter be vested with all the rights, powers, authorities and privileges and be subject to all the trusts and obligations set out in this deed, as if it has originally been appointed trustee, other than any liability for breach of trust by any former trustee .

The provisions of clause 15.1 and 15.2 shall apply to every successive trustee.

It is clear that a trustee can resign and that another can be appointed, following a debenture holders meeting.

1. Did the board acquire an external legal opinion on the position that the resignation is unlawful?

2. Is it unreasonable to assume that the board is in breach of its fiduciary duties not to call a debenture holder meeting?

The proceedings of the Section 417 hearing is regarded as confidential, but not the report. In any case, should the board not consider and respond to the extremely serious findings of the report against Mr Myburgh regarding his role to delaying the liquidation of H&W to allow for asset stripping, especially in the light that Nova has and is selling off properties to fund operational expenses.

Mr Myburgh has a right to access the report. Mr Hans Klopper has requested and received a copy of the report, so I struggle to believe that Mr Myburgh hasn’t received a copy.

When will Nova publish its annual financial statements for its most recent financial year, which was due at the end of August?

 

Verbatim response from Nova

Mr van Niekerk,

We have received your latest e-mail dated 11 September 2019. The purpose of your e-mail is evidently to further interrogate the response already furnished to you by the Nova Property Group (“Nova”) to your prior e-mail dated 6 September 2019. 

Nova repeats its earlier response and records in addition as follows:

Nova took legal opinion on the lawfulness of Mr Cohen’s resignation and the opinion received was that Mr Cohen could not resign in accordance with the trust deed as it stands and that his resignation is unlawful in the context of his appointment by the High Court. It was advised, inter alia, that only the High Court can release Mr Cohen of his duties as the debenture holder trustee. 

No action is due to be taken by Nova in consequence of Mr Cohen’s unlawful resignation. Your assumption, as to Nova breaching its fiduciary duties, will indeed be unreasonable and incorrect.

Your recordal that Moneyweb was at liberty to disclose portions of a report of proceedings at a private and confidential enquiry because the report (as opposed to the proceedings) is allegedly not private and confidential is clearly wrong. We repeat that we have not seen the report. We reiterate the concern previously expressed that you have not disclosed the basis on which you obtained a copy of a confidential and legally privileged and protected document. 

We have it on good authority that you have been advised by a number of attorneys and Judge Bertelsmann himself, that the report is confidential, and not available to or to be used by you.

You having possession of and utilising the report is unlawful.

Your proposed assumption that the board is in breach of its fiduciary duties by not “responding” to allegations (untested as to veracity) which you say are contained in a confidential and privileged report about Mr Myburgh and of which we have had no sight, is entirely misplaced. Nova has no knowledge of and has no place in becoming involved with what happened in the past in regard to Mr Myburgh and his private affairs. There is no connection between the untested allegations against Mr Myburgh and Nova’s business affairs.

Nova’s full Board and its Investment Committee independently considers and advises on the sale of any properties and not Mr Myburgh.

Your innuendo that Mr Myburgh will influence Nova to “asset strip” is noted and the notion is rejected with contempt. The innuendo is defamatory, and all rights in this regard are reserved.

It is mischievous of you to make a statement to the effect that Nova sells properties in order to fund operational expenses, clearly in the hope that Nova will miss this statement, and then this statement stands as uncontested. Nova disputes this mischievous statement.  

Nova’s annual financial statements are in the final stage of preparation and signing off and will be published as soon as possible.

Nova will not engage with Moneyweb further in regard to the aforesaid matters.

Should you decide to publish anything with regard to the above matters, you are reminded to print our responses verbatim.

Kind Regards

Dominique Haese

CEO Nova Property Group

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Very interesting I seem to recall that at one stage it was stated that the Debenture Trust was not registered at The Masters Office and may not even be a trust. If this is the case what is this then? Can this be clarified and the Letter Of Authority confirming Mr Cohen’s appointment be published with the Trust’s registration no. If the Trust was not duly registered then it would appear that the Promotor and Receiver of the scheme can be in contempt of a Court sanctioned scheme. This was not the responsibility of the Trustee as he cannot appoint himself.

Connie Myburg and ADV Jan Smit are both lawyers and should know better.
But, if you want to operate irregularly, then I suppose one can find some questionable justification.

Thanks Ryk – doing great work here!!

I suppose it goes for most people and professions – but IF LAWYERS GO BAD – THEN IT IS VERY BAD!!

“Nova also disclosed in its 2018 financial statements (page 41) that it borrowed R42.7 million from a company called Beneficio at an interest rate of 1% per week, which equates to an annualised interest rate of around 48%. Beneficio is a specialist provider of bridging finance. The financial statements also indicated that this loan would be repaid by December 2018, ten months after the 2018 year-end.”

WTF?

Did Nova raise R42.7 million from a loan shark at 1% interest per week? That is an interest payment of R420 000 a week or R21.8 million a year. The question is why could Nova not raise this money from a bank at say 9% interest. Ryk… there is your smoking gun.

Indeed. I am busy with an investigation into this loan. I am also interested to see what auditor Nexia SAB&T has to say about it in the 2019 financial statements.

Another Brilliant Investigation Ryk!!!
You are managing to rattle some cages…don’t let their threats concern you.
It’s Ironic that you are accused of ‘unlawful’ use of the 417 Report??!!

The question arises whether syndication (in the sense of small and often less informed investors) should be allowed at all for property development? Or is it just Sharemax/Nova that gives a valid capitalisation and investment model a bad name?

No they are not the only ones. You can add Picvest / Orthotouch to that list …

Strangely (or maybe not so strange) the same names are synonymous with all these FAILED Property Syndications:
Hans Klopper, Connie Myburgh, Derek Cohen et al …

Jan Smit and Connie Myburgh are old varsity pals from RAU days…..

Watching the video (impressive drone footage & fitting music) brings home images of SA’s own Chernobyl.

Sad that such a part-completed project is not generating income. How much extra investment would it take to complete project?

If no capital can be injected, then at least income can be derived by hiring out the facility to the military to train “close quarters combat” as the structure resembles a blown-out building somewhere in the middle-east.

Plus all the stray bullets in Moreleta Park, will boost business for PG Glass and other similar businesses that would replace affected homes with bullet-proof windows 😉

And will have positive impact on crime in the area….as constant sound of automatic gunfire is not a great aura for would-be burglars. They’d go where it’s quieter and less of a military presence.

On Google Streetview it’s fittingly pinned as “Ghost Mall”.

https://www.google.co.za/maps/place/Ghost+Mall/@-25.8415664,28.273284,410m/data=!3m2!1e3!4b1!4m7!3m6!1s0x1e95670b6128773f:0xc0b6f4ae6a121d93!8m2!3d-25.8415689!4d28.2743977!9m1!1b1

(It even get 4 out of 5 Google ratings! *lol* Some say the ghosts are friendly…others say the mall staff do not answer their phones…)

If it gives you the creeps at daytime, you MUST visit close to midnight. I challenge anyone in Pretoria, to visit the “Ghost Mall” interior after dark…and when you’re inside, you think of the all the bitter Sharemax souls that have been cruelly tormented. You’ll get goosebumps, and while scurrying for the building exit….which is not there anymore where you think you entered, in your frightful disorientation….

Like the idea of military exercises; often thought the Ghost Village will make a good movie set for cheap gangster/ urban warfare movies, generating income and being good to the guest houses and eateries in the area.

Presies, dit laat my dink aan die half-voltooide “Highway Bridge” in Foreshore, Kaapstad. Daar het hulle die struktuur goedgunstelik aangewend vir wat dit werd is.

Dink net aan die Paint Ball War-games moontlikhede….die Mall is so groot, twee of drie gaming teams sal mekaar nooit vind binne een dag nie 😉 ha-ha-ha

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