On July 15, 2013, Bohuslav Kautsky sat in his car outside Sharemax’s former head office in Waterkloof Heights in Pretoria.
He must have stared in despair at the epicentre of probably the largest investment implosion in South Africa’s history, in which he invested his life savings of R770 000.
He then shot himself in the heart.
His daughter later said he was too proud to depend on others to survive. She said he chose the location to show the “Sharemax directors the devastation they had caused”.
Kautsky was not alone in his desperation.
He was one of the 18 700 people who invested their savings and pensions in the various Sharemax schemes. The investments totalled R4.6 billion, and when the scheme collapsed, many became dependent on friends and family to survive.
Unlike Kautsky, they put their faith in an elaborate “rescue scheme” or Section 311 Schemes of Arrangement (SoA), which promised to repay their investments within 10 years. They adopted the rescue scheme, which created Nova, became debenture holders in it, and started the 10-year wait. Since 2013 Nova has repaid debentures of around R177 million, but for the holders of the remaining R2.2 billion worth of debentures, the wait should have ended on January 20, 2022. Or at least, that was what was initially promised to them by the proponents of the schemes.
Unfortunately, the day came and went. No payments were forthcoming.
Nova’s silence was deafening. The company did not deem it fit to offer reasons or an apology for the non-payment to debenture holders.
There also wasn’t a peep from the two most prominent individuals in the rescue scheme – Connie Myburgh and Dominique Haese, Nova chair and CEO respectively. Haese is a former Sharemax director, while Myburgh wears many other conflicting hats, including being the architect and author of the SoA.
The non-payment comes after Nova announced in April last year that it would start to repay the debentures. However, it made a U-turn in November, stating that it would not be repaying any debentures before the January 20 deadline and that it had, in terms of the SoA, the authority to do so.
Nova’s former auditor and the Companies and Intellectual Property Commission (CIPC) disagree. They believe the debentures should have been repaid by January 20, and that the board does not have the authority to postpone repayments.
The CIPC also issued two compliance notices to Nova last year, which may yet lead to Nova’s operations being shut down. This process is ongoing.
But even if Nova’s interpretation is correct that the repayment of debentures could be postponed, the question must be raised why the 10-year period was included in the SoA in the first place.
Surely the provision of the 10-year period – one of the most critical provisions in the SoA – should have been crystal clear and not open to interpretation?
It also brings into question why the SoA was written with a back door to allow for an extension of the scheme.
It is a pertinent question, as the postponement of repayments will almost certainly benefit the author of the scheme – Myburgh.
According to Moneyweb’s calculations and information from informed individuals, Myburgh has been the primary financial beneficiary to date.
Since 2013, Nova has paid him in excess of R65 million. This includes R20 million for penning the SoA, R36 million in salaries and bonuses as chair, and R10 million as repayment of a mysterious loan account. His law firm also registered numerous covering bonds on the properties.
Haese also benefitted handsomely from salaries and bonuses – to the tune of R37 million.
But Myburgh did not only benefit from cash payments.
Nova also bought a Polokwane-based property in 2013 of which Myburgh was a shareholder. The property faced a liquidation application and Myburgh faced a potential financial loss as he signed unlimited surety on an R40 million loan linked to the property. However, Nova ‘saved’ him when it bought the property at the liquidation value. (Nova never properly disclosed this related party transaction.)
Nova’s efforts to postpone repayments are not only hedged on the continued financial benefits for Myburgh, Haese and the other directors: Nova is not in any financial position to settle the outstanding R2.2 billion debentures.
In fact, Nova may already be trading insolvently.
But that should not come as a surprise.
Since 2012, Moneyweb has published nearly a hundred articles revealing allegations of corporate governance failings, unethical behaviour, conflicts of interest, the self-enrichment of directors, reckless trading, and the board’s apparent inability to run a property company. (Links to many of these articles appear throughout this article.)
Former Moneyweb journalist Julius Cobbett even predicted Nova’s failure as far back as 2016 when he wrote that investors were being “screwed twice” – first by Sharemax and then by Nova.
Prophetic words indeed.
The root of Nova’s failure can be traced back to the Myburgh-penned SoA.
The SoA involved voluminous legal documents written in high legalise. Apart from possibly leaving a back door open to allow for the extension of repayments beyond the 10-year period, it also included a clause paving the way for Myburgh and other individuals to capture the company.
It stems from a clause hidden away in an annexure that handed Myburgh, Haese, and a few other individuals 96% of the company’s shares for free, as Moneyweb reported at the time.
Myburgh and Haese, who were at the time and possibly still are romantically linked, received 22.8% each. The directors desperately tried to keep this a secret, but it was revealed after Moneyweb took to the courts to force the company to disclose it.
Myburgh and Haese’s grip on the company continued to strengthen. The duo took full voting and management control in 2017 when they worked out two dissenting directors and stripped the voting rights attached to the Nova shares these directors held.
This act of corporate capture – possibly the largest in SA’s history – gave Myburgh and Haese full management and voting control of a multibillion-rand company without paying a cent.
That’s not all …
Apart from being the author of the SoA, the executive chair, and a major shareholder who, with Haese, has full voting control, Myburgh wears another important hat.
He is also one of the two receivers of the Nova Debenture Trust, which tasked him to hold the Nova board to account to ensure the proper implementation of the SoA.
This grip on the company is therefore significant as these roles make him the owner, coach, player, referee and TV referee of team Nova.
Unfortunately, Myburgh and Haese’s property management aptitude does not appear to match their corporate capture skills.
Under their leadership, Nova’s financial position and asset base deteriorated significantly.
When Nova opened its doors in 2012, it was in excellent financial shape.
It inherited 28 former Sharemax shopping centres and undeveloped residential properties. The centres were all unencumbered and, apart from the half-built Villa and Zambezi shopping centres in Pretoria, were tenanted and generating income. In 2013, the first full year of operation, the total revenue amounted to R104 million.
By 2021, the company had collapsed and is now technically insolvent.
Total revenues more than halved to R51 million and the group’s operations have never reported a positive cash flow. The total borrowings have ballooned from zero to R123 million.
The company’s reputation is also in tatters.
Several commercial financing institutions refuse to provide funding to the group. Absa and Grindrod Bank withdrew funding lines as early as 2014, and Standard Bank closed its bank accounts in 2018.
The funding crunch “forced” Nova to borrow R55 million from a bridging finance company at an interest rate of 1% a week, between 2017 and 2018. This act alone should be the subject of an investigation into possible reckless trading.
Myburgh and Haese have perpetually blamed Moneyweb and other media institutions’ reporting for creating “reputational risk” which scared off potential financiers.
But it is not only the media that has identified problems.
Nova’s auditors have flagged its deteriorating financial performance since 2017. For four consecutive years the auditors expressed “significant doubt” as to whether Nova could continue to operate as a going concern, while several reportable irregularities were filed with the Independent Regulatory Board for Auditors (Irba) regarding the late publication of its annual financial statements (AFS).
The latest auditor, Mkiva, slapped an adverse audit opinion on the most recent AFS, which means it does not believe that the most recent AFS reflects Nova’s financial position accurately.
Sale of properties
The only reason Nova remained operational was by using the proceeds from the sale of properties to at least partly fund operational expenses.
By the end of February 2021, Nova had already sold 17 of the 28 former Sharemax investment properties. The proceeds amounted to around R590 million.
Although debentures are linked to specific properties, Nova has only repaid R177 million to debenture holders since 2012.
Moneyweb can also reveal that Nova is still selling properties.
In December last year, the company sold the Amogela Mall in Welkom (the former Liberty Mall) for R21.5 million. In 2012, Nova valued the property at R160 million.
Nova is also in the process of selling the Flora Centre in Johannesburg.
Referred to the NPA
This is not the first time that Myburgh has been involved with a company where the liquidation is delayed to the detriment of creditors.
A 2017 Section 417 investigation found that he played an active role in delaying the inevitable liquidation of a company, Harrison & White.
The delay and protracted business rescue process allowed for the looting of the company’s assets and left creditors with crumbs. The liquidators of that company are also suing Myburgh and other individuals to recover funds.
Stop the madness
Myburgh and Haese had 10 years to manage an unencumbered property portfolio and repay investors. Despite taking full control of the company, they failed dismally to execute the rescue plan.
The longer the company and its assets remain under their control, the more assets will be sold to fund operational expenses and their salaries.
The CIPC’s recent actions must be commended, but it may be too late to save sufficient assets to repay investors.
Hopefully, if the CIPC actually halts Nova’s operations, it may lead to a thorough investigation into the reasons for Nova’s failure, and to the responsible individuals being held to account.