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Former Belgian investment banker hauls RMB to court over failed property deal

The evidence, unless disproven, is compelling.

Fred Arijs, a former investment banker and one-time Belgian honorary consul in the Eastern Cape, has accused RMB and several senior bank executives of taking him to the cleaners, in a calculated scheme to defraud him and his business partners in two property deals gone horribly wrong.

In November last year the companies in which Arijs (pronounced Arish) was involved issued summons against RMB and several executives with some startling allegations. According to Arijs’s attorney, the bank this week sequestrated Arijs in the Cape High Court to reclaim sureties of R4.5 million.

What makes the case bizarre is that Arijs and his partners say they have spent close to R9 million in legal fees fighting the case over the years – and they’re not giving up, despite Arijs’s sequestration.

Initial investigations

Arijs is a former investment banker and says once he started investigating how the property deal went wrong, he immediately recognised the outlines of a fraudulent scheme intended to line the pockets of the bank at his expense.

RMB has denied Arijs’s allegations and says it pulled out of the property deal for purely commercial reasons. The bank has not filed its reply to Arijs’s claims. Moneyweb will file a follow-up story once it does.

It is a long and involved case going back several years, with multiple court actions proceeding simultaneously.

The beginning

The story began in 1998 when Arijs retired from European investment bank Ceneca in Belgium and moved to South Africa to pursue property development opportunities.

He teamed up with other Belgian investors and in 1999 launched the Whale Rock residential development, a landmark project in Plettenberg Bay.

Arijs and his partners were less interested in developing their commercial properties than squatting on them until they could be sold for a decent profit, but that all changed in 2007 when they were approached by Dawid Wandrag, then-head of the FirstRand property finance credit committee, who proposed setting up joint venture companies to codevelop two properties, both in Plettenberg Bay.

One was a 59-hectare plot the bank figured would be ideal for a hotel and residential complex; the second a 1.4-hectare piece of prime real estate that RMB, in terms of a feasibility study, proposed turning into a shopping centre, boutique hotel and residential development.

In 2009, two joint venture companies were set up to develop the properties: Shock Proof Investments and Lighthouse.

RMB set up a special purpose vehicle (SPV) called RMB Property Holdco 1 (Holdco) to take up a 50% equity stake in the two developments.

The bank appointed RMB employees as directors of Shock Proof and Lighthouse, as did Arijs and his South African partners, with the bank retaining overall voting control.

By this time Arijs had teamed up with some South African partners. They purchased properties from Whale Rock and injected these into the new deal with RMB, which was to be both funder and equity partner in the new developments.

Agreements signed

The joint venture and shareholder agreements were approved on November 13, 2007 and signed off by Allan Pullinger (then RMB CEO), Willy Robinson, Theunis Bosch, Wandrag, Cindy Veres and other senior executives of the bank.

The bank invested equity of R6.3 million in Lighthouse, and a further R6.6 million in Shock Proof, to be supplemented with a loan of R4 million on a successful record of decision from the environmental authorities. Papers before the court show the bank committed to providing any and all funding required for the completion of the developments. RMB’s feasibility studies green-lighted the two projects.

At no time were either of the two JV companies in default on the loan agreements.

Arijs and his partners were servicing their share of the interest on the loans but, astonishingly, 50% shareholder RMB Property Holdco 1 was not – putting it in breach of the JV agreements.

This is admitted by Wandrag in a 2011 email to his colleagues wherein he laments the fact that the bank had not kept to its side of the agreement and recommends refunding Arijs’s contributions for professional fees so the project could avoid any further delays.

Arijs uncovers evidence of an unlawful preference share scheme

What was not known to Arijs and his partners at the time, they claim, is that RMB had converted its equity claims in Shock Proof and Lighthouse (along with several other similar property development companies) into preference shares, which it on-sold to investors for a profit.

In banking-speak, this is known as securitisation, where assets such as credit card debts, mortgage loans or preference shares are packaged together and converted into a bond, which can then be sold to investors. In terms of the Banks Act there is nothing wrong with this, provided the bank does not own shares in the securitisation SPV.

Securitisation allows banks to convert otherwise sterile or long-term assets into cash, to boost their balance sheets and continue lending. Banks use ‘bankruptcy-remote’ SPVs to securitise assets, since this insulates them against any contagion that might arise as a result of default.

Bank denies any links with its property development company

Here is the problem: Arijs’s affidavit suggests the bank has a direct share in Holdco (the SPV), which has a direct stake in Shock Proof and Lighthouse, and is therefore in breach of the Banks Act, the shareholders agreements and good corporate governance, since the preference share scheme was kept a secret from Arijs and his partners.

In the process of doing this, Arijs claims the land was fraudulently sold from under him.

That the bank never told him about the preference share scheme would also violate the Companies Act since any disposal of assets must be agreed by the board and 75% of shareholders.

He says he only found out about it through the process of discovery in his various court actions against the bank.

RMB claims it pulled out of the property deal for purely strategic reasons and Arijs initially believed this – until he started tripping up on documents that seem to suggest the bank had no intention of proceeding with the development, even before it started. Shock Proof and Lighthouse were liquidated around 2014 and the two properties sold for about R12 million.

Bear in mind, Arijs is saying RMB was liquidating companies in which it had overall control and was the sole creditor.

Premeditated scheme

Arijs’s affidavit alleges that the bank’s plan all along was to securitise his land (by converting the shareholders’ loans into preference shares), sell these shares for a profit, liquidate the JV development companies, then claim sureties from the minority shareholders (Arijs and his partners) and walk away without a scratch.

In other words, Arijs is claiming that this was an elaborate land theft scheme. He is now claiming about R80 million in damages against the bank.

This forms the basis of his claim of premeditated fraud by RMB – a claim that has been denied by the bank (see below).

In several court cases related to the Shock Proof and Lighthouse matters, RMB’s then-head of credit recovery Jean du Plessis has denied any link between RMB Property Holdco and the bank. If true, then the bank is free and clear as far as the Banks Act is concerned.

Remember, a bank may not own shares in a securitisation scheme since this could expose its own balance sheet to contagion in the event of default.

Contradictory evidence

But in the process of court discovery, Arijs came across a May 2014 email where Du Plessis appears to contradict his earlier testimony to the courts.

Writing to his debt-recovery colleagues, Du Plessis discusses various options for recovering the bank’s roughly R20 million exposure to both Shock Proof and Lighthouse. He proposes accepting an offer from Arijs and partners for R12 million for Shock Proof, adding that this should avoid any liquidations costs as well as any issues “in respect of us being a shareholder, director and creditor”.

That is an admission that the bank not only flouted the Banks Act, but also confirms the existence of a “composite agreement” that it had earlier denied existed, says Arijs’s affidavit.

The email appears to put the bank rather than the SPV (Holdco) at the centre of the scheme. It also looks like perjury, as Du Plessis claimed before various judges that there was no link between the bank and Holdco, and that there was no composite agreement. If there is a composite agreement, argues Arijs, then the sureties the bank is trying to claim are null and void.

No ‘composite agreement’

In previous court filings, the bank sought to demolish Arijs’s claim that there was a composite agreement comprising the Shock Proof and Lighthouse shareholders’ agreements, the JV and loan agreements between Arijs and the bank, and various other oral or tacit agreements. The argument claiming there was a composite agreement was thrown out by Judge Nichols in the Cape High Court in 2016, but this was before Arijs discovered the above-mentioned email and other documents that contradict its earlier claims before the courts.

Claims of oppressive conduct

Arijs also claims this fits the definition of “oppressive conduct” by a shareholder in terms of the Companies Act. He argues in his court papers that the bank contrived the preference share scheme behind the backs of the minority shareholders, which is the kind of conduct Section 163 of the Companies Act seeks to eliminate. One group of dominant shareholders may not act against the interests of others.

There are several other oddities surrounding the case.

Louis Schnetler and Theunis Bosch, at the time employees of FirstRand Bank (RMB’s parent company), purported to act as directors of the companies, though no resolutions or letters of appointment by the bank have yet surfaced. This in itself would be a violation of the Companies Act.

What later emerged in the process of discovery is that Holdco had issued preference shares and ceded the rights to wind up the property assets to its parent company, RMB Investment and Advisory, which owns 92.5% of Holdco (the other 7.5% is owned RMB Co-Investment Trust), establishing a direct line between the bank and the SPV – something the bank has repeatedly denied existed in various court cases. FirstRand Bank and RMB directors were discovered to be trustees of RMB Co-Investment Trust.

That the RMB directors are accused of concealing all of this from Arijs and his business partners suggests they are in violation of their fiduciary responsibilities to act in the best interests of the company, not to mention the multiple violations of the Companies Act, shareholders’ agreement and the Banks Act.

Delays in development

The bank is also accused of deliberately delaying the development of the two Plettenberg Bay properties, by demanding changes in design and contractors. This, argues Arijs, lends credibility to the claim that the project was never intended to get off the ground in the first place. In a September 2011 meeting, Arijs and his partners were rudely informed that the bank had taken a decision two years earlier to withdraw from the property market. Two years earlier means the bank would have decided to exit the property market around 2009, yet this was precisely the time it was green-lighting the Plettenberg Bay developments.

The question then arises, why did the bank not simply sell its 50% share in the two projects and move on? A reasonable person might conclude that the bank is entitled to change its mind and sell its interests in the projects, but it appears RMB was not keen on this either. Arijs approached Investec to sound it out on taking over RMB’s interests and loans in the project.

Investec was reportedly interested until it received an email from RMB’s Schnetler effectively spiking any prospect of selling its interests in the deals.

At this point, it appears RMB resolved to liquidate the property development companies. Arijs alleges that none of this makes any sense unless you understand the bank was trying to hide the existence of an unlawful preference share scheme intended to benefit senior bank executives.

RMB has yet to file its plea affidavit in the latest case. Moneyweb will file a follow-up when it does. RMB has also accused this writer of being exploited by Arijs to advance his “questionable intentions”. This allegation is denied.

Disrespect

The bank also suggests Arijs disrespected the court by failing to turn up at a hearing last year. This should be put in context: Arijs has had no fewer than four sets of lawyers over the years who deserted him at the steps of the court, citing different reasons including conflict of interest.

This is not an uncommon problem facing anyone challenging the banks and appears to have little to do with the merits of the case.

Arijs says RMB may be better positioned to explain why so many of his lawyers have run for the hills whenever a court date looms.

That his case has merit has been confirmed by three sets of lawyers, including senior counsel, who at various times were engaged by Arijs.

RMB responds

“Rand Merchant Bank (a division of FirstRand Bank Limited) is aware of the accusations made against the bank by Fred Arijs relating to property developments in the Plettenberg Bay area. These property developments never progressed for various commercial reasons.

“Mr Arijs is aggrieved about RMB’s decision at the time not to advance senior debt to the developments, after RMB made the decision that the projects were not commercially viable.

“Mr Arijs and RMB are currently engaged in litigation. The trial date was set for 9 May 2019 and Mr Arijs had the opportunity to testify publicly about his allegations but failed to attend Court. He was punished with a punitive cost order by the judge for his disrespect for the judicial system. His senior counsel also resigned a few days before the trial on the basis that Mr Arijs’s case had no merit.”

Arijs replies

Arijs says he did not appear in court because he was dropped by his lawyers just before the case was to be heard.

He adds that the costs order issued was an ordinary costs order (which is normal in cases of non-appearance) and no punitive costs order was issued.

“RMB also conveniently fails to address the latest summons issued,” he says.

Timeline of events

  • 2007: RMB approached Arijs and his partners with a view to codeveloping two properties in Plettenberg Bay. JV and shareholders agreements signed on November 13, 2007.
  • 2009: Two JV companies, Shock Proof Investments and Lighthouse, were set up to develop the properties: 50% was held by Arijs and his partners and 50% (plus one vote) by RMB Property Holdco 1, an SPV set up specifically for these developments. Arijs signed surety for R4.5 million in respect of loans extended by RMB to Shock Proof. Arijs and another partner signed sureties of R6 million each in respect of loans extended to Lighthouse (this claim was later dropped by the bank).
  • 2010-2011: There were delays on the project. FirstRand/RMB fell into in breach of the shareholders’ agreement by failing to service its portion of the loans. Arijs and his partners continued to service their portion of the loans.
  • 2011: FirstRand notified Arijs that it had made a decision to exit property developments two years previously, around the time the projects were launched and agreements signed.
  • 2012: FirstRand/RMB commenced liquidation proceedings against Shock Proof and Lighthouse. The loans were called up and Lighthouse was liquidated on June 21, 2012. FirstRand/RMB claimed R14.6 million and was the only creditor. In January 2012, the bank decided to write off its equity and loan facilities in Lighthouse – total value about R20 million – but decided to pursue recovery of its equity and loans in Shock Proof, so decided to claim R4.5 million limited surety from Arijs.
  • October 2012: The Master of the Cape High Court convened a Section 417/418 inquiry in terms of the Companies Act to, among other things, determine whether any of the directors could be held liable for the demise of the company. Arijs and his partners were keen to interrogate bank officials about how the bank came to its decision to close Lighthouse down. Arijs’s attorney Fred van der Westhuizen was sanctioned by Judge Blignaut for meeting privately, and without the bank’s attorneys present, with the Master of the High Court, as this was deemed prejudicial to the bank. Judge Blignaut set aside the Master’s decision to convene a Section 417/418 inquiry, thereby forcing Arijs to pursue his case through the courts.
  • 2014: Arijs brought an application in the Cape High Court, arguing that the loan agreements could not be separated from the other agreements (the loan, JV and shareholders’ agreements). He attempted to argue that all agreements with the bank should be consolidated and viewed as one, which would render his sureties null and void. Arijs contended that he was signing surety without the bank having disclosed that it had ceded the rights to wind up the companies to another bank entity called RMB Investment and Advisory. The bank denied any link between RMB Property Holdco 1 and the bank (which Arijs later found to be untrue). Arijs lost the court case.
  • 2018: In the process of discovery, Arijs learnt of the existence of a hidden preference share scheme that his lawyers advised was unlawful. He applied to court to amend his pleadings reflecting this new discovery. Judge Nuku in the Cape High Court ruled that the matter was prescribed (out of time) and rejected the application.
  • 2018: Arijs brought an action to compel the bank to supply documents related to the loans, including credit approvals, resolutions authorising the appointment of directors, and documents related to the preference share scheme. The bank supplied the required documents in phases between May and September 2018. Included in this bundle of documents is what appears to be an admission by the bank that it had misled the court about the link between Holdco and the bank (placing it in breach of various agreements).
  • May 2019: Arijs instructed his attorney to amend the Shock Proof pleadings in light of the discovery of alleged perjury. The attorney, Michael Lombard, failed to file papers. The court awarded costs against Arijs to the tune of about R289 000 and then commenced sequestration proceedings against him.
  • January 14, 2020: The Cape High Court sequestrated Arijs. 

Arijs says he has never had an opportunity to argue the merits of his case, despite eight years of trying.

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Interesting article, I would not be surprised by this at all, seeing banks and lawyers have a reputation to make deals (you scratch my back and I scratch your back)

What the bank concealed was that RMB Holdco kept the 60 shares certificates and sold its shareholders loans with profit and before the finalized the shareholders agreements to non-disclosed investors giving these investors as guarantee the right to wind-up the Holdco assets – which include the Share certificates in the JV’s. The trustees (directors on the board of FirstRand Banks) cashed incentives on these Holdco Portfolio investments on a basis of earn-as-you-go without having invested 1 cent in the projects as explained in the article.

Hi Fred. Do you have any money left? I’m looking for an investor with savvy in a lovely development. I’m not interested in banks.

Following the contents of the article of course RMB is totally to blame for this. Firstly having secured a 50% plus one vote makes them the decision taker in all aspects of this venture. Finding a competent unbiased lawyer to fight them is another story. Perhaps some one from Europe. I truly hope that these guys win and even take it further. South African legislation is strict regarding fraudulent transactions but coherent action non existent by relevant authorities. Perhaps a case for the newly rejuvenated NPA. If guilty jail time for all the offenders.

What banks get away with in SA is beyond belief.

The scheme described here was common practice among banks. Insurance companies then learned the trick and engaged in the same shenanigans. After all, the insurance companies could easily sell the preference shares to unsuspecting pension funds. The problem is that it is difficult to prove without inside knowledge. And of course, the regulators have never shown any interest in these matters.

The writer says “The question then arises, why did the bank not simply sell its 50% share in the two projects and move on?”

However, if the the bank had indeed securitised (and hence no longer had ownership as required by the Banks Act) its stake(s) in the projects then which 50% would they “sell and move on”?

Perhaps, it’s a matter of time lines not being clear as to when securitisation happened and also as to at what point the writer suggest the bank could have sold their 50% stake and move on.

The equity claims were already sold with a profit to a third non-disclosed party before the Bank finalized the Shareholders Agreements and without having disclosed it to their minority shareholders.

”Standards are always out of date. That is what makes them standards”

Alan Bennet (1934-)

One of my ‘’rules of thumb’’ in my Corporate Treasury career – If you see the phrase ‘’SPV’’ – start running as this ‘’ special purpose vehicle’’ also called a special purpose entity (SPE), is a subsidiary created by a parent company to isolate financial risk. Start running – as the risk becomes yours! You never know whether you are dealing with a ”legalized SPV crook” again.

RMB set up a special purpose vehicle (SPV) called RMB Property Holdco 1 (Holdco) to take up a 50% equity stake in the two developments.

‘’Investec was reportedly interested until it received an email from RMB’s Schnetler effectively spiking any prospect of selling its interests in the deals’’
That I think might be the only wise thing done – as you never know whether they will start with one of their ‘’Brett Kebble’’ tricks again – they are well known for that in the ‘’Ínvestecgate/Kebblegate sage!

If perjury to the courts is proven in this matter the bank must be reported under POCA and hopefully the courts will express their displeasure

I worked for the group for a number of years and Dawid Wandrag used to chair one of the credit committees I presented to on a fairly regular basis. In my personal experience, he was a man of impeccable ethics and an absolute gentleman.

I have no doubt that Mr Arijis would have a different view, but what is being alleged in the article is behaviour that I never saw exhibited by any executives within the Bank and certainly not something that I ever saw pushed as a “culture” inside the Bank.

It sounds like a complex case which is extremely difficult to distill into a readable length article. The court is the right forum to put all the facts into the public record.

Dawid Wandrag is not the designer of the scheme or the person who mislead Courts with incorrect organigrams . However he misrepresented FirstRand Bank. It was indeed his concern the bank not full-filling its commitment as a 50% shareholder to contribute its share to the overheads of the projects that alerted the minority shareholders that there was something wrong between him and RMB Investment Bank. In his position as Chair of Credit he also told us that the bank as shareholder breached the bank act being a shareholder, controller and creditor of the projects and selling its equity claims to non-disclosed investors before the bank finalized the shareholders agreement. He told us that the whole set-up was designed and controlled by RMB Investment Bank with links to Mauritius using RMB HOLCO as fictional SPV. He advised us we should investigate the concealed and secretly hidden stakeholder in Holdco being RMB Co-Investment Trust of which the trustees were directors on the board of FirstRand Bank. The scheme needed to be deceived from the minority shareholders, Court and public due to the premeditated designed character of concept of the scheme and the unlawful violations of the Conpanies Act and Bank Act. All these hints for which we are grateful for Wandrag’s fairness we investigated and got prove of it in our 2018 compelled discoveries and 2019 investigation s

Don’t trust RMB. Or FNB. They have screwed us over, on the personal side and the corporate side, with nothing but lies and overcharges for years. We no longer bank with them, obviously, except for old accounts that are kept for customer consistency.

Being one of the professionals on this project and involved in one way or another for a period of five years I need to express my utter disgust in the way that RMB treated the professional team. We worked night and day to achieve deadlines and ensure that we were in a position to obtain the necessary approvals. We even got to the stage where we had gone out to tender and a contractor had been appointed. We were already making arrangements to occupy the site when we were informed of the shocking news that RMB had pulled the plug. For weeks and months on end we had no idea of why this was done. We a were assured that our fees would be paid. To date, 9 years later, we have not received a cent! At the time we were still feeling the effects of the world wide financial crises of 2008 and the failure to honor our fees brought us to the verge of bankruptcy! The professionals lost in excess of R 2 500 000 as a result of this fraud. Whilst the fat cat bankers kept on getting their inflated salaries we were left licking our wounds. Shame on you!

You should have had Harvey Specter as your attorney.

If received this comment from rob.b who could not log in.
The bank’s decision not to proceed with the shopping center because it was not viable has been totally disproved by Checkers commitment to lease in the planned Lighthouse center.
All partners decisions being in place including the consultants and contractor appointed by RMB who were ready to take the site till RMB suddenly stopped to pay their contributions without any reason.
The only confirmation we got was RMB confirming they were in breach.
Subsequently a new shopping center has been build in Town opposite Market Square Checkers being the anchor plus twelve additional shops and this is proving to be successful

Ah Fred …if only you had done your homework beforehand

Honest businessmen like you are only going to get raked over the coals when doing JV’s with banks

You need to understand this – you are not the first…….unfortunately, this is a common theme !

So common [but under reported], that as soon as I hear a bank is personally involved in a JV, we walk away, literally on the spot

In a nutshell, often they wait for juicy ventures like this to get involved in, play ball till the last minute, sabotage, and get everything back 10c to the Rand

I can personally relay many stories that would have you shaking your head in disbelief, and even worse I myself have experienced this very thing !

In fact, there are other publications highlighting this very common disturbing thread

I know the stress, the sleepless nights, the sick feelings, the unanswered questions as to how supposed ‘pillars of society’ like banks could be so treacherous…..sorry my friend !

Otherwise, I hope that life treats you better and that something good comes out from this after all

If there was no agreement in place about whether/how/to whom the bank was allowed to dispose of its stake, and if there was no written agreement about the bank’s/successor investors continuing to fund their share, then dont see what the problem is here? Seems the bank certainly didnt conform to ethical requirements, didnt follow its verbal commitments, and may possibly have also neglected to move the equity into an SPV before securitizing it, but not sure how any of those have legal bearing in the case? What am I missing?

Btw the legal timeline at the end of the article is further damnation, if any were needed, that the claim sometimes thrown around that SA has “the greatest constitution in the world” is BS. Its APPARENTLY unenforceable in the courts.

@gary101 who wrote:

“If there was no agreement in place about whether/how/to whom the bank was allowed to dispose of its stake”

Well firstly, non disclosure of this intent is tantamount to severe deception, as there was a material change in ownership agreement for starters

And its no secret this had an extremely negative consequence on the partnership as can be seen

“Seems the bank certainly didnt conform to ethical requirements, didnt follow its verbal commitments, and may possibly have also neglected to move the equity into an SPV before securitizing it”

To say the least – not only is a verbal agreement binding in a court of law, but any sober judge will note all these unethical actions effected by the bank, and rule in Mr Arjiris’ favour based on this alone, never mind the other indicting breaches on the banks behalf

We sincerely hope justice is served before yet more faith is lost in banks, as can be seen by the already aggrieved public’s jaundiced view of these financial institutions due to their chequered history !

I’m not sure if the battle is over but I wish Fred all the luck in the world. Personally, I despise (read hate) RMB (more specifically FNB) and wish that they get what they deserve. Having been dealt the short stick with FNB, after years of generating handsome business for them, I can only hope that Fred triumphs over these scoundrels.

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