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How the state capture project washed up on Capitec’s door

A judgment handed down on Tuesday doesn’t read well for the bank.
Court finds that Capitec has been in breach of its contractual and common law duty of good faith to its BEE shareholders. Image: Moneyweb

It was a bad day in court for Capitec on Tuesday after Judge Bashier Vally found the bank in breach of contractual and common law when it sought to block its BEE shareholder, Coral Lagoon Investments, from selling its shares to settle a R500 million claim from the Transnet Second Defined Benefit Fund (TSDBF). Coral Lagoon is ultimately owned by Regiments Capital.  

Some of these names will be familiar to followers of state capture.

Coral Lagoon and the Transnet pension fund found themselves on the same side in the case against Capitec, but for entirely different reasons. The Transnet pension fund says it was a victim of state capture where Regiments “fleeced various arms of the state, state-owned enterprises and pension funds of employees employed by state-owned enterprises”.

Rather than fight the matter, Regiments and its shareholders decided to settle with the Transnet pension fund for R500 million, discounted from the original claim amount of R825 million.

‘Largest single recovery of state captured funds’

But for this deal to go smoothly, Capitec would have to be on board. Email correspondence between the bank and the pension fund and its attorneys suggested this settlement agreement was “of substantial national importance and prominence” as it was the “largest single recovery of state captured funds”.

In some of the correspondence before the court it seemed Capitec was initially amenable to the settlement, but quickly changed its tone, informing the BEE shareholders that they were prohibited from disposing of their shares in terms of a BEE share subscription agreement of 2006. The purpose of this restriction was to maintain Capitec’s BEE shareholding.

Capitec had invoked a share subscription agreement from 2006 to block the sale of the shares. This agreement required that the shares could only be sold to another qualifying BEE shareholder so as not to dilute its BEE shareholding. Coral Lagoon had earlier sold some of its shares in Capitec in settlement of a loan to the Industrial Development Corporation and to pay off a tax bill with the South African Revenue Service.

Here is a choice quote from the judgment:

“By refusing to grant consent for the sale on this basis means that it [Capitec] is quite willing to retain Regiments as a shareholder, even though it recognises that Regiments has stolen more than R1 billion from indigent pensioners belonging to the TSDBF.

“The logical conclusion of its position is that the loss of 0.7% of its B-BBEE rating is so important that it would rather keep its links with a shareholder who is tainted by dishonesty than reduce the rating.”

‘Legally wrong’

Judge Vally wasn’t finished with the bank just yet. Capitec also claimed it would have to seek shareholder approval for the sale in terms of the JSE Listing Requirements.

“The TSDBF pointed out in its papers that this is simply legally wrong,” reads the judgment.

“Capitec made no effort in its answer to explain why [Capitec chair] Ms [Santie] Botha misleadingly claimed that the JSE Listing Requirements was an obstacle to it consenting to the sale.”

Botha also claimed that the sale of shares would be prejudicial to Capitec, as it would benefit certain individuals who were involved in alleged criminal activities. The Transnet pension fund replied that this was incorrect and that none of the parties guilty of unlawful conduct in the “state capture” would benefit from the sale.

There was more. There were a number of ancillary court actions along the way: one judgment required Regiments to provide security to the pension fund, and another prevented it from dissipating its assets. The alleged victims of the state capture project were circling Regiments.

Inconsistent action

The judgment does not read well for Botha or Capitec: on the one hand they were issuing threats against the BEE shareholders who wished to sell some of their shares, while at the same time saying they wished to engage with the pension fund. The purpose of these inconsistent statements was the issuance of threats, said the pension fund in its court papers.

Capitec had made a number of changes in its approach to the sale of the shares, at one point agreeing to an “open offer” where some of the shares could be sold on the open market, with the balance subject to restrictions (they could only be sold to a qualifying black person). The open offer was rejected by Coral Lagoon.

This change in stance towards its BEE shareholders undeniably demonstrated that Capitec had acted in bad faith and was in breach of its duty of good faith, said the pension fund.

Here are some more choice words from the judge: “Having changed its stance on more than one occasion, it became incumbent upon Capitec to explain why it had contended in the letters and emails referred to, and quoted from, above that Coral Lagoon was ‘prohibited’ from selling the shares. In this regard it simply said that the averments made therein ‘were incorrect’.

“But saying they ‘were incorrect’ is not an explanation: it is either a statement of fact or an opinion. An explanation would have to furnish reasons for why the contentions were made. It would also have to focus on why it was followed up with the forceful threat that litigation would ensue should the sale proceed without its consent.

“The contention and the threat were made on more than one occasion and were made by its attorney and the chairperson of its board.

“These are senior persons. Any reasonable person who received them would be entitled to accept that the contention was correct and the threat was real. After all they emanated from persons who would be expected to have the skill, knowledge and experience to present a true and correct account of the subscription agreement and who would be careful before making threats.”

Successfully dissuasive

The threats made by Capitec against the BEE shareholders were designed to intimidate, and they succeeded in dissuading other BEE shareholders, namely Rorisang and Lemoshanang.

“With regard to the common law duty of good faith, I find Capitec’s claim that no such a duty exists in our law to be incorrect. Any person changing its stance so radically and not explaining itself cannot be said to be acting in good faith. It is also not acting with due regard to its duty of candour to this court.”

Judge Vally found that Capitec’s refusal to consent to the sale of the shares was in breach of its contractual and common law duty of good faith to the BEE shareholders.

Asked to comment, Capitec Bank replied: “We are aware of the judgment and will comment after we have had a chance to study it and discuss it with our legal team. We expect to make a statement in the week.”

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Just another, above the law, greedy bank. For all its operational prowess, Capitec is firmly controlled by the Stellenbosch Mafia and the BroederBond.

Arrogant basterds …

All parties are conflicted. Including the “authority”.

Banks as such are not greedy, people are greedy. The bank system works fine, but every company financing/giving credit to individuals are actually creating/printing money out of thin air. Greed inhabits the wealthy and the poor equally, money kind of mesmerizes peoples minds. Some bribe to get it, some steal to get it, some complain for not having enough of it, some hate it for the evilness it brings out of people, but understanding the “power” that money and controlling one’s greed/love/hatred of money may make you realize how superficial people can be about money. Money just have a payment function, the rest of it evil is created by people.

Very well put. Hence the old adage the “Money is the Root of all Evil”

The infamous redeemer of the rights that were wronged is here to stay. Already it competes with the duration of the wrongs that is supposedly righting by enriching the few and neglecting the many.
The racially based legislation no longer serves to create a balancing effect. By insisting that it must be permanent the effect is long since both out of balance and immoral. Blinded to the growing context of unjustifiable racial bias the law makes an ass of itself once again and adopts the role of its apartheid forebears.

There’s been so many misuse of bee shares selling and then the affected company must start al over again.
If the law makers don’t think arse about face then a lot of these unessesary problems would not happen.
Any company will try and protect their already achieved status.

a Very simple solution will be to change the law to “once empowered always empowered”, then whoever can sell whatever to whoever.

Can’t Coral Lagoon sell to another BEE?

Empowerment is not done through selling for shares. It is done by giving away shares.

Lets get real for a second… You have to give us [x]% of your equity to people of a certain hue and have to maintain this [x]% indefinitely, of course they have contractual lock ups in place, sell to people of the same hue only… They didnt earn their way to that shareholding (build the business), or buy in with real cash, so how can they be seen as normal shareholders with full rights… pull the other leg.

Can you see how destructive BEE is?! I blame the government for Capitechs bad decision, if corporations didn’t have to be so damned BEE compliant Capitech probably would have cut ties with a tainted shareholder long ago! Your racist policies are to blame!

If the amount stolen was greater than 1bn, why was the claim only 825m and who on the Pension Fund side agreed to the 500m settlement ? It seems a lot to negotiate away.

What race is that pension fund for BEE purposes? It should be very broad based. It should possibly also be majorly non white. It should therefore be a more appropriate BEE shareholder than the usual individual culprits that get rich off BEE

BBBEE rules should be easy to implement. For instance, if a company that invest in a small town somewhere say for instance Jamestown, that company bring job opportunities to the small towns should be exempt from BBBEE for creating of bring jobs to these small towns. Codesa this principle and we will grow so much easier.
Business people have other talents than sports people, politicians does have business skills, how can they then set the rules for BBBEE, get the private sector involved and all SOE’s will make a profit. Get unions involved for moving jobs to the rural, instead of fighting each other, let them help to move factories to the rural areas, where poverty is so high.

End of comments.





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