Daybreak Farms CEO Boas Seruwe says the forensic investigation into him was flawed and its findings were devoid of truth.
Seruwe was commenting on allegations of misconduct against him, saying he and other senior managers at the company were involved in a network of companies to allegedly siphon off millions of rands out of Daybreak’s accounts.
Speaking to Moneyweb on Tuesday after initially declining to comment, he disputes the findings, saying that he never profited from these payments and that the payments were just part of the normal course of doing business.
The details of the alleged scheme are contained in a 430-page forensic investigation report titled Fox in a Chicken Coop. The investigation was conducted by business advisory firm Schaefer Schmidt following Seruwe’s suspension in February.
Seruwe says he was willing to be interviewed as part of the probe but declined after he was told he could not have legal representation present and was not allowed to get questions in advance.
Daybreak is one of South Africa’s leading chicken companies, processing 1.4 million birds a week at its facilities in Saldanha and Delmas in Mpumalanga.
It is wholly owned by the Unemployment Insurance Fund (UIF), the Compensation Fund, and the Government Employees Pension Fund (GEPF) and is represented by the Public Investment Corporation (PIC) as an agent.
The report was adopted by the PIC in April and has been submitted to the Hawks by the Daybreak Farms board as part of criminal charges laid against the individuals named in the report.
The alleged plan to siphon funds out of Daybreak Farms began in September 2019 when a joint venture (JV) between Daybreak and trucking company Hestony Transport was registered at the Companies and Intellectual Property Commission (CIPC).
The JV, called Daybreak Distribution, began trading in December the same year. Daybreak Farms had 60% shareholding and Hestony 40%.
It went on to find that Daybreak Distribution was established without the authority of the board of Daybreak Farms.
“Due to Mr Seruwe’s negligence to ensure that he had proper authority to enter into a joint venture with Hestony he has put Daybreak under serious financial risk,” investigators said.
When asked to account for the establishment of the joint venture by the Daybreak Farms board in December 2020, Seruwe provided an undated letter that was attached to an email sent to the board on February 10, 2021.
The letter contained attachments that included information about Daybreak Distribution and subsidiaries but did not provide evidence of a board resolution to establish the joint venture with Hestony.
List of Daybreak subsidiaries sent by Seruwe to the board in February 2021:
Seruwe now says the two board members were are of the JV.
The investigation found that R136 million was paid from Daybreak Farms and channeled to Daybreak Distribution and eight other companies with the help of Seruwe, Daybreak Farms acting chief financial officer Cobus Van Niekerk, head of audit (and a director of the Daybreak Distribution JV) Mathapelo More, head of human resources Votelwa Majola, and head of feedmills and broilers Magda Senekal.
Daybreak Farms told Moneyweb that it the board did not inform the nine entities involved in business transactions with the poultry producer. Additionally the board has not furnished the entities with the forensic report because “those suppliers don’t have valid contracts as per forensic report so where Daybreak Farms stands is that we don’t think we are obliged to communicate with them bearing in mind that we are in phase 2 of the forensic exercise meaning (“the board) is currently working through a remedial action plan.”
The scheme allegedly ensured that Daybreak Farms was excluded from getting competitive prices for transport services as these were exclusively controlled by Hestony through its employees or the directors controlling Daybreak Distribution.
Seruwe says this made good business sense as it reduced cost and gave Daybreak control of its distribution.
“We are not able to find any value for Daybreak Distribution except that a ‘vehicle’ has been created for services to be reserved for a select few transport companies whose appointment is taken out of the realm of Daybreak,” the investigators said.
Bank statements showed that Daybreak Distribution’s main income between January 21, 2020 and February 10, 2021 was from Daybreak Farms.
These payments were authorised by Van Niekerk (acting CFO) but he did not verify their validity, according to the report.
“What is astonishing is that despite the fact that Hestony owns 40% shares in the Daybreak Distribution … it is paid for the services it renders to Daybreak.”
The report found that Daybreak Farms executive management relinquished control of the joint venture to Hestony directors, who only “put forward the interest of Hestony to the detriment of Daybreak as a shareholder”.
Seruwe now says there were plans for Daybreak to eventually take full control of the venture.
Moneyweb previously reported that during the course of the investigation, Seruwe was slapped with a R3 million penalty by the Land Bank for failing to inform the bank that he had authorised the payment of R50 million in dividends to the poultry producer’s shareholder. The payments were made in May 2020 despite Daybreak having had a R250 million revolving credit facility with the development finance institution since October 2017.
Seruwe says this is incorrect. He says he was not personally fined and thought there was “oversight” in not informing the bank about the dividend payment, it should have been seen in a context where its early payments had reduced its loans from the bank from 400 million to R250 million over the past few years.
Daybreak told Moneyweb the penalty has since been paid to the Land Bank.
The investigation was launched by the board following various allegations of mismanagement and corruption levelled against Seruwe by whistleblowers as well as allegations of gross dishonesty where he is accused of circulating a report to the board which allegedly detailed damning findings against the company’s manager for legal and compliance.
The investigation team had been unable to retrieve some of Seruwe’s work emails as his laptop was stolen from the Daybreak walk-in safe in February.
The report notes that the matter was investigated by Mr Motatinyane, a Daybreak security specialist, who was unable to get to the bottom of the incident. The robbery was then reported to the police.
Seruwe says he handed in his laptop to the company.
Majola and More have been served with suspension letters and are currently going through disciplinary hearings, according to Daybreak Farms.
The other company executives named in the report are due to be served with notices “as time goes on”.
“All employees implicated in the report are entitled to a fair hearing [as] they are still AFGRI Poultry T\A Daybreak Farms employees until sanctions of their disciplinary hearings,” the company said in an emailed response.
This story previously stated that there were a number of suppliers including Willowton Logistics, who “should be reported to the authorities for participating in money laundering, racketeering and corruption and bribery”.
Willowton Logistics says it has not been approached by any investigators and is an accredited logistics company forming part of the larger Willowton Group.
It says it provided services to Daybreak Distribution JV in the normal course of business and the rates charged are all market-related. Consequently, it says there is no basis to link Willowton Logistics to any fraudulent or unlawful activity.